Plan A (the Coalition strategy) and Plan B (Labour’s five point alternative) both promise that in the short to medium term they will return the UK to growth of over 2% a year, the threshold often applied to a healthy economy which is able to offer rising living standards to most of its citizens. But isn’t it about time we explored Plan C – Coping with long term slow growth?
Several weak arguments don’t make a strong one, but there are now a variety of reasons being offered for a long term slowdown. First, there is the view that it will take not years but decades to clear the overhang of debt which is weighing down countries and financial institutions. Second, is the argument that the entry into the global labour market of billions of low wage workers will mean a long term process of convergence as emerging economies grow and rich economies stall. Third, it may be that limits to affordable oil and other raw materials mean that the global economy is caught in a boom and bust cycle whereby growth leads immediately to inflation in the cost of energy and commodities - which then precipitates another bust. Finally, there is a more subtle argument that the scope and pace of innovation is in secular decline and that new internet based technologies – unlike steam, rail and electricity – generate new utility but mainly shift value (for example from the high street to the web) rather than creating new foundations for economic growth (the fuller thesis is developed by Tyler Cowen in The Great Stagnation).
The Plan C challenge is for policy makers, opinions formers and ordinary citizens to examine how we would cope, and even thrive, with long term slow growth. Here are some of the key questions:
What does slow growth mean for the macro-economy? Could it, for example, make it much more important that the money we spend goes on goods and services produced in Britain or our local economy?
What does slow growth mean for public finances? Should we be more willing to examine whole areas of public sector provision which are no longer affordable or ask much more fundamental questions about efficacy (for example, a huge amount of spending on medical interventions, in particular drugs, has little or no proven benefit)?
What does slow growth mean for public services? How can we move from a conventional efficiency model to reconceptualising public services as co-productions which blur the boundary between state and civic action? (This was a part of fascinating RSA Thursday today with John Seddon, Halima Khan and David Boyle.)
What does slow growth mean for social justice? If there is no rising tide how do we lift any boats? Without falling for the lump of labour fallacy, is it time to be more serious about the distribution of work?
What does slow growth mean for culture? Ironically, might slow growth achieve the shift to post consumerist values that many in religious, alternative and green movements have long espoused, or might it mean we turn on each other as more conflict feels zero sum?
I'm wondering whether the RSA should think about commissioning a number of public thinkers to write short essays on what they see as the biggest implications, adaptive challenges and opportunities of slow growth? Maybe in a year’s time with an economy barrelling along at 3% growth this will be seem like a misguided idea, on the other hand, even if we are fortunate, slow growth thinking might help us make more of fast growth than we did last time.
PS: If anyone thinks today’s post contradicts yesterday’s, I imagine that if there were long term slow growth, we would eventually find a way of dealing with it. The question is how quickly, how fairly, and how creatively would we do so?