Britain's basic economic problem is its lack of competitive productive capacity, not its deficit.
It is surely now clear that the economic policies on which George Osborne has pinned his faith have failed. Despite the acclaim with which even the slightest piece of good news is greeted, Britain's output is still lagging substantially below what was achieved in 2008, notwithstanding an increase in population in the meantime. There is now, quite discernibly, a flagging confidence in the infallible and self-correcting market, in the rationale that tries to justify huge rewards for a tiny minority, in the trustworthiness of bankers, and even in austerity as the correct response to recession.
Yet - astonishingly - the advice tendered to the Labour opposition, and on which they seem determined to act, is that the voters will not support any departure from that failed orthodoxy. As a result, Labour leaders seem to find it necessary to establish their economic credentials by emphasising their own commitment to cuts and austerity, thereby passing up any opportunity to show that common sense, experience and sound economic theory all demonstrate that there are much better options.
It is almost as though the Labour leadership are so constrained by three decades of neoliberal economics that they cannot conceive of an economic policy that does not have at its heart the supposed need to r educe the government deficit and to cut spending. [End Page 148]
An economic policy that looks instead at quite different issues, and uses quite different language to do so, seems quite beyond their comprehension and comfort zone. They have no interest or confidence in an economic policy that deals with the deficit but in effect does so in passing - focusing instead on the more important issue of how to achieve a more efficient and productive economy, which alone will resolve, not just the deficit but the economy's more deep-seated problems.
Such a policy obviously looks and sounds very unfamiliar to them, though in truth it is in no sense revolutionary or untried. It sounds unfamiliar because it does not use the language of crisis, spending cuts and austerity - the perennial touchstones of a supposedly responsible policy. Instead it offers solutions to the real problems - Britain's fundamental lack of competitiveness; the lack of understanding of the importance and value of credit creation for productive purposes; the neglect of manufacturing's role as the stimulus to greater productivity; and the failure to hold government accountable while bankers are allowed to decide our economic priorities.
The competitiveness of British industry, or lack of it, has been the great taboo of economic policy for decades. It is almost totally ignored and virtually never discussed. Though various indices of competitiveness are maintained, they are never referred to and are apparently regarded as irrelevant to any consideration of the course to be taken by economic decision-making. Yet when Alastair Darling published his 300-page account of his term as Chancellor of the Exchequer, there was not a single reference to competitiveness as an issue, or to the exchange rate, which is crucial to price competitiveness.1 However, a moment's thought should tell us that, in a post-war world that has seen the rapid industrialisation of new economic powers, including the remarkably rapid rise of the world's second largest economy, it would be extraordinary if the UK could simply assume that its place in the competitiveness stakes would remain unchanged without any care or attention being paid to it by its policy-makers.
It is of course not quite true that price competitiveness has not been the subject of intervention: the UK position on the exchange rate for sterling has always been that any depreciation should be resisted. This has been a cardinal - but unstated - feature of British economic policy for so long, and has marked so many of the critical moments in its recent economic history, that we hardly notice it. Thus in 1976 Denis Healey chose monetarist orthodoxy and the defence of sterling, rather [End Page 149] than growth-based policies, as the key features of his chancellorship; and prime...