Rebalancing the economy will be tough, but finally the political class is aware of the challengeby Will Hutton / April 27, 2010 / Leave a comment
Britain has the highest level of property debt compared to national output in the world. It urgently needs to wean itself off its addiction to borrowing on homes and commercial real estate. It also needs to sharply raise its exports, growth rate and private sector employment. It must reconfigure its industrial and business structure, which is still based on over optimistic expectations of consumer spending. And it must manage down its public deficit.
This will all require economic management skills of the highest order—and a willingness to discard much of the laissez-faire economic thinking that has informed policy over the last generation. One good sign: there is an unusually broad consensus in the political class about the nature and extent of the problem. There are even traces in each of the main party’s manifestos of a recognition of what has to be done. As I know from my own personal exchanges with the party leaderships in recent weeks, each of them is aware of the challenge.
But that it is only a start. For 30 years Britain has dodged deep-seated flaws in our economic institutions. We are poor at translating new scientific and technological research into commercial products. We have far too few entrepreneurs like Andrew Ritchie, founder of Brompton Bicycle, or James Dyson, inventor of the bagless vacuum cleaner—and far too many hedge fund and private equity partners. Too few of our small companies become medium sized; too many of our medium-sized companies sell out to conglomerates before they reach maturity. Our banks are good at mortgage lending; some £1.6 trillion out of £2 trillion of sterling lending is represented by residential and commercial real estate mortgages—a far higher share than other leading industrial countries. But banks are hopeless at financing enterprise. We have no system for supporting innovation. We are not at the economic races.
We were bailed out of the consequences of this first by North sea oil, and then by the credit boom—but the industries that have done well over the past 15 years—construction, retailing, estate agency, buy to let, financial services—cannot do as well in the future. Banks can no longer grow faster than the economy. Britain has to find new ways of making its living.
The question is: with what? For decades the fastest growing sectors in modern economies have been those that are “knowledge intensive”: computer software, advertising, mobile phones, aero engines—all…