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
Campaign pictures/Office of Jorge Sharp
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Meet Jorge Sharp, the rising star of Chile’s left who beat right-wingers to running its second city

The 31-year-old human rights lawyer says he is inspired by Jeremy Corbyn’s alternative politics as he takes the fight to the Chilean establishment.

Bearded, with shaggy hair, chinos and a plaid shirt, 31-year-old Jorge Sharp does not look like your typical mayor elect. But that does nothing to stop him speaking with the conviction of one.

“Look, Chile is a country that solely operates centrally, as one unit,” he says. “It is not a federal country – the concentration of state functions is very compact. In reality, most of the power is in Santiago. There are many limitations when it comes to introducing significant changes [in local areas].”

In October, Sharp upset Chile’s political status quo by defeating establishment rivals in the mayoral election of Valparaíso, the second city of South America’s first OECD country. He is taking office today.

Often compared to Podemos in Spain, Sharp’s win was significant – not only as yet another example of voters turning against mainstream politics – because it denied Chilean right-wing candidates another seat during local elections that saw them sweep to power across the country.

As the results rolled in, Conservative politicians had managed to snatch dozens of seats from the country’s centre-left coalition, led by President Michelle Bachelet, a member of Chile’s Socialist Party.

Sitting in one of Valparaíso’s many bohemian cafes, Sharp accepts the comparison with Podemos gracefully but is keen to make sure that Chile’s new “autonomous left” movement is seen as distinct.

“What we are doing in Chile is a process that is difficult to compare with other emerging political movements in the world,” he says. “We are a distinct political group and we are a modern force for the left. We are a left that is distinct in our own country and that is different to the left in Spain, in Bolivia, and in Venezuela.”

Sharp’s Autonomous Left movement is not so much a party rather than a group of affiliated individuals who want to change Chilean politics for good. Considering its relatively small size, the so-called Aut Left experienced degrees of success in October.

Chilean voters may have punished Bachelet – also Chile’s first female leader – and her coalition after a number of corruption scandals, but they did not turn against left-wing politics completely. Where they had options, many Chileans voted for newer, younger and independent left-wing candidates. 

“We only had nine candidates and we won three of the races – in Punta Arenas, Antofagasta and Ñuñoa, a district of Santiago,” he says. “We hope that the experience here will help us to articulate a national message for all of Chile.”


Campaign pictures/Office of Jorge Sharp

For Sharp, the success of Jeremy Corbyn, Donald Trump and the pro-Brexit movement are due to people fed up – on a global scale – with their respective countries’ mainstream political parties or candidates. Given that assumption, how would he describe the cause of his own election success?

“The problem in Chile, and also for the people in Valparaíso, is that the resources go to very few people,” he says. “It was a vote to live better, to live differently. Our project for social policy is one that is more sufficient for all the people. It’s a return to democracy, to break the electoral status quo.”   

Sharp – like many – believes that the United States’ Democrat party missed out by passing up the opportunity to break with the status quo and choose Bernie Sanders over the chosen nominee Hillary Clinton. “They would have been better off with Sanders than Clinton,” he believes. 

“The [people] in the US are living through a deep economic crisis. These were the right conditions for Trump. The people weren’t looking for the candidate from the banks or Wall Street, not the ‘establishment’ candidate. The way forward was Sanders.”

Turning to other 2016 geo-political events, he claims Brexit was a case of Britons “looking for an answer to crises” about identity. Elsewhere in South America, the tactics of former Colombian president Álvaro Uribe – who led the “No” vote campaign against peace with the Farc – were “fundamentally undemocratic”.

In the future, Sharp hopes that he and the rest of the Autonomous Left will be better-prepared to take power in higher offices, in order to further reform social policy and politics in Chile.

“For these elections, we weren't unified enough,” he concedes. “For 2017 [when national elections take place], we will have one list of parliamentary candidates and one presidential candidate.”

And while Sharp clearly sympathises with other left-wing movements in countries throughout the world, this is not a call for a unified approach to take on the rise of the right.

“Every country has its own path,” he finishes. “There is no single correct path. What we need to do [in Chile] is articulate a force that’s outside the political mainstream.”

Oli Griffin is a freelance journalist based in Latin America.