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National recovery? Don't believe the hype National recovery? Don't believe the hype
(10 days later)
Economic policy is about framing the world and labelling events as much as it is about intervening in the economy by pulling policy levers. In the UK we have reached a point where we need to change the frame that leads us to regard "recovery" as little more than GDP growth.Economic policy is about framing the world and labelling events as much as it is about intervening in the economy by pulling policy levers. In the UK we have reached a point where we need to change the frame that leads us to regard "recovery" as little more than GDP growth.
The story so far is that the Treasury has handed active policymaking to the Bank of England, which runs ultra loose monetary policy through quantitative easing and promotes a particular definition of economic recovery. This is implicit in Mark Carney's guidance that interest rates "won't be raised until jobs and income are really growing".The story so far is that the Treasury has handed active policymaking to the Bank of England, which runs ultra loose monetary policy through quantitative easing and promotes a particular definition of economic recovery. This is implicit in Mark Carney's guidance that interest rates "won't be raised until jobs and income are really growing".
This kind of officially defined recovery is already being delivered, according to the headline indicators. By the beginning of 2013 the government was (optimistically) claiming 500,000 new jobs had been created, while GDP did grow by 0.7% in the last quarter of 2013 and various indexes of purchasing and business confidence suggest more to come.This kind of officially defined recovery is already being delivered, according to the headline indicators. By the beginning of 2013 the government was (optimistically) claiming 500,000 new jobs had been created, while GDP did grow by 0.7% in the last quarter of 2013 and various indexes of purchasing and business confidence suggest more to come.
Economic policymakers are relieved because the economy (at long last) appears to be responding to management after a period when fiscal austerity and non-standard monetary policies left us bumping along the bottom. Conservative backbenchers are cheered because positive vibes about recovery could win them the next election. But as the Guardian has pointed out, figures on inflation, the unemployment rate, total investment and wages tell a more complicated story.Economic policymakers are relieved because the economy (at long last) appears to be responding to management after a period when fiscal austerity and non-standard monetary policies left us bumping along the bottom. Conservative backbenchers are cheered because positive vibes about recovery could win them the next election. But as the Guardian has pointed out, figures on inflation, the unemployment rate, total investment and wages tell a more complicated story.
Politicians might have reasons to be cheerful because there is a recovery in the south-east, and more especially in London. The caution is that an 8% increase in London house prices over the past year could easily turn into an unsustainable burst of growth driven by a reinflating property bubble. Worse still, this upturn offers very little for anybody in the north and west.Politicians might have reasons to be cheerful because there is a recovery in the south-east, and more especially in London. The caution is that an 8% increase in London house prices over the past year could easily turn into an unsustainable burst of growth driven by a reinflating property bubble. Worse still, this upturn offers very little for anybody in the north and west.
The quarterly GDP growth figures give national aggregates without regional breakdowns. But growth has historically been distributed unevenly, with the lion's share of nominal GDP growth captured by London. Between 1997 and 2006, for example, London and the south-east claimed 37% of GDP growth, whereas disadvantaged regions such as Wales and the north-east claimed no more than 3.3% and 2.9% respectively.The quarterly GDP growth figures give national aggregates without regional breakdowns. But growth has historically been distributed unevenly, with the lion's share of nominal GDP growth captured by London. Between 1997 and 2006, for example, London and the south-east claimed 37% of GDP growth, whereas disadvantaged regions such as Wales and the north-east claimed no more than 3.3% and 2.9% respectively.
As public expenditure cuts are disproportionately hitting employment in the north and west, we would now expect the peripheral regions to be doing relatively worse. So a "recovery" with aggregate growth of 1%-2% of GDP will include no growth or contraction of output in a region such as the north-east while London grows strongly.As public expenditure cuts are disproportionately hitting employment in the north and west, we would now expect the peripheral regions to be doing relatively worse. So a "recovery" with aggregate growth of 1%-2% of GDP will include no growth or contraction of output in a region such as the north-east while London grows strongly.
The apparent growth of private employment in the north and west is no compensation. Why? Because increases in the volume of employment and declines in the rate of unemployment are increasingly meaningless indicators in a flexibilised economy. Jobs ain't what they used to be in an earlier age, when full-time positions distributed welfare through wages and created independence.The apparent growth of private employment in the north and west is no compensation. Why? Because increases in the volume of employment and declines in the rate of unemployment are increasingly meaningless indicators in a flexibilised economy. Jobs ain't what they used to be in an earlier age, when full-time positions distributed welfare through wages and created independence.
Some 60% of the jobs created since the onset of recession are in low-wage sectors such as retail and hospitality, which require state subsidy through housing benefit and such like; and nearly one-third are part-time. Subdivision and sweating is effortlessly creating more low wage jobs with zero hours.Some 60% of the jobs created since the onset of recession are in low-wage sectors such as retail and hospitality, which require state subsidy through housing benefit and such like; and nearly one-third are part-time. Subdivision and sweating is effortlessly creating more low wage jobs with zero hours.
So it is time to shift from measuring the stock of jobs to mapping the flow of workers between jobs of different quality. This could change the employment portfolio. And that portfolio is almost certainly deteriorating as low quality private jobs replace decent public jobs.So it is time to shift from measuring the stock of jobs to mapping the flow of workers between jobs of different quality. This could change the employment portfolio. And that portfolio is almost certainly deteriorating as low quality private jobs replace decent public jobs.
Looked at like this, the so-called recovery turns out to be no more than another boost for London and more of the same for the regions, which are falling further behind in an increasingly unbalanced economy. That's very different from the investment and export-led recovery promised in Office of Budget Responsibility forecasts and the chancellor's March 2011 budget speech which talked of a "march of the makers". The revival of manufacturing hasn't happened. Sectoral output is at last increasing but, despite a 25% depreciation in sterling, manufacturing output is still nearly 10% below the 2008 level.Looked at like this, the so-called recovery turns out to be no more than another boost for London and more of the same for the regions, which are falling further behind in an increasingly unbalanced economy. That's very different from the investment and export-led recovery promised in Office of Budget Responsibility forecasts and the chancellor's March 2011 budget speech which talked of a "march of the makers". The revival of manufacturing hasn't happened. Sectoral output is at last increasing but, despite a 25% depreciation in sterling, manufacturing output is still nearly 10% below the 2008 level.
The chancellor and mainstream economists never engaged with rebuilding supply chains in a sector like cars, where imported components account for nearly 40 % of the value of output.The chancellor and mainstream economists never engaged with rebuilding supply chains in a sector like cars, where imported components account for nearly 40 % of the value of output.
Manufacturing was and is a source of decent jobs and valuable exports, but there are limits to how much more British manufacturing can deliver. Given labour productivity growth, manufacturing output has to grow faster than 3% in the long run just to stabilise manufacturing employment. There has been no sustained increase in the value of manufacturing output since the 1970s.Manufacturing was and is a source of decent jobs and valuable exports, but there are limits to how much more British manufacturing can deliver. Given labour productivity growth, manufacturing output has to grow faster than 3% in the long run just to stabilise manufacturing employment. There has been no sustained increase in the value of manufacturing output since the 1970s.
So isn't it time to get real about where we are nationally and what can be done about the unbalanced economy? Isn't it time to stop hoping for export-led recovery that will never come and to stop hyping London's continued good fortune as a national recovery? Why not stop using the word recovery altogether – we are not, in fact, trying to return to some kind of normal. And why not recognise that rebalancing cannot be delivered by orthodox economic policy tools?So isn't it time to get real about where we are nationally and what can be done about the unbalanced economy? Isn't it time to stop hoping for export-led recovery that will never come and to stop hyping London's continued good fortune as a national recovery? Why not stop using the word recovery altogether – we are not, in fact, trying to return to some kind of normal. And why not recognise that rebalancing cannot be delivered by orthodox economic policy tools?
In any case, the north-east, the West Midlands and Wales need renewal, not recovery. This will come not through adding new sectors but building on what's left in the sheltered foundational economy of activities such as supermarkets, utilities, schools and hospitals that are distributed according to population.In any case, the north-east, the West Midlands and Wales need renewal, not recovery. This will come not through adding new sectors but building on what's left in the sheltered foundational economy of activities such as supermarkets, utilities, schools and hospitals that are distributed according to population.
Firms such as supermarket chains take our money and we need to ask them: what have you done for us lately? Then we need local and regional initiatives (backed by central government) to build supply chains, develop firm capability and deliver decent jobs. With this revolution in thinking we could begin to engage the problem of regional decline. At the moment, mainstream thinking keeps it hidden and standard policies do little to address it. The rhetoric of "recovery" is part of the problem.Firms such as supermarket chains take our money and we need to ask them: what have you done for us lately? Then we need local and regional initiatives (backed by central government) to build supply chains, develop firm capability and deliver decent jobs. With this revolution in thinking we could begin to engage the problem of regional decline. At the moment, mainstream thinking keeps it hidden and standard policies do little to address it. The rhetoric of "recovery" is part of the problem.
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