In 2010, ministers took office promising to rebalance the economy and deliver an export-led recovery. Indeed, the pledge of a “more balanced economy” featured prominently on a list of “clear and transparent benchmarks” for Britain in the Tories’ manifesto.
There is consensus on the need to diversify our economy and to achieve growth which is better balanced across all regions and sectors, but the government’s delivery of these objectives has been poor. Last year our trade deficit increased to nearly £58bn, up from £20bn in 2011, while a recent report by Ernst & Young found foreign investment in the English regions outside London has fallen to 24 per cent below 2010 levels. Emergent sectors like renewable energy have been hampered by arbitrary policy changes from government, undermining certainty; it’s hardly surprising that ministers have now all but abandoned the rhetoric of rebalancing.
As we look to grow our economy in an ever more competitive world, the type of growth and jobs it delivers are key. David Cameron is fond of talking about the global race, but we won’t win a global race to the bottom. Over the last three years we have seen the growing casualisation of work, with a spike in zero-hours contracts and part time workers who want full time employment. The government’s policies have greatly accelerated this, with attacks on the rights of people at work including doubling the qualification period for unfair dismissal and George Osborne’s ill-conceived “shares for rights” scheme. The Tories’ response to the downturn has made life more insecure at a time when living standards are being hugely squeezed.
This is not good enough—we must be ambitious about the growth and jobs being created. We need a rigorous focus on the productive sectors, which can provide the more secure, rewarding and highly skilled jobs of the future, and which foster a more balanced, resilient and globally competitive economy. We need a proper industrial strategy.
To deliver this vision, exports must play a crucial role as domestic demand remains subdued and businesses lack the confidence to invest. The growth of the global middle class—set to more than double in size to five billion over the next two decades—offers huge rewards if we can harness our own economy to meet this explosion in global demand.
While the British brand remains strong overseas, carrying a promise of quality, fair dealing and rigour, it is clear we are at risk of being outpaced by more aggressive rivals in the crucial emerging markets where we need to be doing better. For example, on recent trade missions that I’ve led to China and west Africa, I’ve seen first hand the opportunities for Britain as well as the areas in which we’re falling behind.
Nigeria is set to become one of the world’s largest economies by the end of the decade, but we export more to the Czech Republic (with less than a fifteenth of its population) than we do to Nigeria. In contrast, China was able to increase its exports to Nigeria by 800 per cent in the first decade of the century. I lost count of how many anecdotes I heard on the number of trade missions arriving each week in Nigeria and Ghana from our competitor nations, while delegations from Britain were less frequent in comparison.
But the dazzling scale of change in emerging economies offers huge potential for British firms in a wide range of sectors including, but not limited to, traditional areas of strength like professional services. In Lagos I visited Co-Creation Hub, Nigeria’s very own Tech City, which has entered into strategic partnerships with global technology giants. And in China I heard about the growing demand for British expertise in areas such as sustainability and design as these considerations come increasingly to the fore.
Meeting these challenges is made all the more difficult with Cameron leading us towards the exit door of the European Union, weakening our hand in the race to win crucial investment. The government has shown reluctance to implement Michael Heseltine’s proposals that economic powers should be devolved to cities and regions in order to foster local strengths and support growth. Furthermore ministers have failed to boost lending to business and refused to back our plans to use procurement to increase skills and provide opportunities for young people.
Fundamentally this reflects an ideological reluctance to pursue an industrial strategy with the rigour needed to produce private sector growth supported by an active government approach. Consequently, under this government we’ll only see more insecurity and falling living standards, making it harder for us to compete and taking us further away from the new economy we need.
More opinions in this month's Prospect:
The battle of Whitehall: Welfare reforms are at the centre of a deep rift between politicians and civil servants, explains Rachel Sylvester (£)
It's gone too far: The EU’s extreme version of the “precautionary principle” could cost us our health, argues BjørnLomborg (£)
