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Home Opinion What if we never grow again?

What if we never grow again?

Jonathan Todd - 20 February 2012

Managing decline is not an attractive political position; to avoid it we might paradoxically heed lessons from the success of both Beijing and Ron Paul

The 1990s indie classic Sorted for E’s and Wizz by Pulp, the popular British band, closes with lead singer Jarvis Cocker asking forlornly: “What if you never come down?” Figure 1 in the UK thinktank Centre for Cities’ “Cities Outlook 2012” asks a similarly desolate question: “What if we never grow again?”

The UK is living through a slump as deep as the 1930s with recovery longer in coming. If the linkage between output and unemployment were as pronounced as in the 1930s, we’d be looking at 4 million unemployed. While green shoots protrude in the US, they remain conspicuously absent in the UK.

In this dismal context, Labour MP and former UK foreign secretary David Miliband asserted a truism in a recent essay arguing that social democrats need prescriptions for generating growth, not simply more equitably distributing its proceeds. Neither left nor right, though, seem presently over blessed with spectacularly effective growth prescriptions. Mitt Romney insists otherwise. “Our president thinks America is in decline,” Ed Luce, Washington bureau chief of The Financial Times, recently quoted him as saying: “It is if he [Obama] is president. It is not if I am president.”

This is strong stuff, which a two-term Obama will have to knock-down on its own terms, not by shifting the presidential campaign on to a debate about inequality. Questions of distribution and fairness have undoubtedly taken on more resonance in the US, but America is not yet – and may never be – ready for a president seemingly accepting of a non-expanding American pie.

The political reality of this non-acceptance may jar, however, with economic reality, at least in relative terms. Luce goes on to critique the recent claim of Romney adviser Robert Kagan that “America’s share of the world’s GDP has held remarkably steady” by noting that the US accounted for 23 per cent of world income at market prices in 2010, as compared with 31 per cent in 2000 and 36 per cent in 1969. The quicker the BRICs rise the less global output is attributable to the west. On one level this is axiomatic; on another it is a challenge to optimistic expectations of globalisation.

Could it be that the rise of the rest has not increased the scope for mutual benefit through trade and the specialisation of comparative advantage but contributed towards the inability of the UK to recover from our growth crisis?

It’s too early to draw that conclusion. It’s noticeable that signs of economic recovery are stronger in the US than in the UK. Given the looser fiscal policy of President Obama, this supports Labour’s argument that fiscal consolidation has gone too far, too fast in the UK. These contrasting performances must also be located in the context of the UK’s deeper entanglement than the US in the euro crisis.

The UK’s slump has, additionally, coincided with the continued emergence of a state-driven economic model sharply distinct from that endorsed by the Washington consensus. As Republican presidential candidates vie to fortify and defend this consensus, an alternative consensus emanates from Beijing. Furthermore, on the other side of the spectrum, in a number of the US states that have already had their say in the Republican contest, a majority of younger voters have backed a candidate, Ron Paul, for whom the economic model of the Washington consensus is too pale and who seeks an 80 per cent reduction in the size of the federal government.

It is somewhat paradoxical to see lessons for the UK in the success both of Beijing and Paul. But we need a state both strategically capable and cognisant of its own limitations. We cannot, of course, remake Birmingham as Beijing. We do, though, need new partnerships between the public and private sectors that make sense in the British context and which allow us, as China is ruthlessly capable of doing, to secure long-term, strategic interests.

Equally, we delude ourselves if we think similar frustrations with the state that Paul has tapped into are wholly alien to the UK. Obviously, his appeal to younger votes is about many factors, including an aversion to military engagements in what they take to be quarrels in far-away countries between people of whom they know nothing. But amongst these factors is a perception held by some, especially the highly educated and digitally literate, that the state is too flat-footed to do anything for them. Such younger people and such characteristics of the state also exist in the UK. 

The adaptive mixed economy that Anatole Kaletsky argues for in Capitalism 4.0 wouldn’t intervene needlessly in these peoples’ lives. And would redraw and blur the lines between the public and private sectors, as new means are found of channelling the innovative capacities of these people towards socially useful ends, which the strategic capacities of the state should also target.  

It took Keynes seven years from the Wall Street Crash of 1929 to publish his general theory. New paradigms do not emerge overnight. But we are four years on from the collapse of Lehman Brothers and there are limited signs of capitalism 4.0 emerging. Unless it does the UK will struggle to overcome our slump and the Beijing consensus will become ever more dominant.   

Jonathan Todd is a consultant at Europe Economics and economic columnist at Labour Uncut. He writes in a personal capacity

This is a contribution to Policy Network's work on Globalisation and Governance.

Tags: State , Strategic state , Jonathan Todd , UK , Labour , Growth , Barack Obama , David Miliband , Robert Kagan , Mitt Romney , Ron Paul , Beijing consensus , Washington consensus , Libertarian , State capitalism , Capitalism 4.0

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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