IMF Review of the UK Economy

I’m sorry to keep banging on about this, but much of the deficit reduction pain would be mitigated if we were actually growing our economy. That would mean more taxes, less unemployment and less benefits. Although when it all goes wrong, we can expect our Chancellor to be surprisedly holding up his hands claiming all of this was unforeseeable.

Now all of this is very fraught. It’s a bubble that depends on confidence. So the journalists are telling us that as soon as the existence of a Plan B in admitted, then Plan A is dead. All of which means that we need to read between some especially wriggly lines when looking at reports.

The BBC has been airing a fascinating series by Adam Curtis – “All Watched Over by Machines of Loving Grace“. Which reminded me that the chief  function of the IMF seems to be to safeguard the investment of international bondholders – often at the expense of the economies of the individual nations.

And although the film highlights this in the context of the Far East crashes – particularly the Indonesian riots of 1997 – it’s easy to see the patterns repeated recently in Greece, Portugal and Eire. An initial “bail out” results in a capital exodus, and more assistance is then required. The taxpayers then have to pick up the tab.

A quick aside:

• There’s never actually been much risk of nations defaulting – it’s just another excuse to charge higher interest.
• Maybe the bondholders should carry some of the risk of the free markets they push us all into.
• Ironically, one of the benefits of debt reduction may be that we get out from under this tyranny – but I bet we still continue to borrow money
• According to Peston (from memory), our average debt repayment is 13 years. So there is no real reason to rush the cuts. 

But I digress … The IMF report is apparently supportive of our government’s deficit reduction plan. But once again, we’ve a downgrade of a growth forecast – down to 1.5% from a hardly spectacular 1.7%. But it’ll be alright “in the Medium Term”. Jam tomorrow, then.

Similarly, we’ve got inflation at 4%. And the IMF think this will return to 2% by the end of the year ( presumably as the VAT increase drops out). However, as we’re getting almost 20% increases in Gas prices, and world food prices aren’t reducing I suspect that this might be optimistic.

The IMF is keen not to rock the boat, but as the BBC report points out, the previous assessment of our economy as “on the mend” has been revised to “repair … is underway”.

Actually I’m not on my own here.  A whole bunch of economists have written an open letter to the Guardian suggesting that these policies might need a bit of tweaking. And Stephanie Flanders seems to be keeping real on her ‘blog.

Meanwhile, lots of the cuts have still to be fully implemented, and we’re also hearing that manufacturing output is dropping and confidence in the economy is down to 10%. Retail spending is falling. All suggesting that this experiment in reviving Thatchernomics is whirling us further down the plughole (just as a reminder – it didn’t work the first time).

Disintermediation

… is the Americanism for “cutting out the middle-man”.

In general, this is seen as a good thing. But (since Thatcher destroyed British manufacturing industry and tried to move us to a “service economy”) a huge proportion of our economy comprised middle men.

Sadly, these are the jobs (and the people who occupied them) have been rendered functionally redundant by the internet revolution and the single market.

Because when the manufacturer can ship direct to the customer, there’s no need for importers, distributors, wholesalers or retailers. There’s nothing malicious about this, it’s just the market at work.

Even the supermarkets are now seeing the benefits of on-line shopping.

Much of this was latent (or chugging along at a low level) before the recession hit, but the downturn’s given corporates a chance to “rationalise” or “right-size” those jobs out of the supply chain. So the toolmakers and miners who lost their jobs in the 80’s have being joined by the warehousemen, stock controllers and despatch clerks.

These aren’t jobs that are likely to reappear even if there’s an economic upturn.

Now the impact of all this could be hidden for a while in the unemployment figures. Soak up a few in the public sector. Persuade teenagers to stay on at school and go to university. But it is an underlying, structural problem that isn’t going to go away.

And when you add to that the “offshoring” of call centres and IT development (hey – there goes the service economy) to countries with lower labour costs, there’s nowhere left to go.

The only real answer is that we need to start making stuff again. Stuff that people (or companies) want to buy – people in this country and people abroad. Things that we can do better than others – records, movies, television programs. Or that nobody else can make – like Scotch whisky and Stilton cheese.

We need to safeguard our national assets – the Cup Finals and Grand Prix. And our national brands – like Worcester Spode, Wedgewood and Caithness (although it’s too late for some of them). Even though the markets might not be in favour. And we need to find a way to exploit them worldwide.

Most importantly, we need to retain the skills, and transfer them to the next generation. That means apprenticeships and engineering degrees – as well as (the much-maligned) Media Studies and other creative arts.It means vocational qualifications which result in marketable skills rather than £50k of debts.

But more importantly, it means investment in innovative companies that can make this happen. The Chinese are able to assign the resources they need to achieve strategic goals. We need to be able to find a way do the same.