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Recession deniers should shut up as down we continue to go

David Blanchflower makes the case for an immediate increase in public investment in building.

The drop in gross domestic product of 0.7 per cent in the second quarter of 2012 was greeted with incredulity by those who have been saying for months that the UK is not in a double dipper when we obviously are. Business and consumer confidence and lots of other measures have been in recession territory for a year. The latest industrial production figures suggest only a small upward revision. The economy shrank in five of the past six quarters, including all of the past three. GDP is now lower than it was when George Osborne became Chancellor in 2010. It’s time for the recession deniers to shut up.

The government’s current spending continues to prop up output. Manufacturing made  a negative contribution to growth in each of the past four quarters. Construction made the biggest negative contribution in the past two quarters, with declines of roughly 5 per cent in both. Disaggregated data for the first quarter shows that this was driven by declines in the value of public housing and non-infrastructure public spending (-11 per cent and -17 per cent, respectively, quarter on quarter; and -18 per cent and -20 per cent, year on year). This looks like a collapse in construction, driven by the coalition’s decision to kill off public investment. The evidence is that public investment crowds in private investment, contrary to the coalition’s bizarre claims that it crowds it out.

Decline and fall

The big decline in construction output has been questioned by some as not being plausible, even though there is a good deal of corroborating
evidence. The Bank of England’s agents’ reports show that it has been declining for months and is at levels previously seen only in the depths of recession in 2008 and 2009 (see chart 1). Many of the agents’ other scores, including those on capacity constraints, employment and investment intentions, have been declining through most of 2012 and are also in recession territory. These scores were good predictors of bad things to follow in 2008. The collapse in construction appears to be driven by the coalition’s disastrous decision to slash public investment.

The purchasing managers’ index (PMI) for construction in July showed a marginal rise in output, rebounding slightly from June’s two-and-a-half-year low. The data (see chart 2) is again at levels seen only in the recession of 2008-2009. This survey suggests that output rose for 18 of the past 19 months but is based on a small sample of big firms and may well be subject to a degree of survivor and optimism bias. No other evidence suggests this, including the new orders and output data from the Office for National Statistics (ONS), the RICS survey, or any of the industry’s sector-specific surveys.

Strong supporting evidence of a collapsing construction sector was provided by the latest trade survey from the Construction Products Association, which showed that during the second quarter of 2012 construction suffered another sharp fall across all parts of the industry, including current workloads, new orders and tender prices. Large and medium-sized building contractors reported that output in the second quarter of 2012 was lower than during the first quarter of 2011, which in turn was lower than the fourth quarter of 2011. Public-sector investment continues to decline, and the survey found no sign of private-sector recovery to offset these cuts, leaving little optimism for recovery in the near future. This was the fourth fall in the past five quarters.

The employment data is consistent with the picture of continuing decline in construction. According to the ONS’s labour force survey, used to calculate the unemployment rate, construction employment is down 2.8 per cent on the year, whereas private-sector employment as a whole is up 2.9 per cent. The number of employees in construction is down 6.6 per cent on the year; as a result, the self-employment rate in construction is up from 35 per cent in 2008 to 40 per cent in the first quarter of this year.

It is interesting to compare the performance of the UK labour market under David Cameron and Osborne with what has happened in the US. The latest data release showed that non-farm payroll employment in the US increased for the 22nd month in a row by 163,000 on the month. The presidential candidate Mitt Romney, who continues to put his foot in his mouth, said these numbers, which were much better than economists had expected, were a “hammer blow” to middle-class families. He probably mixed up the positive sign with a negative one.

Over the past two years, employment in the US has climbed by three million (a rise of 2.5 per cent); the number of unemployed is down by 1.7 million (12 per cent) and the number of long-term unemployed is down by a fifth. Employment in the UK over the same period is up by 200,000 (0.7 per cent); it has risen in only 12 of the past 22 months. Unemployment is up by 100,000 (5 per cent), while long-term unemployment is up by 120,000 (9 per cent). In job-creation terms, Barack Obama and his Treasury secretary, Timothy Geithner, easily beat Cam­eron and Osborne.

Gloomy weather

It seems likely that growth for 2012 as a whole will be negative and the Bank of England’s Monetary Policy Committee will again lower its forecasts for the next three years, having already downgraded expectations of 2012 output to zero. The National Institute of Economic and Social Research expects the economy to shrink by 0.5 per cent. The International Monetary Fund anticipates growth of 0.2 per cent.

This is a long way from the 2.8 per cent predicted for 2012 by the Office for Budget Responsibility in its cloud-cuckoo-land “emergency” Budget forecast of June 2010. I am expecting growth of below -1 per cent in 2012. The case for an immediate increase in public investment in infrastructure is building.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

This article first appeared in the 13 August 2012 issue of the New Statesman, The New Patriotism

Photo: Getty Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.