The recent announcement that the UK economy has grown by 0.8% and has now reached its pre-recession level of output has been greeted with wild enthusiasm by the government and its supporters in the media. But this achievement, welcome though it is, simply confirms the incompetence of Westminster governments. Remember it was Labour under the dismal leadership of Gordon Brown and Alistair Darling which got us into this financial and economic mess in the first place. A crisis which George Osborne and Danny Alexander have mysteriously contrived to make even worse. Hailing 0.8% growth and six wasted years of lost output as some kind of economic master plan is to indulge in the Alice in Wonderland school of economics.
A brief look at the figures shows how poor this so-called achievement really is. First of all, this recovery is two years later than the Chancellor had originally expected. So on this measure this recovery is a failure. A failure by a whopping two years! Secondly, in previous recessions the economy did manage to recover after only two, three or four years. This is the longest period for a recovery since records began. Yet another Westminster failure! Thirdly most of the other large economies managed to come out of this recession earlier than the UK. Only Italy of our major competitors is still lagging behind. Coming second last is not much of a success. Sounds more like another failure to me.
The headline figure that the UK economy is finally back to where it was in 2008 is also very misleading. After all the population of the UK has grown substantially in this period. So, while overall GDP is slightly up on what it was when the recession hit, GDP per capita is not. GDP per capita is still in fact lower than its pre-recession peak. All this population growth has not translated into better economic performance. Another failure?
The per-capita measure of economic output and growth is of course the crucial one for understanding why even this watered down recovery has not meant much for living standards for most of the workforce. In short productivity growth in the UK is conspicuous by its absence. This has been another of the mysteries of this particular long running recession. Employment has recovered and more and more people of working age are gaining employment. But without a corresponding growth in productivity, there is no scope for a boost in earnings. Producing the same level of output with more people can only result in a decline in real wages. During the recession this can be a, relatively, good thing. The costs of the recession are more widely spread. However if this lack of productivity growth continues post-recession, we are in deep trouble. The average UK citizen will be 15-20% poorer forever. And this seems to be the case. Even the Office for Budget Responsibility, which is much lauded by the No campaign, is forecasting this permanent drop in living standards. For a fuller analysis of this problem of lost productivity growth, see this article by Simon Wren-Lewis on his blog, mainly macro. He sums up the issue thus;- “The absence of labour productivity growth is good in the short term, but is potentially disastrous in the long term. The problem is that the absence of growth in labour productivity since the recession is unprecedented: nothing like this has happened in living memory. The reason to be concerned is that the rapid growth in productivity required to catch up the ground already lost is also unprecedented for the UK, which is why most economists assume it will not happen. Which brings me to another puzzle.”
The other puzzle to which Wren-Lewis refers is the apparent lack of interest by the UK government in trying to find out why there has been such a long term absence of productivity growth in the economy. If the UK government has no idea of what has caused this absence, it equally has no idea of how to remedy it. The most disturbing aspect to all this is that it would appear that the UK government has no real interest in the long term prosperity of the UK economy. It is not as if Labour has any alternative vision. Low wages and insecurity for working people while at the same time allow the super rich to get even richer. This is the future that awaits us if we vote to stay in the UK. The UK is not OK and only a Yes vote in September will allow us in Scotland to work towards an alternative – a People’s Scotland.