Victor Anderson says we need to think again about growth following the disastrous Truss experiment
Liz Truss lasted only seven weeks as Prime Minister. Such a short period can be easily forgotten, and in fact the Tory Party and its newspapers want you to forget it. The Mail’s front page headline, ‘At Last! A True Tory Budget’ has now disappeared into what George Orwell called a “memory hole”.
However, this short period is worth examining, particularly for what it can tell us about the politics of economic growth and the economics of “the free market”. The problems of the short Liz Truss ‘era’ start from the claim that growth and the free market necessarily go together, along with deregulation and low taxation.
The principal ideological basis for the Truss administration was belief in the market. However, right away there was a paradox: the market gave its verdict. The pound fell, shares fell, interest rates demanded by people lending to the UK Government rose, mortgage rates rose, pension fund values fell. If you were ideologically committed to the wisdom of the market, surely you would have concluded that something was wrong with your policies?
A second fundamental problem comes from the conflicting claims that the market gives people what they want, and also that it produces economic growth. However, people, in the roles of both consumer and worker, are constantly weighing up the value to them of more work and pay (which count towards gross domestic product and its growth) and the value of time to do other things, such as leisure and family life. In an ideal market, each person would strike the balance at the right point for them. Crucially, they wouldn’t all strike it at maximum work, and maximum contribution to GDP, with minimum rest, leisure, and domestic life. Going all out for economic growth is not respecting the actual preferences of people in the market, which are revealed both in what people actually do and through responses given in surveys.
Increasingly, advocates of market economics are being highly selective about which market signals they pay attention to and which they ignore. For example, market theory implies that we should all have ownership rights in the atmosphere and anyone who pollutes it or causes carbon emissions should be paying us all compensation. But that is nowhere near the agenda of the market think-tanks, which tend these days to be funded by oil companies, seeking to continue to use the atmosphere for free, and by tobacco companies. The prime UK free market think-tank, the Institute of Economic Affairs (IEA), has published work on the important concept of “regulatory capture”, whereby regulators get taken over or unduly influenced by the companies they are supposed to be regulating – which perhaps provides some explanation of the pathetic records of Ofgem and Ofwat. However, what we see now additionally is “deregulatory capture”, whereby the lobbyists arguing selectively against regulations, such as the IEA, have been taken over and funded by corporations with vested interests in seeing those regulations abandoned.
If you really did want a programme to boost economic growth, you would go about it in almost the opposite way to the Truss administration and its ill-fated budget. Rather than lowering taxes, you would put taxes up, to pay for major real-terms increases in spending on health and education. Hundreds of thousands of people are said to have “gone missing” from the labour force because of ill-health, mostly caused either directly by Covid or by the long hospital waiting lists resulting from it. According to the Office for National Statistics, three times as many people are now out of the labour market due to long-term sickness compared to at the start of the pandemic. The most obvious way to increase the labour force is to fix those people’s health. Similarly, the economy is dependent on people being educated, not only at the start of their lives, but right through, as circumstances and technologies change. Yet adult education has been drastically cut back, with 38% less (in real terms) spent on adult education and apprenticeships from 2010-11 to 2020-21. There would also be Government investment in protecting transport and other infrastructure from the effects of climate change, as in President Biden’s recent budget measures, and in research and development for future-oriented green technologies, as advocated by Rachel Reeves in her speech at Labour Party Conference, as well as a policy of rejoining the EU Single Market. All of this is miles away from the Truss agenda, but it’s a far more realistic one for achieving the aim of boosting and maintaining economic growth.
Liz Truss told the Conservative Party Conference that her priority is “growth, growth and growth”, and that was very soon after Keir Starmer had already declared in a speech that the top priorities for his government will be “growth, growth and growth”. However, this turns out to be neither the priority of the British people nor what the planet most needs.
A recent survey in The Economist asked about people’s attitudes to economic growth. More agreed than disagreed with the statement that the UK should “protect the environment, even if it harms economic growth”, and the statement “politicians focus too much on growth over other issues”. People appear to, on balance, like economic growth, but are not prepared to sacrifice much in order to achieve it. Many find it a politician’s abstraction that means nothing to them.
People’s preferences, therefore, tell a different story from the ‘official’ bipartisan prioritisation of growth. This chimes with increasing worries amongst natural scientists, especially those concerned with the environment, i.e. the conditions for human life to exist and flourish on this planet. The debate about growth (and recently ‘degrowth’) continues to rumble on.
Two things about that debate are striking. One is how little impact decades of raising serious problems about growth has made on mainstream politicians’, economists’ and media discussion about the Truss/Kwarteng budget. It is as though two parallel societies are engaged in these issues: one debate is conducted by those presented as our ‘leaders’, fixated on economic growth; and a completely separate one is conducted by ecologists, climatologists, systems modellers and environmental protesters.
The other striking feature of the argument about growth is how polarised and unresolved it remains, despite it being pretty clear that GDP is a poor measure of both economic welfare and environmental impact. GDP has its uses as a measure of the money circulating in the economy, but its growth can take an economy in many different directions, including both catastrophe and prosperity, depending on which components and sectors of the economy are actually growing and which are shrinking.
However, despite that general abstract fact about the GDP statistics, it has to be admitted that the current version of growth is, in the words of the UN Secretary-General António Guterres at the recent COP27, “a highway to hell with our foot still on the accelerator”.
Fundamentally, mainstream political debate has ignored the past 50 years of warnings from scientists and associated recommendations from policy wonks. At this late stage, we can’t keep telling the story that it is “five minutes to midnight” and we can avoid disaster if only we adopt the right policies. There is a price to be paid – already starting to be paid – for ignoring those warnings and policy proposals. Because of the time lags involved, climate disaster is already ‘baked in’. We are now at “five minutes past midnight”, and the task is to prevent things from getting worse than they would otherwise be. And that work will take us a long way from the ideology of the Truss experiment.