Wise men should look East for remedy for economic woes
'Abeconomics' – named after the Japanese PM – shows the G8 that there is a Keynesian alternative to unending austerity, suggests Robin Wilson
Published 14/06/2013 | 04:20
David Cameron likes to suggest that the UK has to "compete in the global race". And the chancellor, George Osborne, once spoke wistfully of sponsoring a "march of the makers".
Yet, as the Prime Minister chairs the G8 summit in Fermanagh next Monday and Tuesday, no one else around the table will be looking to the UK for leadership in addressing the challenges of the global economy.
The UK economy is still reeling from the 2008 crisis.
The initial response of the then Prime Minister, Gordon Brown, had been to argue for a co-ordinated international economic stimulus via the wider G20 forum.
This ameliorated the collapse in confidence when Wall Street titans like Lehman Brothers went to the wall, but the change of government in 2010 saw the orthodox 'Treasury view' resurgent.
This is steeped in the UK's insular attitudes to European co-operation and effective macro- economic management in the public interest.
It is a hands-off approach, which simply assumes that, left to themselves, markets will always find the best equilibrium – the very economic outlook which the increasingly volatile gyrations of the financial markets in recent times discredited.
As a result, the UK economy has flatlined for the past three years. The Financial Times commentator Martin Wolf pointed out this week that gross domestic product (economic output) was running at 16% below its pre-crisis trend.
The great British economist John Maynard Keynes recognised that the desire of those with assets to keep them as accessible as possible would militate against long-term investment commitments.
Last month, an embarrassing report by the House of Commons Library showed that the UK had the lowest rate of investment in the G8, as a proportion of GDP, and that, last year, only Italy saw a more rapid investment decline.
As ever, it is the UK's peripheral regions and small nations which are suffering most.
Unemployment in Northern Ireland is nearly double its rate before the crisis.
Beyond that, there is a vast swathe of people anxious for their job security, or struggling to keep their heads above water.
Nearly half of all households in the region are in fuel poverty.
Mr Osborne says that the answer to a debt crisis cannot be more debt.
Yet the perverse effect of his austerity has been a continuing growth of the ratio of debt to UK GDP, which topped 90% last year.
Wolf also highlighted how, at the end of the Second World War, the UK debt/GDP ratio was 200%.
But, over the subsequent decades, a mixture of sustained growth and mild inflation, rather than unending austerity, reduced it to 50% by the early 1970s. Contrary to today's Government rhetoric that the unemployed are 'skivers' responsible for their own fate, Keynes also recognised how, in a capitalist economy, involuntary unemployment would arise if government did not sustain effective demand.
As he famously put it: "Look after unemployment and the Budget will look after itself."
When the unemployed are put back to work, they pay taxes and are no longer in receipt of welfare spending.
And that is what two of the really big players at the G8 table – Japan and, to a lesser extent, the US – have been doing.
What has been called "Abeconomics" in Japan, after the prime minister, Shinzo Abe, has been a classical Keynesian stimulus to spark the Japanese economy – long in the doldrums of deflation and depressed demand – back into life.
Unemployment in the US, on a clear downward trend, has dipped below the UK rate of 7.7%, while in Japan it is 4.1%.
Now, it is quite true that unregulated growth would just mean further unsustainable growth.
So economic stimulus should be co-ordinated across Europe and focused on a restructuring in favour of the 'green economy', where another G8 giant, Germany, with its much more structured approach to economic management, is so far streets ahead of the UK.
Germany, however, is proving the main stumbling-block to the 'Euro-Keynesianism' which would offer a route out of the crisis.
While the competitiveness of its firms has ensured strong export success, it does not appreciate how, by definition, not every country can have such a balance-of-payments surplus.
And, even though two deflationary budgets led to the rise of Hitler, there is still a folk memory that the villain was Weimar inflation and so an irrational fear of stimulating demand.
Northern Ireland's own political leaders have had nothing to say about how to get the European economy moving again.
While jaunting off to Brazil and on to China (with no mention of human rights in that one-party state), they have failed to challenge effectively the austerity measures being implemented by the chancellor – although they could have found allies in Scotland, Wales and the north of England in so doing.
Indeed, were they to get their way and have corporation tax reduced to 12.5%, the reciprocal determination by the Treasury to slash the Northern Ireland block grant by hundreds of millions of pounds a year, compensating for the tax loss, would impose the most severe deflationary shock imaginable on the regional economy.