70 years old and the UK is still searching for an economic miracle cure by mistake Larry Elliott
IIn her 70 years on the throne, the Queen has served 14 Prime Ministers and 22 Treasurers. She saw the country getting richer and healthier despite five major recessions. In 1952, industrialization took control of the economy and was supported by coal. Seven decades later, all pits have been closed and Britain has become essentially a service sector economy.
The past fifteen years have been the most difficult of the Queen’s reign. Two deep recessions marked the end of a period of very weak growth and stable living standards. Inflation is at its highest level in four decades, and the immediate prospects for the economy are poor.
However, much has changed for the better since 1952. People are living longer, working fewer hours, traveling more widely and enjoying the benefits of 70 years of technological advancement in everything from improved medical treatment to cell phones. Only the wealthy had televisions, washing machines, and refrigerators in the early 1950s.
The only thing that has not changed is the search for the magic ingredient to make the economy more dynamic or – to be more precise – to return the clock to its former glory under another long-reigning queen, Queen Victoria.
There was a lot of experiences. When Queen Elizabeth II ascended the throne in early 1952, the post-war Labor government had just lost power and was replaced by the Conservatives led by Sir Winston Churchill. However, there was no major backsliding in the Labor nationalization programme, and it was so difficult to distinguish the economic policies of the new chancellor (Rab Butler) from those of the old chancellor (Hugh Gateskell) that the centrist approach became known as Butskellism.
In many respects, the 1950s was a good decade in which the queues of benefits of the 1930s were replaced by full employment, relatively low inflation, and increased consumer purchasing power. The problem was that if Britain was doing well, other countries were doing better – and in some cases much better. By the end of the 1950s, there were envious glances being cast across the Channel at much higher growth rates in West Germany, France, and the Netherlands.
Thus, the search for the miracle cure began. The 1960s saw French-style indicative planning and a national plan come and go. By the early 1970s, accession (what was then) to the European Economic Community was hoped to do the job. By the end of that decade, Margaret Thatcher’s response to Britain’s economic malaise was a dose of monetary shock therapy: controlling the money supply and controlling public spending to reduce inflation.
Then the United Kingdom joined the European Exchange Rate Mechanism in 1990 to leave it two years later, Tony Blair gave the Bank of England freedom to set interest rates in 1997, and David Cameron said austerity was necessary to repair the damage caused by the 2007-08 financial crisis. The Brexit and Boris Johnson settlement agenda is simply the latest in a long line of supposedly comprehensive cures.
From this mixture of initiatives, some tentative conclusions can be drawn. The pivotal period for the economy of the past 70 years was the long 1970s, which began in 1969 with the repeal of the Harold Wilson conflict-place legislation to reduce the power of labor unions and ended with the defeat of the miners in 1985. It was only that the power of organized labor was shattered; It was that finance replaced industrialization as the driving force of the economy.
Few of the advisors since 1952 have really changed the economic narrative so much, and even then they have not always changed it in a beneficial way. Some – like Dennis Healy and Alistair Darling – have had no time for more than crisis management. And there were plenty of crises to deal with: the American threat to pull the plug on sterling on Suez in 1956; 1967 devaluation; The arrival of the International Monetary Fund in 1976; Black Wednesday the impending collapse of banks in 2008; global epidemic in the past two years.
The most successful advisors were lucky to get the job as the economy was recovering. This was true of Nigel Lawson, who replaced Sir Geoffrey Howe after Thatcher’s turbulent first term in office, and Ken Clark, who followed Norman Lamont after becoming the down-man on Black Wednesday. The next decade and a half was the longest continuous growth period since the Industrial Revolution.
Britain tends to move quickly from feeling nationalistic grief to an early belief that the country has finally “cracked it”. The years leading up to the financial crisis were one example of this, when there was a failure to rein in the speculation rampant in the city and the real estate market. Another event was the late 1980s, when a strong recovery from the recession earlier in the decade was allowed to balloon out of control.
Getting the big picture right — setting interest rates at the right level and getting a competitive pound — is obviously important, but so is getting the little things right. Over the years, little attention has been paid to the supply side of economics, in part because long periods of labor policies do not match the requirements of the electoral cycle to produce immediate results.
The message from the other – the most successful – economies is clear and has been clear for the past 70 years. He identified the structural weaknesses of the economy, which in the case of Britain include over-investment in domestic real estate and underinvestment in almost everything else. Establish the right policies to address problems. Then stay in the course.