By the end of 2013 we had no more than reached the point where GDP was 0.6% above its 2010 level and 3% below the 2008 peak. The trade deficit widened to £3.6bn in November from £2.5bn in October, despite modest growth in export markets outside Europe. So we must be losing market share. This is the slowest recovery in 100 years, the longest downturn in the same period and the deepest – in output terms if not employment – since the war.
But if it’s jobs that matter, things are much better – with employment only 0.4% below the 2008 peak. And – let’s really look on the bright side now – if we leave out the troublesome banking sector and the busted flush North Sea oil boom, we’re not 3% below the 2008 high point, but just 1% under. This is a bit like saying Arsenal’s squad is as good as the Invincibles vintage, so long as you ignore the lack of a central defence and top notch striker. On the other hand – isn’t this just the re-balancing we need, away from a mix of resource extraction and casino speculation and towards … err, an economic future yet to be defined.
The trouble is that these two sectors were providing a third of tax revenues in the boom years. Once they got into trouble – cue austerity and public sector wage freezes. And with no productivity growth, there are no wage increases in the private sector either. So living standards are squeezed as inflation erodes the real value of take home pay. Plus there’s all that boom time debt to be repaid. Hence household spending is the lowest in 14 years and unlikely to recover until 2016/17 at the earliest. That’s nearly a lost two decades, never mind one.
So the conundrum is that we have no growth but employment holds up. There are, I suggest, two ways of looking at this.
Scenario 1 – living standards fall as inflation can’t be held down in a resource constrained world; there’s no growth to absorb the lump of un-and-underemployment that existed even in the boom times; plus there’s a sense of mass psychological ennui that comes from a modern fixation with the idea that things should always be getting better, in material ways. This is “Bad News”. We need to get rid of the zombie companies and have some good old fashioned unemployment to get the creative entrepreneurial juices going again.
Scenario 2 – living standards fall as inflation can’t be held down in a resource constrained world; but then spending patterns adjust. Painful, but eventually “Good News”. A new ‘slow world’ emerges, with the slow return of slow growth, facilitated by import substitution and the re-localising of production.
Evidence for the latter? Perhaps forking out £65.70 a week on transport including £25 on fuel – as the average family does – begins to seem like an extravagance. Hence spending on new cars is down by one third since 5 years ago. In Greece there has been a huge increase in cycling since the crisis whilst in Italy the sale of bikes has out-paced that of cars for the first time in 40 years. Perhaps these are short-term sacrifices to be reversed in time – but they are exactly the signs we would expect to see in the shift to a sow economy.