Every government, we’re being told, has aimed for growth. There’s an argument to say that more should have done that, but on the whole it’s not true. Since the ill-conceived ‘rush to growth’; in 1972-3, there have been other priorities: primarily inflation, public sector spending, austerity and the purging of the British economy that was central to the Thatcher project.
The policies of the current Labour goverment offer a mix of approaches. First, there is the faith-based economic dogma that fuelled the Barber boom in the early 1970s and later the Truss interlude, more of a whimper than a bang: the belief that tax cuts and liberalisation will create new opportunities that businesses and entrepreneurs will rush to fill. This is what passes for ‘supply side’ economics nowadays. It has never worked, and there is no evidence to support it.
Second, there is the ‘neo-endogenous growth theory’ that inspired the Blair government. The central premise here is that growth depends on micro-economics, and the performance of specific sectors of the economy. This led to a focus on productivity, and that continues to be one of the main ideas informing the government’s strategy. Growth during that period was stronger than it is now, but still less than our major competitors.
Third, and perhaps most interesting, is the return to Keynesian economics. The Wilson goverment of the 1960s tried to do this through planning and construction – some may remember the Department of Economic Affairs, the National Economic Development Council (Neddy), housebuilding and a range of big infrastructure projects. Keynes wrote:
“Pyramid building, earthquakes, even wars may serve to increase wealth … It is curious how common sense … has been apt to reach a preference for wholly wasteful forms of expenditure rather than for partly wasteful forms … For example, unemployment relief … is more readily accepted than the financing of improvements … while the form of digging holes in the ground known as gold-mining, which not only adds nothing to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well tried principles of laissez faire to dig the notes up again … there need be no more unemployment, and, with the help of the repercussions, the real income of the community, and its capital wealth also, would become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
This is a justification, of a sort, for HS2 or expanding Heathrow; they’re up there with pyramids, earthquakes and dropping money down mineshafts. But perhaps the money and effort could be better used. One of the key arguments about public spending depends on the effect of the ‘multiplier’ – the economic repercussions that stem from an initial stimulus. In principle, there should be different multipliers associated with different forms of spending – putting money into roads in the South-East cannot be expected to have just the same economic implications as building rail links in northern England. It should be possible to anticipate what the different effects are likely to be. I’ve hunted high and low, but haven’t yet found what the evidence on the different multipliers might be.