Osborne shouts bingo - but let's first keep up with Paraguay

The UK cannot achieve a sustainable recovery until it can pay its way in the world, and despite a 25% depreciation of the currency over the last 5 years it still fails lamentably to do so.

Osborne’s reckless boast that he has been proved right over the economy will come back to haunt him. None of his claims stand up to examination.

“Those in favour of Plan B” (i.e. stimulating the economy to produce growth), he asserts, “have lost the argument”. That will be news to employees whose real earnings at current rates will have shrunk by £6,660 during the 2010-15 parliament. It will also come as a surprise to the UK’s biggest companies still sitting on corporate cash stockpiles of £700bn because they doubt the level of demand justifies new investment in plant or services.   The stock exchange and finance markets may be frothing, but the real economy isn’t.

Nor is it likely to be any time soon. In the last 5 years UK investment has fallen by a quarter in real terms, which is devastating in terms of future growth potential. It now stands at just 14% of GDP, against a global average of 24%. Indeed in terms of the global investment-to-GDP league Britain now stands 159th, behind El Salvador, Guatemala and Mali. A recovery based on low wages, poor productivity and weak investment must be expected to stutter and slip back by 2015.

Nor does the historical evidence indicate that Osborne’s counter-intuitive plan, known by the oxymoron of ‘expansionary fiscal contraction’, has ever worked.  It has been tried three times before – the so-called ‘Geddes axe’ cuts in 1921-2, the May businessmen committee cuts in 1931, and the Howe budget in 1981. The first enforced expenditure cuts very similar in real terms to today and led to a decade of anaemic growth.   The second was only saved from a similar fate by Britain being forced off the gold standard. The third led to growth only because interest rates were eased, bank lending loosened and a reviving US helped to reflate the world economy. None of those conditions remain now to be applied, so there is no reason to believe the Osborne ‘recovery’ will defy historical precedent.

Osborne’s second claim is that “Britain is poorer because of a huge failure of economic policy in the past decade” (i.e. it was all Labour’s fault). In other words, falling incomes today are due, not to his own policies of austerity, but to Labour’s over-spending which caused the recession. But Labour didn’t over-spend, and didn’t cause the recession – the bankers’ crash did that. The budget deficit in 2007 just before the crash was only 2.9%, below the OECD average, and only rose to 11.6% in 2010 because of the enormous bank bailouts. Even by the time of the election in 2010 the UK national debt had only risen to 77% of GDP which compared with 75% for Germany, 84% for France, and 93% for the US. Labour spending was not out of line with other lead countries.

Equally it is disingenuous for Osborne to claim that today’s diminishing incomes – the longest fall in wages since the 1870s and on average 9% down in real terms since pre-crash levels – owes nothing to his austerity programme and all to the recession. Of course the latter has had a major impact, but to pretend that £81bn of expenditure cuts and £18bn (and counting) of benefit cuts have not significantly exacerbated the downward pressure on incomes is absurd.

Third, “nor are we seeing”, the Chancellor has claimed, “a return to unsustainable levels of indebtedness and household borrowing”. Well, actually, we are. Frighteningly, household lending is just 0.3% below its 2008 peak, while lending to firms is now 22% lower and if account is taken of inflation it’s fallen by a stunning 32%. There is no other way of describing this except as unsustainable. At the same time it’s clear that another major housing bubble is well under way, driven by Osborne’s own Help to Buy scheme, with estate agents the fastest growing sector in the workforce. Debt-to-income ratios, previously falling, have now turned up again. Plainly the recovery, such as it is, is propelled by borrowing.  And an economy dependent on consumer debt together with low wages, weak investment and poor productivity is likely once again to slip back after an initial short burst of expansion.

Osborne’s last assertion was that “growth had been too concentrated in one corner of the country – and HS2 will transform the UK’s economic geography”. The former statement is certainly true, with any recovery heavily concentrated in London and the south-east. But HS2, even if it goes ahead with a price-tag heading north of £50bn, will not remotely produce the degree of economic rebalancing required. The country’s finance sector is still too large and dominant, while manufacturing is shrivelled well below its potential.

The UK cannot achieve a sustainable recovery until it can pay its way in the world, and despite a 25% depreciation of the currency over the last 5 years it still fails lamentably to do so. The UK has only had a surplus in traded goods six times in the last 55 years, and last year the deficit on traded goods was £106bn, equal to 7% of GDP. HS2 won’t conceivably solve a problem of these proportions – only a fundamental revival of the UK’s capabilities for high-tech manufacturing will achieve that.

British Chancellor of the Exchequer George Osbourne speaks during the Conservative Party Conference in Manchester. Image: Getty
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Britain's commemoration of Partition is colonial white-washing in disguise

It’s much easier to focus on the indigenous perpetrators of religious violence than on the imperialist policies that facilitated it.

While in London a couple of weeks ago, I couldn’t help but notice a curious trend in the British media’s coverage of the upcoming 70th anniversary of the end of British colonial rule in the Indian subcontinent. It wasn’t the familiar think-pieces about "the jewel in the crown", thinly disguised nostalgia for empire masquerading as critiques of colonialism (see for example, The Conversation’s piece on how colonialism was traumatic for, wait for it, officials of the British Raj). It wasn’t the patronising judgements on how India and Pakistan have fared 70 years down the road, betraying the paternalistic attitude some of the British commentariat still harbours towards the former "colonies". It wasn’t even the Daily Mail’s tone-deaf and frankly racist story about 92 year old countess June Bedani and her “loyal Indian houseman” Muthukanna Shamugam, who doesn’t even speak a word of “Indian” (that’s just classic Daily Mail). What got my attention was the British media’s raging hard-on for Partition - a flurry of features, documentaries and TV specials about one of the biggest and bloodiest mass migrations of the 20th century.

Just take a look at the major headlines from the past couple of weeks - "They Captured And Forced Him Out Of His Home: This Isn’t Syria In 2017, It Was India In 1947" (Huffington Post UK); "Partition: 70 Years On" (The Guardian, BBC and Independent, each with a different subhead); "The Real Bloody Legacy Of Partition" (The Spectator); "Remembering Partition: 70 Years Since India-Pakistan Divide" (Daily Mail) and many more. It isn’t that - unlike some of my more reactionary compatriots - I believe that the Partition story shouldn’t be documented and spoken about. On the contrary, I think India and Pakistan have failed to grapple successfully with Partition’s scars and still festering wounds, and the way it still haunts both our domestic politics and our relationship with each other. But the overwhelming focus on the grisly details of Partition by the British press is deeply problematic, especially in its unsubtle erasure of British culpability in the violence. Even the Guardian’s Yasmin Khan, in one of the few pieces that actually talks about the British role in Partition, characterises the British government as “naive and even callous” rather than criminally negligent, and at least indirectly responsible thanks to its politics of "divide and rule". Of course, it’s much easier to focus on the indigenous perpetrators of religious violence than on the imperialist policies that facilitated it. That would require the sort of national soul-searching that, even 70 years on, makes many British citizens deeply uncomfortable.

Rose-tinted views of empire aside, the coverage of Indian and Pakistani independence by the British press is also notable in its sheer volume. Perhaps, as some commentators have suggested, this is because at a time of geopolitical decline and economic uncertainty, even the tainted legacy of colonialism is a welcome reminder of the time when Britain was the world’s reigning superpower. There is certainly some truth to that statement. But I suspect the Brexit government’s fantasies of Empire 2.0 may also have something to do with the relentless focus on India. There is a growing sentiment that in view of historic and cultural ties, a post-Brexit Britain will find natural allies and trade partners in Commonwealth countries such as India.

If that’s the case, British policy-makers and commentators are in for a reality check. The truth is that, despite some simmering resentment about colonialism, most Indians today do not care about the UK. Just take a look at the contrast between the British and Indian coverage of Independence Day. While there are a handful of the customary pieces about the independence struggle, the Indian press is largely focused on the here-and-now: India’s economic potential, its relationships with the US and China, the growing threat of illiberalism and Hindu nationalism. There is nary a mention of contemporary Britain.

This is not to say that modern India is free of the influence - both good and bad - of colonialism. Many of the institutions of Indian democracy were established under the British colonial system, or heavily influenced by Britain’s parliamentary democracy. This is reflected both in independent India’s commitment (in theory, if not always in practice) to the ideals of Western liberalism and secularism, as well as its colonial attitude towards significant sections of its own population.

The shadow of Lord Macaulay, the Scottish legislator who spent four eventful years in India from 1834 to 1838 and is considered one of the key architects of the British Raj, still looms large over the modern Indian state. You can see it in the Penal Code that he drafted, inherited by both independent India and Pakistan. You can see it in Indian bureaucracy, which still functions as a paternalistic, colonial administrative service. And you can see it in the Indian Anglophile elite, the product of an English education system that Macaulay designed to produce a class of Indians “Indian in blood and colour, but English in taste, in opinions, in morals, and in intellect.” It was this class of Anglophile Indians who inherited the reins of the Indian state after independence. It is us - because I too am a Macaulayputra (Macaulay’s child), as the Hindu right likes to call us. We congratulate ourselves on our liberalism and modernity even as we benefit from a system that enriched the few by impoverishing the many. This class of brown sahibs is now the favourite punching bag of a Hindu nationalism that we have allowed to fester in our complacency.

Still, ghosts of the past aside, the UK no longer holds sway over young India, even those in the Anglophile upper classes. Today’s young Indians look to the United States for their pop culture references, their global aspirations and even their politics, both liberal and conservative (see the Hindutva fringe’s obsession with Donald Trump and the alt-right). We still want to study in British universities (though increasingly strict visa rules make it a less attractive destination), but we’d rather work in and emigrate to the US, Canada or Australia. We drink coffee rather than tea (well, except for the thoroughly Indianised chai), watch Veep rather than Yes Minister, and listen to rap, not grime.

Macaulayputra insults aside, the British aren’t even the bogeymen of resurgent Hindu nationalism - that dubious status goes to the Mughal Empire. Whether this cultural turn towards America is a result of the United States’ cultural hegemony and economic imperialism is a topic for another day, but the special "cultural links" between India and the UK aren’t as robust as many Brits would like to think. Which is perhaps why the UK government is so intent on celebrating 2017 as the UK-India year of Culture.

Many in the UK believe that Brexit will lead to closer trade links between the two countries, but much of that optimism is one-sided. Just 1.7 per cent of British exports go to India, and Britain's immigration policy continues to rankle. This April, India allowed a bilateral investment deal to lapse, despite the best efforts of UK negotiators. With the Indian economy continuing to grow, set to push the UK out of the world’s five largest economies by 2022, the balance of power has shifted. 

The British press - and certain politicians - may continue to harbour sepia-tinted ideas of the British Raj and the "special relationship" between the two countries, but India has moved on. After 70 years, perhaps the UK will finally realise that India is no longer "the jewel in its crown". 

 

Bhanuj Kappal is a freelance journalist based in Mumbai.