Stagnant Britain should stop pretending it is a rich country

Britain’s low-growth economy is not only relentlessly reducing the country’s living standards. (Source: Bloomberg)

The most important thing to grasp about Britain is that it is nowhere near as rich as it thinks it is.

There are good reasons for the wealth illusion. The country has inherited a magnificent legacy from its industrial and imperial past. A handful of elite universities and companies keep Britain on the cutting-edge of new technologies such as AI and vaccines. The wealth is highly concentrated in the much-visited southeast, and many members of the elite float through life in a bubble of affluence — from nice country houses to posh schools to well-endowed Oxbridge colleges to well-paid jobs working for global companies.

But look outside this golden world and you discover a different picture. Real household income hasn’t increased for the past 15 years. The average UK household is 20percent poorer than its peers in northwestern Europe. A survey
for the Resolution Foundation in January found that 11percent of Britons (the equivalent of 6 million people) hadn’t eaten when hungry because they didn’t have enough money for food.

The reason for all this is that Britain’s growth machine has stalled. During his “budget for growth,” Chancellor of the Exchequer Jeremy Hunt
celebrated without a touch of irony that the Office for Budget Responsibility had predicted that Britain’s economy would only shrink by 0.2percent rather than the predicted 1.3percent.

Britain’s low-growth economy is not only relentlessly reducing the country’s living standards (on current trends, the average Polish family will be richer than the average British family by the end of the decade). It is also forcing everyone to pay higher taxes for worse public services: The great British Middle Class live in a world of petty crime that goes un-investigated let alone punished, over-crowded emergency health services, and ever-lengthening NHS waiting lists (Britain has one of the lowest ratios of doctors and hospital beds per patient in the whole of the OECD).

We tend to think of our current public-sector woes as being the result of a temporary breakdown in the system. It’s more accurate to think of them as early warning signs that we are trying to run the infrastructure of a rich country with the income of a poor one.

The Tory government bears much of the responsibility for these dismal facts — it has presided over the biggest fall in labor productivity growth in 260 years of data. Brexit has clearly done direct economic harm: The Bank of England has estimated that Brexit reduced investment by 25percent during the five years to 2021, largely due to uncertainty. It also distracted politicians from the mundane work of fixing day-to-day economic problems. The natural state of the civil service is inertia unless it is directed by knowledgeable and experienced politicians: All the institutional penalties are for doing something rather than doing nothing.

But politics has been a noisy merry go-round: Britain has had four prime ministers since 2016 and secretaries of state have moved on before they learned where the bathroom is. To cap it all, one of those prime ministers — Liz Truss — did her best to torch the case for growth with some of the worst-designed policies in the post-war era.

The Tory Party also increasingly rests on an anti-growth coalition. Tory voters (and particularly Tory members) are older and richer than the average voter. This means that they are much more likely to own their own homes and have index-linked pensions. They are much more like Hobbits comfortable in their sandy burrows than Margaret Thatcher’s self-reliant entrepreneurs. They routinely oppose the building of new houses that might spoil their views and new shops and stores that might clog their roads. The price for their comfortable lives is paid by the rest of society and future generations.

Can anything be done to fix the growth machine? It’s easy to be pessimistic. Britain’s productivity growth has been poor for much of the post-war period — perhaps because its first-mover advantage as the first industrial nation turned into a first-mover disadvantage. And growth rates have slowed significantly across the advanced world in recent decades. But, despite its depressing title, a summit on “the great stagnation” last week, organised by Civic Future, an organisation dedicated to encouraging talented people to enter public life, and held in Cambridge, gave some grounds for hope.

One of the paradoxes of growth is that we have a good idea of how to improve it: Ensure that ordinary Britons capture more of the benefits of the frontier technologies in which Britain excels; make it easier to build houses, particularly in highly productive bits of the economy such as Oxford, Cambridge and London; make planning faster, easier and more predictable; improve education and training and make it more relevant to the economy; improve transport infrastructure (Andy Haldane, chief executive officer of the Royal Society of Arts and former chief economist to the Bank of England, quips that “Britain has the world’s first intercity rail network that doesn’t connect cities”); loosen the dead hand of the Treasury and devolve decision-making to the regions. The problem is that we don’t know how to mobilise political support for pushing through a pro-growth agenda.

The very existence of the summit was evidence that a pro-growth coalition may be forming. The event attracted some 150 people from across the political spectrum, including MPs, think-tank people, entrepreneurs, civil servants, and academics such as Tyler Cowen (also a Bloomberg Opinion columnist). The most striking thing about the attendees was how young many of them were.

Young people have been forced to live in sub-standard houses on the periphery of cities and forced to accept low wages for decades as their elders have got fat and happy on the proceeds of asset-price inflation and triple-locked pensions. There are admirable signs that they are fighting back by organising pro-growth organisations (e.g., The Entrepreneurs Network, Collective Intelligence, Britain Remade) and writing pro-growth publications (e.g. Works in Progress). The YIMBs are on the march.

A future Labour government may have a chance of unblocking the system, not least because Labor attracts support from poorer and younger people who don’t have such a stake in the status quo. The Labour Party has anti-growth elements such as (usually tenured) academic “degrowthers” who think that we need to stop growth in order to save the planet. But the conference suggested that there is also a lot of support for “pro-growth progressivism.”

The conference mentioned some good ways of making growth more palatable — or, in the words of one delegate, “helping us to fall in love with the future again.” Top of the list is making new buildings more beautiful and new developments more livable. Nicholas Boys Smith, the founding director of Create Streets, argues that Britons have fallen out of love with growth not just because they are Hobbits but because growth has often taken the form of ugly buildings and horrible developments (try visiting Euston Station or any post-war housing estate). But new developments don’t have to be ugly: The Victorians covered the country with elegant public buildings, fine-looking factories and comfortable houses for workers.

Other ideas include presenting the case for growth in less abstract terms (Victorian tariff reformers talked about “cheap food” rather than “free trade”); presenting growth (or “progress”) as a continuation of Britain’s glorious heritage rather than a negation of it; devolving decision-making from the Treasury to local mayors; giving regular people more of a stake in supporting growth by providing them with better services; and perhaps giving well-loved institutions, such as the NHS, grants to build houses for their workers.

Britain has endured too many wasted years since the 2008 financial crisis. It’s not foreordained that the next decade will be equally futile.

Adrian Wooldridge is the global business columnist for Bloomberg Opinion. Views are personal, and do not represent the stand of this publication. 

Credit: Bloomberg