The coalition’s strategy for growth came under renewed pressure today from three leading economists. The remarks were made at an ippr event on growth.
Will Straw is editor of ‘Going for growth‘, a collection of essays from leading academics and economic thinkers.
The coalition’s strategy for growth came under renewed pressure today from three leading economists. Martin Wolf, Professor Wendy Carlin and Gerald Holtham discussed ideas from a new book on growth at the Institute for Public Policy Research.
Speaking at lunchtime today, the Financial Times’ chief economics commentator, Martin Wolf, said:
“I think it’s pretty clear that we agree that the Government doesn’t have a plan for growth and I think we all agree that the deficit reduction plan is enormously risky in terms of macro[economics] and ill supported by the risks tha they have pointed to.”
Following remarks made in a recent op ed (£), he questioned the government’s approach to cutting the headline rate of corporation tax rather than providing increased investment allowances. He went on to list the importance of macroeconomic stability which meant more than solving the “inflation problem”, “making the use of land less irrational” through better land use planning, and “raising standards of education and training through all levels of society”.
Venture capitalist, Gerald Holtham, fleshed out his contribution to the collection of essays arguing for a state-led investment vehicle for the production of marketed services such as toll roads, high speed rail, and wind farms. His argument, which has been set out previously on Left Foot Forward and in the Financial Times (£) and could provide a template for the mooted Green Investment Bank, was largely endorsed by Martin Wolf. In the Q&A, Holtham described the coalition’s current approach as “ideological” and said:
“I don’t think that cutting the corporation tax is going to solve any problems.”
Professor Wendy Carlin of University College London and the Centre for Economic Policy Research presented slides outlining the UK’s economic predicament which showed that compared to previous recessions, unemployment rates had taken a less severe hit during the current recession. Carlin also detailed how the UK’s front-loaded fiscal consolidation put it at odds with other G7 countries as the graph below shows.
Carlin suggested a three point plan for government which would make use of:
– the low interest rate environment to promote investment along the lines later set out by Holtham;
– complementing behavioural changes induced by increases in the oil price with policies to steer “large-scale structural change towards a low-carbon economy” by; and
– the boost to tradeable goods and services from depreciation by using complementary rather than conflicting policies.
Carlin and Wolf both criticised the Government’s immigration policy with Carlin arguing that the current policies were damaging higher education and “other high value added industries”.
A podcast of the event can be heard here.
26 Responses to “Martin Wolf: “The Government doesn’t have a plan for growth””
pigreen
RT @leftfootfwd: Martin Wolf tells @ippr event: "The Government doesn't have a plan for growth" http://bit.ly/f07kXt
Mark Stevo
All that China tells you is that if you suppress the private sector for hundreds of years and stifle economic growth, then you’ll see massive economic growth when you relax the restrictions. I’m not sure how you’d apply those lessons to UK policy.
Mark Stevo
While we’re on the subject of Germany, I’m not sure their recent strong performance is a strong endorsement of tight economic policy. Certainly if we were to compare unemployment rates on average over the last 10 years we’d reach a rather different conclusion.
Will Straw
Thanks for the comments:
william – I suggest you give Gerry Holtham’s chapter in ‘Going for growth’ a full read. The argument is that there is another side to the balance sheet.
Guido – What’s the correlation you’re referring to? As others say, China and Germany would be significant outliers.
Mark – What do you mean by ‘tight economic policy’? Britain’s active labour market policies under Labour were to thank for both the highest employment levels in history and the lower impact on unemployment of the recession. Wendy Carlin’s slides cover the latter point. Germany has also used active labour market policies to reduce the impact of the recession on unemployment. Where we have something to learn from Germany is how you support industry with government-led measures.
Mark Stevo
Lazy typing on my part. The point being that a liberalization of Germany’s labour Market had contributed, at least in part, to their outperformance on a variety of metrics following a decade of significant underperformance. Germany’s outperformance of late isn’t a ringing endorsement of active government intervention at all. I’m not sure which slide of Wendy’s you’re referring to, I suspect it might be slides 8 and 9, but given that there’s no cross country comparison it more than a little tenuous to draw the conclusion that it was “Labour wot dun it”.