Leader: The wrong kind of economic recovery

Even the most depressed economies eventually recover. The return of growth in the UK, after three years of stagnation under the coalition government, is merely a reflection of this truth. With GDP still at 2.5 per cent below its pre-recession peak, in 2007, the economy has yet to make up the lost output from the crisis. In the US, by contrast, where the Obama administration maintained fiscal stimulus by cutting taxes and increasing infrastructure spending, the economy is now 5.2 per cent larger. But after convincing much of the public that the post-2010 downturn was inevitable, George Osborne has been the beneficiary of low expectations.

According to the Chancellor’s account, the surge in growth is a vindication of his decision to pursue austerity after entering office. This claim is faithfully echoed by a media that loudly endorsed his deficit reduction programme in 2010. Not only does this narrative ignore the tardiness of the recovery – the slowest for more than 100 years – it also obscures the sources of the growth we are now experiencing. It is not austerity but its reverse that explains the upturn.

To the extraordinary monetary stimulus provided by the Bank of England, in the form of quantitative easing and record-low interest rates, have been added large-scale state interventions such as Help to Buy. After imposing damaging policies such as the VAT rise and the dramatic reduction in infrastructure spending in 2010, Mr Osborne has also eased the pace of austerity. Rather than sticking to his original deficit reduction timetable, the Chancellor allowed borrowing to rise and extended his programme from four years to seven. Even under the most optimistic scenario, the deficit is still expected to be at least £100bn this year, £40bn more than forecast by the Office for Budget Responsibility in 2010.

When he entered office in 2010, Mr Osborne pledged to rebalance the economy away from its reliance on property and debt-financed consumer spending, cynically fostered by Labour, and towards investment and exports. But growth is again being driven by the former. Exports fell by 2.4 per cent in the most recent quarter, despite the continuing weakness of the pound, while business investment remains 6.3 per cent below its 2012 level. With wage growth (0.8 per cent) still lagging behind inflation (2.2 per cent), the recovery is being built on consumer credit and rising house prices. Like Gordon Brown before him, Mr Osborne has found the attractions of debt-driven growth impossible to resist. If the economy is not to become permanently reliant on ultra-low interest rates, he must act now to promote both public and private investment. Rather than risking the creation of another property bubble through Help to Buy, he should concentrate on increasing the supply and the affordability of housing.

A programme of the kind pursued by Harold Macmillan as housing minister in the early 1950s, when 300,000 homes a year were built, would stimulate growth (for every £100 invested in housebuilding, £350 is generated in return), create employment and reduce welfare spending. As some MPs in his own party have suggested, the Chancellor should also offer incentives to firms to pay the living wage in order to reduce consumers’ reliance on borrowing to maintain their living standards.

At present, GDP is rising but living standards are not. The north-south divide in England is widening, rather than narrowing. Meanwhile, household savings are falling at their fastest rate for 40 years. The economic cycle may finally have turned but the structural conditions for a repeat of the crash remain firmly in place.

Mark Carney, Governor of the Bank of England. Photo: Getty.

This article first appeared in the 04 December 2013 issue of the New Statesman, Burnout Britain

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It's easy to see where Berlin is being rebuilt – just hit the streets

My week, from walking the streets of Berlin to class snobbery and the right kind of gentrification.

Brick by brick, block by block, the people are rebuilding the city once called Faust’s Metropolis. To see it clearly, put your boots on. One of the most bracing walks starts by the Gethsemane Church, which served as a haven for dissenters in the last days of the GDR and takes you down ­towards the Hackescher Markt.

Here, in what is still the eastern half of a divided city that wears its division more lightly, is a Berlin experience both old and new. In three decades of frequent visits, it has been fascinating to note how much this part of town has changed. Even a decade ago these streets were rundown. With crumbling buildings showing bulletholes, it wasn’t hard to imagine what the place looked like in 1945. Now there are lilacs, blues, and yellows. Cafés, bars and restaurants abound, serving the young professionals attracted to the city by cheap rents and a renewed sense of community.

 

Breaking the fourth wall

Looking north along Schliemannstraße, you’ll find a delightful vista of well-tended balconies. It’s a pleasant place to live, notwithstanding the gaggle of grotesques who gather round the corner in the square. On Kastanienallee, which forms the second leg of the walk, an old city feels young. It’s a kind of gentrification but the right kind. There’s more to eat, to drink, to buy, for all.

Berlin, where Bertolt Brecht staged his unwatchable plays, was supposed to have been transformed by a proletarian revolution. Instead, it has been restored to health by a very middle-class one. Germany has always had a well-educated middle class, and the nation’s restoration would have impossible without such people. The irony is delicious – not that irony buttered many parsnips for “dirty Bertie”.

 

The new snobbery

The British Museum’s survey of German history “Memories of a Nation” is being presented at the Martin-Gropius-Bau as “The British View”. Germans, natürlich, are curious to see how we observe them. But how do they see us?

A German friend recently in England  said that the images that struck him most forcibly were the tins of food and cheap booze people piled up in supermarkets, and the number of teenage girls pushing prams. Perhaps Neil MacGregor, the former director of the British Museum who will shortly take up a similar role here at the new Humboldt Forum, may turn his attention to a “German View” of the United Kingdom.

There’s no shortage of material. In Schlawinchen, a bar that typifies Kreuzberg’s hobohemia, a college-educated English girl was trying to explain northern England to an American she had just met. Speaking in an ugly modern Mancunian voice that can only be acquired through years of practice (sugar pronounced as “sug-oar”), she refer­red to Durham and York as “middle class, you know, posh”, because those cities had magnificent cathedrals.

When it comes to inverted snobbery, no nation can match us. To be middle class in Germany is an indication of civic value. In modern England, it can mark you as a leper.

 

Culture vultures

The Humboldt Forum, taking shape by the banks of the Spree, reconsecrates the former site of the GDR’s Palace of the Republic. When it opens in 2018 it will be a “living exhibition”, dedicated to all the cultures of the world. Alexander von Humboldt, the naturalist and explorer, was the brother of Wilhelm, the diplomat and philosopher, whose name lives on in the nearby university.

In Potsdamerplatz there are plans to build a modern art museum, crammed in between the Neue Nationalgalerie and the Philharmonie, home to the Berlin Philharmonic. Meanwhile, the overhaul of the Deutsche Staatsoper, where Daniel Barenboim is music director for life, is likely to be completed, fingers crossed, next autumn.

Culture everywhere! Or perhaps that should be Kultur, which has a slightly different meaning in Germany. They take these things more seriously, and there is no hint of bogus populism. In London, plans for a new concert hall have been shelved. Sir Peter Hall’s words remain true: “England is a philistine country that loves the arts.”

 

European neighbours

When Germans speak of freedom, wrote A J P Taylor, a historian who seems to have fallen from favour, they mean the freedom to be German. No longer. When modern Germans speak of freedom, they observe it through the filter of the European Union.

But nation states are shaped by different forces. “We are educated to be obedient,” a Berlin friend who spent a year at an English school once told me. “You are educated to be independent.” To turn around Taylor’s dictum: when the English speak of freedom,
they mean the freedom to be English.

No matter what you may have heard, the Germans have always admired our independence of spirit. We shall, however, always see “Europe” in different ways. Europe, good: we can all agree on that. The European Union, not so good. It doesn’t mean we have to fall out, and the Germans are good friends to have.

 

Hook, line and sinker

There are fine walks to be had in the west, too. In Charlottenburg, the Kensington of Berlin, the mood is gentler, yet you can still feel the city humming. Here, there are some classic places to eat and drink – the Literaturhauscafé for breakfast and, for dinner, Marjellchen, a treasure trove of east Prussian forest delights. Anything that can be shot and put in a pot!

For a real Berlin experience, though, head at nightfall for Zwiebelfisch, the great tavern on Savignyplatz, and watch the trains glide by on the other side of Kantstraße. Hartmut Volmerhaus, a most amusing host, has been the guvnor here for more than 30 years and there are no signs that his race is run. The “Fisch” at twilight: there’s nowhere better to feel the pulse of this remarkable city. 

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage