The (uncomfortable) lessons of history

I’m not going to add to the ink/electrons expended on the UK economic policy proposals emerging from the party conferences so far. Reading about them so far – and with more to come next week no doubt – sent me back to a couple of fascinating books I have on my shelves. One, published in 1958, is by Andrew Shonfield. The other is a 1984 book with the superb title by Keith Smith (as if the country had transitioned from having an economy to having a permanent economic crisis – well, it can feel like that).

One of the dispiriting things is how much of the diagnosis seems relevant in successive generations.

Shonfield writes in his concluding chapter:

“The central failure of postwar Britain is inadequate investment. So many of our difficulties flow from this. Because our wealth grows more slowly than the wealth of other countries, our prices rise faster… the balance of payments is like a raw and exposed nerve… It is bad for the spirit of any country to live with so little room for manoeuvre. There is a noticeable meanness of attitude in the British approach to the arts, to public buildings, to almost any kind of cultural activity. … It is a great depressive to live in a constant atmosphere of ‘make do’, to exist in a place where almost any effort to do anything or go anywhere leads you pretty soon into a bottleneck of some kind.”

Obviously very much of its time, but many British readers now would feel a ping of recognition.

[amazon_image id=”B0000CK05Q” link=”true” target=”_blank” size=”medium” ]British economic policy since the war (Penguin specials)[/amazon_image]

Smith, nearly 30 years later, wrote:

“If output, employment and incomes are to grow in Britain, then the problems of low and poorly directed R&D activity and low industrial investment, which are at the core of Britain’s economic decline, must be overcome. … Britain’s manufacturing performance is so poor that consumption increases have not fed through into increased demand for British products, and hence to investment in British industry. Consumption increases have been spent quite disproportionately on imports.”

Which crisis would that be?

As others have pointed out – for example, Stumbling and Mumbling – UK business investment is weak, weak, weak. The balance of payments deficit was equivalent to 3.8% of GDP last year, the biggest gap since 1989.

I’d like to see the policy debate acknowledge the long-term context.

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7 thoughts on “The (uncomfortable) lessons of history

  1. Bought the when it came out at the LSE bookshop. Grew up in a town with a lot of textile, engineering, shoe and light industry where also vacation work was done in several places. State planning did not touch any of these firms and the tax policies crippled the investment potential of their owners. Yet many of these could have been the firms of the future. Most of them just went gently down the drain over the next twenty years. On the railways where “investment” went we did get quite a lot of new steam locomotives. Then Beeching came along. Over in the West Midlands, however, the government were throwing money at the car industry. I recall a lot of traditional ships being built as investment, despite the fact that cargo was going into containers. Don’t mention Concorde and aviation please, this causes foaming at the mouth.

  2. I know this goes against the spirit of ‘Beware economists bearing PhDs’; but…

    …If the economic problems we have led to a technocratic government being installed in Britain (a bit like Monti in Italy) and you were given the chance to reshape British economic policy with the longish-term in view, what sort of changes would you make?

    • My goodness, what a challenge. Investment in infrastructure. The housing market – housing supply needs to increase, including building on “green belt” areas in parts of the country where people want to live, differential property taxes for London/SE, go ahead with the rates revaluation. Break up the big banks and recapitalise where necessary, a market inquiry to look at barriers to entry in financial services. Implement all the excellent expert reports that get commissioned and then ignored – Dilnot, Barker, Mirrlees etc etc. ……

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