A downturn wouldn't be a bad thing if we could clean up financial excess without returning to the early 1980sby David Goodhart / November 23, 2008 / Leave a comment
Is it possible that an economic downturn might raise public spirits? I don’t just mean the initial burst of schadenfreude as financiers become the first to lose their jobs and their silly salaries.
Rather, might the excessively gloomy view of the state of Britain, which has been hanging like a fog over the country for a couple of years, come to be seen as a top-of-the-market indulgence? When people do have something serious to be concerned about, the gap between feelings and reality will narrow—and miserabilism might mutate into a more attractive stoicism.
This raises the related issue of whether there could be such a thing as a “good” recession: one that blows away debt culture and financial excess without bringing back early 1980s joblessness. A good recession that makes us see things more clearly—both in our own lives and the outside world. Not so much a hangover as a cleansing.
So what might a good recession look like? Economically, it would require job losses to be concentrated among educated, entrepreneurial bankers who will roll out into the real economy and start new businesses employing the people who once served them in City restaurants. And it would mean all those City mathematicians and natural scientists going off to work in British industry. It would mean the public sector becoming a little less cowed and the private sector, particularly its higher end, a little less proud. (The public sector would grow as a proportion of the economy for a time, but eventually would need its own debt detox.)
Socially and culturally, a good recession would mean a narrowing of income differentials and a rebalancing of status between the business middle class and the public sector middle class. It would cut energy use and make people more open to arguments about constraints on consumption.
Politically, a good recession would make people realise that political institutions matter, and while they might not want to go as far as joining political parties again they would at least turn out to vote. It would mean an end to foreign military adventures. And the fragmenting logic of identity politics—particularly in Scotland—would be replaced by the broader, albeit thinner, certainties of national citizenship backed by the taxpayers’ billions.
So is it possible? Economists shake their heads and say that such a benign fallout is a dream, especially in debt-ridden, housing market dependent Britain, with its big financial sector. And economic historians say it has never happened before. But I’m not so sure. It seems obvious, for a start, that this recession will be different from the early 1980s and, to a lesser extent, the early 1990s. Although Britain now has many financial centres and the sector employs 20 per cent of the workforce, its epicentre is in London and southeast England.
As Geoff Mulgan of the Young Foundation puts it, “The affluent southerners who work in finance have a far better chance of bouncing back than the blue collar northerners who took the brunt of the early 1980s recession. We are still seeing the awful effect of that earlier recession in many households and communities where work disappeared, and male suicide shot up. That’s when parts of Britain really were ‘broken.’ The underlying prospects for the southeast service and knowledge-based economy by contrast look strong.”
So, assuming the global economy does not plummet, a shallow “middle class” recession must be a possibility— with a mix of welfare support, labour market flexibility and entrepreneurial spirit ensuring those affluent southerners are not out of work for long.
The public sector is already the biggest employer in many parts of the country outside the southeast and will act as a cushion for many on middling and lower incomes. The government has pledged to protect its health and education budgets, including big school and hospital building programmes, until at least 2011. The 2012 Olympics now looks like a rather brilliantly timed Keynesian stimulus, and there appears to be cross-party support for big public investment in both high-speed trains and new nuclear power stations.
Of course, there is a limit on how much economic slack can be taken up by the public sector but, contrary to much partisan commentary, Britain’s public finances are in fair shape—the ratio of total public debt to GDP is one of the healthiest in the rich world.
How would politics play out in a good recession? The focus of attention would surely refocus on middle and affluent-but-not-rich Britain and away from the two social extremes: the underclass and the super-rich. Much of Labour’s policy energy, if not its public rhetoric, over the past ten years has gone on trying to tackle the “long tail” of social failure. Culturally, and to some extent politically too, the super-rich concentrated in the City of London have enjoyed high prestige—exemplified by the philanthropist and financier Ronald Cohen, the one-time adviser to Gordon Brown who was instrumental in persuading the government to reduce the tax burden on private equity investors.
Now it’s the turn of the middle class. Only about 13 per cent of British taxpayers pay the highest rate of income tax, but there are a lot of people in the suburbs at, or near, the top rate whose tax bills have been rising, who don’t qualify for tax credits but who do not feel affluent. Improving middle-class welfare for such people is expensive but expect to see measures like more generous terms for mortgage support when people lose their jobs.
Like almost everyone, middling Britain is perfectly happy to see the humbling of the financial kings, and will doubtless go along with the widely predicted shift towards greater market scepticism. But these groups prefer their anti-market sentiment more in rhetoric than reality. If the local hospital has been cutting waiting lists by using private sector suppliers, why should it suddenly stop? Nor is middling Britain likely to be lining up to cheer the left’s favourite recession savings: scrapping Trident and ID cards.
Nonetheless, something is changing in the cultural balance of Britain; something that a good recession could reinforce. Mulgan again: “The last 30 years has seen the rise of the commercial and entrepreneurial wing of the middle and upper class and the relative humbling of the public service wing, as bankers pulled away from professors, and government turned to rich business people for policy advice. There’s already been some rebalancing here with rising public service salaries—and this could accelerate.”
More than any other senior British politician, Gordon Brown represents that slightly puritanical public service wing of the middle class, even though he has tried, awkwardly, to embrace the commercial and entrepreneurial wing. Recessions usually benefit a competent opposition, and the Tory team has grown in stature in recent months. For now, Gordon seems a PM custom-built to lead us into a cleansing recession— but perhaps not out of it.