The wait is finally over. In the last quarter of 2009, our economy grew by 0.1%, thereby ending the longest and deepest recession since records began. Yet our long-term economic prospects are still devastatingly bleak – hostage to a deteriorating government that seeks to protect its own narrow political interests at all costs and an opposition that lacks the bravery or integrity to resist it, our dysfunctional economy limps on, in need of emergency treatment.
The biggest obstacle to long-term economic stability is undoubtedly our current mountain of debt – an enormous £175 billion. Not only is our deficit stunting growth by diverting funds away from private investment, but because our debt (à la Zimbabwe and turn-of-the-century Argentina) is largely financed by our central bank, we now find ourselves with high inflation and a devalued sterling. In fact, prices have been rising steadily over the last year and, with an increase in VAT still to come, are predicted to rise even further. While Mr. Brown is right to remind us that this is a global crisis, Britain has suffered particularly badly. We were, for example, the last of the G20 countries to come out of recession, and British inflation is well above the norm for developed countries. In reality, Brown’s wanton spending and profligate debt accumulation over the past decade left us particularly vulnerable to the sort of economic dislocation that occurred in 2008. Between 2002 and 2008, for instance, government spending increased by 48%, yet the revenue raised through taxation during the same period only went up by 41% – meaning that before the crash in 2008 we possessed a huge deficit of £43 billion. In short, we have been spending well beyond our means for almost a decade.
Public spending is, of course, vitally important. One could credibly contend that public services are the yardstick by which societies are measured. However, while we all naturally seek the finest public services, every government, however admirable their intentions, must engineer spending plans that reflect their ability to pay for them. Just as individuals and businesses base their expenditure around their income, so must our government. Indeed, restraint when it comes to spending taxpayers’ money is not necessarily a bad thing. Government is, by nature, a particularly poor allocator of resources. The logic holds that one is, on the whole, less prudent when spending other people’s money and, in the absence of shareholders to whom one is accountable, the impulse for efficiency is stifled. For example, the monolithic National Health Service – currently the third largest global employer – is spectacularly wasteful, demonstrating how big budgets do not automatically bring big results. Despite the fact that health spending has risen by over 6% a year in real terms over the last decade, we produce health outcomes, in particular, heart and cancer survival rates, that are significantly below average throughout the industrialised world.
In my mind, this comes to the heart of the problem. Not only are governments instinctively inefficient, but there is also a natural limit to what they can achieve. Governments cannot legislate to make us happy; they can provide a framework within which we are at liberty to pursue happiness. Indeed, major advances throughout history were not secured by state authorities, but by individuals freely pursuing their own endeavours. We are no different today – all of us are rational, independent individuals capable of making reason decisions. Small government empowers individuals, imbuing in them a real sense of self-reliance and personal accountability.
Thankfully, all parties, in their rhetoric at least, recognize that public spending must come down. Mr. Osborne set the agenda with a conference speech that stressed “austerity”, while the Chancellor is now employing vocabulary such as “grossly inefficient” to describe parts of the public sector. However, neither party has produced a coherent plan that can credibly reduce the deficit. Mr. Darling’s Pre-Budget Report was wildly optimistic, relying on, among other measures, a positively herculean 3.5% rate of growth in 2011 and 2012. Indeed, although the government has announced a series of cuts to higher education, defence and Foreign Office budgets, they have refused to publish a robust overall plan. Of course, for this crumbling Labour government, protecting the public services, however wasteful they might be, shores up their core vote that tends to use these services at a disproportionate rate. Put bluntly, it is the sort of cynical politicking that has characterised Mr. Brown’s premiership. However, the Tory response has been equally weak. Not only have Osbourne and his colleagues opposed the cuts that have been made to extract petty political capital, but the cuts they propose themselves (saving us roughly £7 billion) are miniscule in relation to the size of our huge debt. Worse still, Mr. Cameron appears to have jettisoned his natural frugality in a crass attempt to outflank Labour on the middle ground; most notably, in his public promise to protect the exorbitant health budget.
Back in October, Cameron used his conference speech to attack the concept of big government :”Don’t they see? It is more government that got us into this mess”. Cameron envisaged a society that encouraged individuals, not the state, to take responsibility for their own lives. It was, without question, the most fluent and passionate defence of individual liberty in the recent history of mainstream politics. Why then, is Cameron now intent on ruling out “swingeing cuts”? One suspects that it is because he merely plans to ride the wave of public dissatisfaction with Brown straight into In other words, he is playing not to lose Downing Street rather than win outright. Along the way, a sophisticated, Obama-style media campaign will invite us to focus on the re-branded, fresh style of the modern Conservative Party, rather than its now stolid substance. Mr. Cameron’s ideological acquiescence is understandable, pragmatically shrewd, even, and it may secure victory at the ballot box, but it is a reckless and callous long-term strategy. A Cameron-led government will surely find it easier to make the cuts that our economy demands if he has prepared the electorate. Indeed, Britons today understand that cuts have to made and, on the whole, actively seek a smaller, less oppressive, state.
Most importantly however, he must reassure the international markets that are rapidly losing confidence in Britain’s fiscal aptitude. The Greek government ignored their large deficit and found that their creditors lost patience. Doubting their ability to repay this debt, international agencies down-graded Greece’s credit rating and lenders imposed higher debt interest. Now, in a desperate attempt to avoid bankruptcy, the Greek government has surrendered all economic matters to the Lisbon Treaty-strengthened European Union, which now has the authority to make arbitrary decisions on Greek economic policy. Sadly, our representatives at Westminster are disturbingly close to emulating the mistakes of their Athenian counterparts: debt represents 12.7% of Greek debt and accounts for 12.8% of ours. Whoever forms the next government must buck this trend; they must summon the political courage to make the vital, – yes, even the “swingeing cuts” that our economy demands. The alternative: a truly catastrophic Greek tragedy.