how to boost GDP. UK style

Countries, which struggle to grow their GDP and lack ideas, should try to get a master-class from Conservatives here in UK. Their innovativeness has no limits. The trick is: start counting in drug dealing and prostitution business and you will get about 1% annual GDP increase and all the newspapers will be writing that your country is recovering and Government’s economic policies are working. Office for National Statistics can also advise on how to calculate the size of that business 4-5 years ago, so you can revise your past GDP records and make the economy look even greater. So, all the drug dealers and sex traders – well done!

p.s. if it is not obvious, I am deeply sad that GDP which as a tool to measure economy was never ever perfect, is crippled even more and made totally meaningless (except to politicians, of course, who use it as a success indicator of their policies). By including such socially harmful ‘business’ in national domestic product basket UK is basically legitimizing this business and positively acknowledging its impact on economy. I just wonder, if this business is so productive, will then government come up with special stimulus programmes to keep the productive sector growing?

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New British political economy: between the race to the bottom and the race to the top

Just very recently a centre-left think tank, Policy Network, organized a conference on the future of UK political economy. This event attended by various influential politicians, journalists, activists, intellectuals, academia and general professionals was not just one of the many anti-liberal market economy, anti-Conservatives, anti-austerity, anti-capitalism talk-shops, but had a quite clear sub-agenda – debating the ideological stance and strategy of the Labour party in the upcoming General elections in May 2015. Though there are quite good chances that Labour may win the Prime Minister’s seat, more important question is  – how Labour will use this power.

Regarding the status of the current situation, the key conclusions were:

  • current recovery is not real, balanced and sustainable as it is led again by consumption and housing market;
  • what UK currently has is irresponsible capitalism + lifestyle of living beyond its means (UK public debt is one the highest among the Western economies);
  • it’s almost impossible to earn normal living and afford to own a house (or a flat if you wish) through hard work;
  • there is a strong trend of job creation for foreigners (both skilled and low skilled labour) combined with relatively high local unemployment;
  • serious technical skills gaps (though some say there are enough technically skilled people but many of them just simply end up in the financial sector with higher income prospects ==> waste of education and gained skills);
  • corporate sector pursues interests which are against the interests of society at large;
  • the rule No1 of business schools still is: the goal of business is to maximize shareholders’ assets value;
  • short-termism of capital markets;
  • as social services are labour intensive, functioning social democracy becomes very expensive;
  • current account deficit since 1983 has been negative;
  • with respect to immigration, the net beneficiary is UK.

However, with respect to ideas how to make this shift from unsustainable to sustainable economy, it is clear it would require massive change in values on both political and individual level. It would require different business culture and redefinition of the relations between the state, individuals and companies. But, on more pragmatic and practical level, there were many ideas explored:

  • global race now is about science race hence -investment in education, research and science is more important than ever;
  • greater focus on SMEs: they create jobs 5 times faster than big companies;
  • government has various tools such as taxes, subsidies and protection of certain industries to build a sustainable economy and long-term prosperity;
  • tighter regulation to protect financial and environmental systems, to serve public interests and to improve financial and social accountability;
  • creation of tax system which a) incentivises companies to contribute to the interests of society, b) does not discourage innovations, c) ensures sufficient revenues and d) functions as a tool of fair redistribution;
  • giving advantage and positive discrimination to the investment with social purpose, value and positive impact on economic/ social sustainability; investment not only in physical infrastructure but also in social/ human capital;
  • globalization forces us to move from imitators to innovators;
  • giving enough attention to the pre-distribution of wealth through quality of jobs, wages (increasing minimum wage?) and improvement of prestige of low-skilled jobs;
  • growth alone is not enough; it has to be inclusive and qualitative(!);
  • GDP and GINI is also not enough; more attention needs to be paid to social mobility;
  • targeted spending horizontally (e.g. education) and vertically (supporting specific sectors like renewable energy sector or green technologies) but with competitiveness at the core;
  • in order to maintain social democratic model, state should own more productive assets so that it can have solid revenue (e.g Norway with sovereign wealth funds);
  • public sector becoming a role model in offering and promoting apprenticeship schemes;
  • if technology is the future, then coding skills should become integral part of basic education;
  • more active enforcement of public laws!

One of the overriding questions of this event was what is the role of the state in a progressive political economy which is particularly interesting as the current government has been working very hard to minimize its role as much as possible (privatization of Royal Mail, austerity, public cuts in education and health sector, outsourcing of various public functions including prisons and even the bits of judicial courts system). Among centre-left supporters common unerstanding was clear that  the state has a crucial role in promoting long-term capitalism and it has a duty to intervene when the redistribution of wealth is not working. It is government’s role to shape the market which can then deliver specific outputs in the interest of society.

Somebody noted that UK government has about GBP 250 billion annual procurement power which confirms that the role of state is massive. The question is how it is used and in whose interest?

And to conclude this, one more philosophical question was: so in which race after all we are? race to the top or race to the bottom?

on Cameron’s immigration saga

Whenever David Cameron complains about the immigrants in UK from other EU countries, he should be reminded that because of the same 4 freedoms of European internal market (movement of goods, services, capital and persons) which allow EU citizens to come and live/work in UK, 1) about 1.5 million British citizens can study, work and retire in the EU without requiring a work permit; 2) about 48-50% of the UK exports of goods and services are going to the other 26 member states, 3) ‘golden goose’ City of London can flourish selling its products and attracting investment (about 40% of new financial institutions are choosing London as their headquarters in the past seven years).

If David Cameron is a true believer in competitiveness then ‘pick-and-choose’ approach is obvious hypocrisy. People will always follow capital, therefore the more unequal EU will become through aggressive ‘race-to-the-bottom’ competition for investment, lower taxes and looser regulation, the higher concentration of capital in places like UK will take place and attract masses of people from other EU countries.