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.

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.