The recovery is coming: can we relax yet?

Blue skies are coming.

All this month on economia we’ve been taking stock of where we are five years on from the momentous events that followed the collapse of Lehman Brothers. So much significance has been placed on the events of September 2008, that some commentators are happy now to refer to events purely in terms of them being “post-Lehman”, as if the failure of one institution marked some kind of year zero when the financial world changed forever

While the meltdown in global credit markets certainly followed the collapse of Lehman Brothers, there is plenty of dissention as to whether it was the  trigger for recession it has been portrayed as. Andrew Smithers in his latest book The Road to Recovery (reviewed in the October issue of economia) draws on a wide range of sources to argue strongly against what he calls “the myth of Lehmans”. His argument is that the global economy was in plenty of trouble (and recession had already kicked in) by September 2008. Others still don’t dispute that the collapse of Lehmans was significant but point out that it was significant insofar as the reaction to it from governments around the word led directly to a worsening of the depth of recession.

The argument here is that the painful experience since 2008 was caused by authorities and governments not allowing enough banks to collapse. While the shock would have been much worse in the short term, the recovery would have been sharper and would have taken hold sooner. The banking sector would have emerged with stronger and healthier banks (even if there were fewer of them), and would have been in a better place to help business recover.

National governments might also have been better placed to rebuild economies had they not been propping up failed banks.

But to some extent this is the old story. Five years on from these calamitous events, we are beginning to see the early signs of recovery. There have been various indicators and research reports produced to show that a lasting recovery is taking hold. The biggest question marks now remain over the fragile state of the eurozone and the likely fallout of any further problems in one or more of the troubled member economies, and the trickier issue of whether this recovery (however welcome) is the right sort of recovery.

The chancellor, George Osborne, set his stall out on delivering an export-led recovery that would help rebalance the economy and bring a longer-lasting, sustainable recovery. That the current return to health appears to be built on a new housing bubble and domestic debt remains a concern. It’s the economic equivalent of treating heroin addicts with methadone. It is far better for them (and far better for society) than heroin, and is more controlled, but it can hardly count as a full recovery from dependency. There is a place for this treatment, but let’s not pretend (as a triumphalist chancellor is likely to try and do at his party conference next week) that he has the economy back to anything like a sustainable position.

However, when that real recovery does arrive it will be fuelled by the sort of high-growth businesses that are the drivers of any economy. And on this front there are some interesting insights from a new piece of research from private equity firm ECI Partners. The top line from the report, which is based on a detailed questioning of almost 700 leaders in high-growth firms, is that they are far more confident this year than they have been for the past few years. The vast majority claim to be planning to fund expansion and growth of over 10% in the coming year and most are very confident that they will be easily able to access finance should they need to (this has been a consistent challenge to growth in recent surveys).

While there is a more upbeat tone to the responses from those based in London, and those working in the technology sector, the vast bulk of respondents regardless of sector or location feel that things are moving in the right direction.

Even if the storm clouds had been building since 2007, the storm of recession broke in 2008. Five years on we are beginning to see the first signs of blue skies above. While it is incumbent on everyone to take a hard look at the events of five years ago and make sure we learn the appropriate lessons in areas from audit to corporate governance, from our banking culture to financial regulation, for the time being it is also important to enjoy some good news for once.

This story first appeared on economia.

 

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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