Recession or Regression?

Many commentators talk about when ‘the upturn comes’ as though recovery to former prosperity is a certainty for the UK but what guarantee is there that the historic pattern will be followed? What if the results of the banking crisis are actually the trigger to a new pattern?

A fairly small news story of a few months back has struck an interesting chord with many people and it is this – the closure of the last piano factory in England. It is an event that people remember because somehow it had those characteristics that sum up events in an iconic way. Here was a great craft of skill and creativity blinking out, a frail victim of the onslaught of foreign imports.

The story it tells is of the sealing our industrial heritage, our strength in manufacturing as no more than history.

Our national leaders talk about the importance of the financial sector, of the ‘new industries’ that are actually just optional services. This, we are told is our national salvation. They are presumably so busy trying to woo public opinion (for votes etc) or lining their own nests that they fail to sit in a quiet place, take a long drink from the sharp-tasted cup of reality, blank their minds to their own artificial constructs, and think about the fundamentals.

Do not be fooled. The financial services and the ‘new industries’ are already in the sights of the energetic and fast developing nations. If you want a web site coded, you can hire a team in Bangladesh or India at a fraction of the price you would pay in the UK. Want a three-dimensional photo-realistic animation of a building project and you can save massively with outfits operating out of China. If you are an international concern seeking financial services and Hong Kong is ready to offer deals that can outrank London’s fat cats.

In a way, the economic changes are of a kin to global warming – people are still arguing about whether such phenomena exist. By the time that acceptance happens, it will be too late to do anything about it.

Look at the figures. As we hover a percentage point or so on either side of nil, some of the emergent economies are bashing on with double figures and the rest are just below that threshold.

What is on our agenda?

Politicians have delayed the day of reckoning through the self-interest of not hurting the voters with an election looming. They have borrowed and printed money. The current situation is a fiction supported only by tricks of smoke and mirrors, described with fast-sooling hot air. They have not protected the economy from long term damage, only staved off the day of reckoning.

Post election, we will become a lot worse off because in one way or another, often through the most tortuous of routes, our nation has got to start paying off the debts of all those people who have lived off non-existent wealth – whether through bonuses paid on now-sour debt-based deals, mortgages that cannot be honoured or other loans.

Not only that: very few forecasters have factored in the inter-dependence that government spending has with the rest of the economy. The big effect will not be the government department jobs to go under the big cuts but the agencies and businesses who have supplied the public sector and lived off the artificial boosts that were injected. They will shed labour, reduce their inputs from other dependent trades or fail at the expense of their creditors.

This domino effect has one clear message: we are not about to come out of recession, we are on the brink of regression – a massive step backwards in our prosperity and standards of living to what existed quite a long time ago. Let us hope it teaches us all that there is no such thing as a free lunch.