By John Knox
It’s becoming clearer by the day that Britain – and maybe the world – is going to have to get used to a lower rate of economic growth. We are not going to get richer as quickly as we thought. And this is going to have a big impact on our way of life. But at least it will help the planet last a little longer.
The Orwellian Office for Budget Responsibility has already revised its growth forecast down from 2.1 per cent to 1.7 per cent for 2011. The International Monetary Fund (IMF) now tells us this is more likely to be 1.5 per cent. Even this will be surprising since we are currently bumping along at about 1 per cent. It makes the chancellor’s forecast for next year, 2.5 per cent, look distinctly “ambitious”, not to say crazy.
George Osborne has been boasting that his careful stewardship of the economy – and the success of the private sector – has so far produced 400,000 jobs. What he didn’t say was that most of them are part-time and that’s the same number as are predicted to go under his public sector cuts. So no wonder unemployment is sticking solidly to its 8 per cent level. We are in for another jobless recovery, like the one in the early 1990s and the early 2000s, and like the Great Depression itself – until Roosevelt and the second world war came along.
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The pay freeze and inflation at 4.5 per cent has meant that real living standards have been falling. We are all paying the price of the bankers' crash, a 6 per cent drop in our national income. And it seems there is more to come, with food prices increasing at nearly 5 per cent and energy prices by more than 10 per cent (or 19 per cent in the case of Scottish Power’s gas supplies). This is all a big change from the days when gross domestic product (GDP) was doubling every 35 years on a growth rate of 2 per cent or more. Over the last 30 years, Scotland has not quite kept up with the increasing wealth of the UK, but it has had a growth rate of 1.8 per cent. What is clear now is that we have to get used to low growth – perhaps around 1 per cent a year or maybe, if we’re lucky, 1.5 per cent. The same is true of the world economy. The long-term trend of US growth is falling from around 3 per cent towards 2 per cent. Last year it was 2.8 per cent. Generally, the more mature an economy, the lower its growth rate. So while India and China grew at 10 per cent last year, that figure can be expected to come down as their economies expand. A glance at the league table of growth produced by the IMF is quite instructive. The fastest-growing economy last year was Qatar, at 16.2 per cent, because of its exports of liquefied natural gas and petrochemicals. But it’s not exactly a mature economy and I can’t imagine why anyone would want to hold a car rally there or a football tournament. By contrast, Norway – another oil-rich country, but a mature economy this time – grew by just 0.4 per cent last year. And, as Alex Salmond points out, it’s a very pleasant place in which to live. There are some unusual cases in the middle of the table which have to be explained by local factors. Germany grew at 3.5 per cent while France grew at just 1.8 per cent, reflecting German workers' willingness to accept pay restraint and French workers' unwillingness to do any such thing. Zimbabwe growing at 9 per cent I can’t explain, except to say that the year before must have been pretty dire. And, of course there are the basket cases at the bottom of the table: Spain minus 0.1 per cent, Ireland minus 1.0 per cent, Iceland minus 3 per cent, Greece minus 4 per cent and poor old earthquake-hit Haiti, at the very bottom of the table, with a growth rate last year of minus 5 per cent. Low growth brings specially hard problems for politicians because it means it’s harder to create jobs and any redistribution of income has to be done out in the open, not just through ever-increasing tax-takes and expanding budgets. Taking from the rich and giving to the poor requires political courage because there are a lot of rich voters and the poor never quite make it to the polling stations. And this is where we find ourselves now. For all of us, it’s easier to be generous to the poor or believe in common goods – such as higher education for all – when it’s only our extra income we are talking about. But when it cuts into our basic income, generosity becomes a bit more painful. Another adjustment that has to be made is that things take longer to achieve – like building new bridges or tram systems. We have less to spend on luxury items like holidays abroad or new cars. We need to live more modestly. Our savings and pensions get less valuable, we need to think more about how we will survive in the long term. There are, though, some advantages. We slow down the headlong rush into boom-and-bust economic cycles. And we slow the rate at which we consume the resources of the planet. The Canadian environmentalist David Suzuki has worked out that the earth can only really sustain an economic growth rate of about 1.5 per cent a year. That’s the IMF figure again. So perhaps we are returning to a more normal state of affairs, which makes the chancellor’s 2.5 per cent growth target particularly inappropriate. It would lead to another unsustainable boom, to be followed by another bust. It’s another attempt to escape the reality of a mature economy in a finite world. Thankfully, we are beginning to realise that GDP growth is not all it’s cracked up to be anyway. The broader measure of “wellbeing” is becoming more popular, in which quality of life matters, not just its various quantities. So factors such as an economy’s sustainability are taken into account, along with its carbon footprint, its security, its work/life balance, its social capital, its public services, its health, its equality, its happiness. If the bankers' recession has a silver lining, then lower growth is it.Donate to us: support independent, intelligent, in-depth Scottish journalism from just 3p a day
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