The looming economic disaster will only get worse if those leading us stick to dogma | Economics


he emerging economic forecasts involve such outlandish numbers that they numb as much as shock. The worst recession for 300 years? A worst-case budget deficit this year of £516bn? The greater shock, of course, is that we are living through a pandemic that has already claimed such a vast number of deaths. All else necessarily pales into insignificance.

But those economic numbers will steadily grow in salience – not least because the consequences have to be wrestled with by a government led by second-rate free-market Brexiters. Their ideological mindset – that government and public borrowing are bad, that Britain is an exceptional country for which normal rules do not apply, that robust individualism and free markets are the best default position – is obviously wrong and out of time. Coronavirus is becoming the trigger for a paradigmatic shift in thinking: only thus will Britain be restored not just to medical but to economic and social health.

Economically, the new common sense is that Keynes is back. The government is having to spend, borrow, print money and extend its reach in ways unparalleled in peacetime in order to prevent mayhem. But Keynesianism is more than this – it is an entire body of thought about the way a capitalist economy functions. It goes far beyond doing all that it takes to head off a slump.

Yes, the state must actively manage the economy, keep it afloat to stop it from capsizing. But the state also has to design and adjust the capitalist craft continually so it is as seaworthy, resilient and high performing as possible. It is the opposite perspective to free-market Brexitism.

It is also what the majority of the electorate believe in. Of course, we were readier to accept the constraints of lockdown for the greater good and for our own safety than the Brexiter cabinet ever thought. Of course we clap the NHS and laud essential workers. Of course we want to trust government. And, although it is beyond the Brexiter ken, we are readier to pay taxes for the public good.

There is even the first recognition that Britain, for all its past glories, is not now exceptional – that VE Day was 75 years ago and it’s time to move on. Britain now needs activist, smart government. The current leadership of the Tory party does not know its own country.

For a start there is only one way to get the country moving again in all ways – economic, social and cultural. People must trust that where they work, shop, teach, study, eat and drink is safe. They need surefooted government that seeks active involvement of workers and citizens in decision-making to ensure the right calls are made and are widely owned.

Everything from social distancing rules, regular temperature checks, access to testing, and availability of PPE should be discussed and rules co-created. In particular it means taking on board trade union concerns. What was wrong with Johnson’s decision to begin a careful exit from lockdown is not the judgment call itself, which on balance is right. It is that it was made disregarding employee involvement; workers cannot be bludgeoned. Witness the concerns of teachers at going to work if they consider there is a risk of death.

The government needs to establish best practice on social distancing, sector by sector, and disseminate it. Clear guidance needs to be provided on who should work from home and for how long, how we look after essential workers. It is a degree of micro-management and union involvement that is anathema to libertarian Tories.

Worse, as the Treasury warns, Britain soon confronts a potential sovereign debt crisis given the scale of its deficits, made worse, although officials are too politic to acknowledge this truth even in confidential papers, by the prospect of a no-deal Brexit. This in a 2021 world in which the World Trade Organization has ceased to function. How is Britain to trade itself back to solvency in a protectionist globe but outside the EU?

There needs to be a pre-emptive response. The government has to start funding its deficit with “perpetual” bonds, never to be repaid but which carry a higher interest rate, so recognising the abnormality of its plight. It has to signal a readiness to raise taxes as a necessity, even to breaking its manifesto commitments, across the board: the country is in no mood for more austerity. And it has to exclude a no-deal Brexit, signalling a readiness to extend talks if necessary, to get life-giving access to EU markets. Again, all are anathema.

The government’s emergency loan programmes for business are vital, but many companies are becoming overloaded with debt. Of necessity the debt will have to be converted into shares, in turn converting the government from lender to part owner – in effect creating a kind of sovereign wealth fund.

But with what rules of engagement? What are our expectations of companies that would not be alive without government support? A partial answer must be a new and permanently enshrined role for workplace engagement, workers now obviously as much key stakeholders as those who provide capital. Nor can the noxious societal inequalities be allowed to persist, so that the peril of dying in our society is so much higher depending on where you live.

In short, our free-market Brexit government has to abandon its beliefs if Britain is to get to the other side in relatively good order. Because it can’t – these are mulish men and women resistant to reality – expect an escalating crisis of political authority on top of everything else. The good news is that the ideas and people who have laid this country low are dead men walking. British exceptionalism is finally being laid to rest.

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