The battle for growth

Slower growth in 2011 is not due to the eurozone crisis; slower growth in 2012 will be.

George Osborne was reported recently by the BBC as saying: "It is a very, very difficult and dangerous situation in the eurozone - Britain is impacted by what's happening. There's no doubt that growth in Britain, jobs in Britain, have been hit by what's going on in the Eurozone."

This is probably only true of the last few months, and then only to a limited extent. The slowdown in growth in Britain began in the fourth quarter of last year, since when real GDP has only increased by 0.5 per cent, and employment growth began to falter earlier this year. The crisis in the eurozone has been rumbling on for some time, but it only came to a head sufficiently to affect the UK over the summer months.

This can be seen in the latest trade data. UK export volumes to other EU countries increased by 5 per cent over the last year; exports to the rest of the world were up just 1 per cent over the same period. If the eurozone crisis was to blame for weak growth in Britain, these figures would be the other way round.

Other explanations are needed for the underperformance of the growth in Britain and two stand out. First, higher oil and food prices - and the increase in VAT - have squeezed households' spending power. This is evident in the latest retail sales data. Sales values increased by 5.4 per cent over the last year - a healthy rate of increase - but sales volumes were up just 0.6 per cent. The difference is inflation. Second, the Chancellor's tough fiscal plans have taken demand out of the economy and dented business confidence about future levels of spending. Hiring and investment spending have slowed as a result. Hopes that the private sector would respond to a tough fiscal policy with a burst of entrepreneurial activity have proved totally misplaced.

The worry in all this is that the effect of the eurozone crisis on growth and jobs in Britain is yet to come. Even if the crisis does not worsen - and it would be a brave person who argued that this categorically will not happen - demand in the eurozone is going to weaken in coming months and many forecasters believe it will slide back into recession. This will affect UK exporters: around two-thirds of UK exports go to the rest of Europe. Harder to measure, but possibly more important for growth and jobs in the UK, will be the effect on business confidence. Few company directors will feel comfortable implementing expansion plans at a time when the news headlines are dominated by the risk of Armageddon on the UK's doorstep.

And if the crisis does get worse, the prospect of the banking system freezing up again, followed by another credit crunch, will be a real one.
This is already being reflected in economic forecasts. Earlier this week the CBI revised down its estimates for growth in the UK to 0.9 per cent in 2011 and 1.2 per cent in 2012 and the European Commission predicts growth of just 0.7 per cent in 2011 and 0.6 per cent in 2012. If the Commission is right then the UK is going to come perilously close to a recession in the next few quarters.

This is a challenging backdrop for the Chancellor as he prepares for his Autumn Statement on 29 November. The Government has published a Growth Review, a Plan for Growth and is now reviewing the Plan for Growth. But the economy is barely growing and the outlook is for things to get worse not better. Each of these documents suffered from the same basic weakness. It started from a set of measures agreed between the coalition partners - cuts in corporate tax rates, an increase in the personal tax allowance, aggressive budget deficit reduction - and attempted to build a growth plan around them. This is the wrong approach.

A plan for growth should not be based on a set of miscellaneous policies agreed in coalition negotiations. It should identify what is needed for the economy to grow - additional demand in the short-term and increasing supplies of capital, labour and land in the medium-term, together with better ways of utilising them - and then work out how the government can help deliver them.

We are promised "credit easing" and a focus on housing and infrastructure. These are welcome but more, much more, is needed.

Tony Dolphin is the Senior Economist and Associate Director for Economic Policy at ippr

Tony Dolphin is chief economist at IPPR

Photo: Getty
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Empty highs: why throwaway plastic goes hand in hand with bankrupt consumerism

We are in the throes of a terrible addiction to stuff.

A University of California study revealed this week that mankind has produced more than nine billion tonnes of plastic since the 1950s, with almost all of it ending up in landfill or the ocean. With the terrible effects of our decades-long addiction to throwaway packaging becoming increasingly apparent, it’s clear that a fresh approach is needed.

In April 2010, David Cameron set out his vision for Britain in the Conservative Party’s manifesto. Keen to show that the Tories had turned away from the "I’m Alright Jack" individualism of the 1980s, Cameron sought to fashion a softer, more inclusive brand.

The good society, Cameron argued, embraced much higher levels of personal, professional, civic and corporate responsibility. There was such a thing as society, and we’d all do well to talk to our neighbours a bit more. The Big Society, however, was roundly derided as a smokescreen for an aggressive tightening of the Government purse strings. And on the advice of his 2015 election fixer Lynton Crosby, Cameron later dropped it in favour of well-worn lines about economic security and jobs.   

While most would argue that the Big Society failed to amount to much, Cameron was at least right about one thing. We are happiest when we are part of something bigger than ourselves. No matter how much the credit card companies try to convince us otherwise, mindless individualism won’t make us nearly as contented as we’re led to believe by big conglomerates.

By any measure, we are in the throes of a terrible addiction to stuff. As a nation, we have run up unsecured debts of more than £350bn, which works out at £13,000 per household. Fuelled by a toxic mix of readily available credit and interest rates at historic lows, we cripple ourselves financially to feel the empty high derived from acquiring yet more stuff.

Purchasing has become a leisure pursuit, ensuring the rate at which we acquire new stuff exceeds the rate at which we can find somewhere to put it. Burdened with ever increasing amounts of stuff, consumers are forced to outsource their storage. The UK didn’t have a self-storage industry 30 years ago, but now it is the largest in Europe.

With the personal debt mountain soaring, we’d all do well to realise that we will never have enough of something we don’t need.

The growth of rampant consumerism has coincided with an explosion in demand for single-use plastic. Like the superfluous possessions we acquire, throwaway plastic packaging helps satisfy our desire to get exactly what we want without having any thought for the long-term consequences. Plastic packaging is easy and convenient, but ultimately, will do us immense harm.

In 1950, close to 1.5 million tonnes of plastic was produced globally. Today, the figure stands at more than 320 million tonnes. The vast majority of our plastic waste either ends up in landfill or the ocean, and our failure to kick the plastic habit has put is in the ludicrous position where there is set to be more plastic than fish in global seas by 2050.

There is also growing evidence that our penchant for endless throwaway plastic might be storing up serious health problems for our children later down the line. According to a University of Ghent study published earlier this year, British seafood eaters risk ingesting up to 11,000 pieces of plastic each year. The report followed UN warnings last year that cancer-causing chemicals from plastic are becoming increasingly present in the food chain.

Something must give. Unsustainable as our reliance on fast credit to finance ever more stuff, our addiction to plastic packaging is storing up serious problems for future generations. The instant gratification society, high on the dopamine rush that fades so quickly after acquiring yet another material asset, is doomed unless decisive action is forthcoming.

So what is to be done? The 2016 US documentary Minimalism points to a smarter way forward. Minimalism follows the lives of ordinary people who have shunned the rat race in favour of a simpler life with less stuff and less stress. The most poignant bit of the film features ex-broker AJ Leon recounting how he chose to forgo the glamour and riches of Wall Street for a simpler life. After a meteoric rise to the top of his profession, Leon decided to jack it all in for a more fulfilling existence.

While challenging the view that to be a citizen is to be a consumer is easier said than done, there are small changes that we can enact today that will make a huge difference. We simply have no choice but to dramatically reduce the amount of plastic that we can consume. If we don’t, we may soon have to contend with the ocean being home to more plastic than fish.

Like plastic, our bloated consumer culture is a disaster waiting to happen. There must be a better way.

Sian Sutherland is co-founder of campaign group A Plastic Planet which is campaigning for a plastic free-aisle in supermarkets.

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