Even Worse Than Osborne Admits

Michael Meacher writes:

Osborne’s portrayal of the British economy as having “the fastest rate of recovery of any advanced nation in the world”, which he again repeated yesterday, is sheer poppycock.

He continues to boast that GDP growth can be expected to average some 2.5% per annum over the period ahead, but on every key economic indicator that is wildly optimistic, not least when the latest quarterly growth figure was just 0.3%.

There are several good reasons to believe Osborne is blowing into the wind.

Since growth depends on investment, it is troubling that private investors, who clearly don’t believe Osborne’s claims about sustainable growth, are effectively on strike.

UK Investment at only 14% of GDP is now one of the lowest in the world, and if depreciation is netted off (as it needs to be), we are down to about 2.5%, which is not even enough to keep up with the rising population.

This means our capital stock in light industry, a vital sector for growth, is actually decreasing. That of course also explains why productivity has been flat for the last 5 years.

Second, Thatcher’s de-industrialisation means we no longer produce enough to pay for our imports. Manufacturing amounted to 40% of our economy in 1948, and even by 1970 it was almost a third.

It is now hardly 10%, which is a disaster when productivity increases are much more easily achieved in manufacturing than in services, high-quality jobs are much better spread by manufacturing than services, and Britain’s very serious weakness in manufacturing is now producing a huge visible trade deficit of £120bn a year, far more than the £86bn surplus on services.

Third, the balance of payments is deteriorating alarmingly, not only because of this trade deficit, but because another component of the overall foreign payments deficit is getting stubbornly worse.

Instead of a large surplus of £20bn a year on net income from abroad, it is now a £40bn a year deficit because of the loss of profit, dividend and income resulting from the huge sale of UK assets sold off to finance our previous balance of payments deficits.

Fourth, as a result of these chronic foreign payments deficits, the UK is getting deeper and deeper into debt. Financing this deficit has to be paid for by both selling assets and borrowing from abroad. 

The strain has had to be taken on the government deficit, which was why at £95bn last year it was almost the same as the balance of payments deficit.

That exposes two key facts – Osborne’s hypocrisy in claiming that the only way to cut the budget deficit is to cut public spending rather than tackling the real cause, the ever-widening balance of payments deficit; and that the budget deficit can be eliminated by 2018-9 which is sheer fantasy.

Fifth, such meagre increases in growth as we have had have been generated, not by productive growth in the economy, but by massive increases in the money supply which has led inevitably to asset inflation, thus once again profiting the rich and exacerbating inequality still further.