Long-term thinking for the UK economy

 
Plane taking off at Heathrow Airport Will the government build any new runways in the South East?

Why do we spend so little time talking about what really matters?

That's the question I once again asked myself, reading the final report of the London School of Economics' Growth Commission.

Before you ask, I haven't just come back from a spiritual retreat, eager to talk about enlightenment and the meaning of life (I was in Davos, which - trust me - is not the same thing at all).

I'm still talking about economics here.

But reading and listening to the political debate about UK economic policy, you'd be forgiven for thinking that the most important economic decisions the government makes are all fiscal: Will they or won't they press ahead with Plan A, or Plan A-minus? How much, exactly, will it cut from welfare? And when?

Strategic failure

These are important short-term issues - especially if you're someone affected by one of those cuts. They might have some impact on the recovery. And, of course, they are exciting politically, with lots of opportunity for the main parties to lay into one another.

But if you ask business leaders, or most economists, which government decisions taken over the next few years will have the biggest long-term impact on our economic future, I'm not sure that Plan A versus Plan B would even make it to the top three.

Far more important, to them, would be the kind of long-term strategic choices highlighted in the LSE's report.

For example:

  • Will the government build any new runways in the South East - or come up with a better way of taking these big infrastructure decisions in the future?
  • Will planning reforms actually make it easier to expand businesses - or build the right kind of new housing?
  • Or will the financial system get better at channelling investment funds to growing firms?

To economists, all of these things probably matter more, to Britain's economic future, than the short-term debate between Plan A and Plan B.

That's because, one way or another, they all go to the Achilles heel of the UK economy: "A failure to achieve stable planning, strategic vision and a political consensus on the right policy framework to support growth".

Britain has many economic strengths, the LSE Report points out. But that consistently short-termist, confused approach to investment - in our physical capital and in our people - is holding us back.

The report gives Britain's politicians a good chunk of the blame for this strategic failure. But there is plenty more to go around.

Update 18:05

I've been speaking to one respected economist and policymaker who thinks I've forgotten one big way that short-term decisions on UK fiscal and monetary policy could affect the UK's long-term economic health. That is through their effect on youth unemployment.

According to the latest figures, there are 633,000 16-24 year olds out of work in the UK (excluding those in full-time education). That's an unemployment rate of 18%. About 28% of these young people have been looking for work for over a year.

As we know, the economy has been producing jobs, even though it has not been producing much growth. But young people have received less than their fair share of that extra work. The slower the recovery, the longer it may take for them to get their foot on the ladder.

As my economist friend points out, that's not just bad news for the people affected and their families. It's also bad for the country, long-term, because all the evidence suggests that individuals who have a period of unemployment at the start of their working life pay a heavy price for that bad luck. Their earning power is permanently affected and they are more likely to need financial support from government.

So, there is at least one way in which short-term decisions on macroeconomic policy by the Bank of England and the chancellor could be important for the long-term as well.

This doesn't really contradict what I was saying before. The LSE report highlights the great need to invest in our human capital, by improving our education system and investing in skills. But the authors of the report (and the secretary of state for work and pensions) would probably agree - one of the greatest investments that any government can make in its future workforce is to help get unemployed young people into work.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
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    Comment number 260.

    UK has banking sector which is very successful but does not support the industries and services across the country. This is a structural and long term problem which has never been dealt with. USA Germany and others have much more supportive banks behind their economies. The government could make the system perform a lot better for UK Ltd.

  • rate this
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    Comment number 259.

    Some might argue they ply their trade with great success.

  • rate this
    +1

    Comment number 258.

    The LSE is right over the past 50 years UK economic policy has failed. 50 years ago we were the third richest country in the world measured by GDP per capita (PPP) today we have fallen to 23rd behind not only Germany but also the Netherlands, Singapore and Ireland our standard of living is worse than our neighbours and our media has failed to get our politicians to face up to their failure

  • rate this
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    Comment number 257.

    £ falling still low exports (the price in the widow got less but turn over is stagnant)

    Bond market bubble about to pop

    Japan in big trouble

    The fed printing the $ into the ground whilst buying back over 60% of what it issues

    Germany & the like wanting gold back

    Inflation way higher than ONS states (everyone knows that) therefore GDP even lower so STILL in recession!

    OK BRACE YOURSELVES

  • rate this
    +1

    Comment number 256.

    Woh hang on, this growth forecast GDP small talk is al very well BUT when the bond market starts to crumble (the signs are that that will be soon, very soon) & the £ is still falling we R going to be in the big sticky stuff R we not?!

    I mean if the price of UK sov debt goes up on the back of a bond market fall we will have no where to go with interest rates will we not

    A car crash seems likely

  • rate this
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    Comment number 255.

    Why not impose an across the board 1% WEALTH tax on everyone, in one go...
    1% tax on the bottom 80% of the population will probably yield the same amount as 1% tax on the top 20%.
    So it would be considered a fairer method of reducing the debt.
    After all, who has benefited most from the excesses of the last 20years..

  • rate this
    0

    Comment number 254.

    there is no economic model that won't run out of steam, no fire on earth that doesn't run out of fuel, when it runs down it runs down like extinct species that have ceased to be, when it's gone it's gone and unless you can rework what you've got that will be your lot too. They used to burn the planks off the decks when they got desperate, every ship has it's storm. Will the night have a dawn?

  • rate this
    0

    Comment number 253.

    @248.DevilsAdvocate
    "the Beeb doesn't agree with you"

    "Company taxes up 19% since 2005, says PwC; 17% drop in corporation tax payments since 2005."

    "The current debate sometimes confuses compliance with the rules with tax policy itself."

    Ah. So that's what it is...

  • rate this
    0

    Comment number 252.

    after thirty years of violence and more and worse elsewhere they say end this mess by what power by jupiter? One more round of the hooblies with no end in sight.

  • rate this
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    Comment number 251.

    We really do need to commit ourselves to Europe and sign up to the Euro, it has been crash tested and survived.

    Being part of the European main steam, instead of windging on the sidelines, will give us the chance to set the agenda in an Anglo Saxon way.

    Foreign investors, who wonder what we are playing at, will invest in the UK and we will get our economy moving again.

  • rate this
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    Comment number 250.

    In monopoly their is very low taxation,few rules or regulations yet you can play for hours with a vibrant game,but if the system becomes monopolised slightly,the system soon, needs taxation to bring back balance or bankruptcy is not far away even for the winner

  • rate this
    -1

    Comment number 249.

    @158.WANAITT
    "...the DEBT mountain they are leaving for future generations"

    North Korea's debt mountain is less than 1% of its GDP. Debt isn't necessarily the problem per se, it's how it's managed that is. That or debt to GDP ratios are useless at worst; misleading at best.

  • rate this
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    Comment number 248.

    Sorry I disagree.The govt already has reduced it, hows that going? Tax evasion is rife.
    ==
    http://www.bbc.co.uk/news/business-21144221
    the Beeb doesn't agree with you, also do you mean Evasion or Avoidance?

  • rate this
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    Comment number 247.

    25.The Jester
    There are only THREE ways forward. It will cost and must be taken on the chin. Reduce Corporation tax to 11% .CGT to zero and VAT to 15%. Do it NOW!
    ==
    UK Tax code has risen from 9000 pages to 17000 pages under Osborne - Tory? My @@@@

  • rate this
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    Comment number 246.

    They are only playing one angle how to run you down

  • rate this
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    Comment number 245.

    But the LSE, with all respect, are academics and not politicians. The difference being they don't put their money where their mouth is.

    The coallition sinks or swims on its competence of the economy.

    There will be no "long-term strategic choices" availble to us if we don't retain our AAA and ability to borrow 25% of all state spending.

    As you note the LSE even missed youth unemployment.

  • rate this
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    Comment number 244.

    You are stuck on earth with endlessly feuding neighbors so watch out.

  • rate this
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    Comment number 243.

    Why do I always feel the BBC finance commentators are establishment apologists?

    Won't they ever express an actual opinion?

    Stephanie at least admits she was wrong, then denies it mind you.

  • rate this
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    Comment number 242.

    domestic problems foreign problems what they underestimate is the danger that some of these people pose to one another they are not all chipper and friendly some of them are quite irritable and bitter veterans be prepared for an epic with 'em.

  • rate this
    +1

    Comment number 241.

    I wonder how many realise the importance of this. Future generations may look back at this as the time when we threw it all away? Other countries are developing rapidly. We are so parochial: short term political point scoring:Plan A/Plan B, Tory v. Labour. Can we encourage each party to spell out at least 3 long term plans. Or is it only universities that have the brains to do this?

 

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