Growth. But Not At Any Price

The GDP figures today are very good news if you want re-assurance that the economy is re-modeling, debt is being paid down privately and by corporations and banks are contracting. It is good that construction is weak and house prices flat. It is very good that manufacturing and high tec service industries are expanding at near record rates. This is because they are the driver of future economic recovery and prosperity.

This blog has argued time and again that without remodelling, an economy set to recover on the old lend and spend blueprint would be one on the road to calamity. I have also argued that you cannot re-model an economy without contracting it. To cut the burden of too big a public sector, you have to contract sharply that segment of the economy, in order to release resources to enable the private sector to expand. This cannot be done simultaneously any more than you can send a bus round a bend at full speed.

To allow a large public sector to consume excessive proportions of GDP leads to decline and collapse. The Soviet Union was in many respects extraordinarily successful, but was brought down by financial collapse, because its economic philosophy and model was shot.  China, in contrast, grows faster than any other county on earth with its evolved system of State capitalism. It has a healthy private sector. In fact China’s public expenditure is about half that of the UK as a percentage of GDP. Moreover far too much of Labour’s spending was on government and quasi-government and too little on wealth creating investment. This increased the millstone round the economy’s neck and has led the Coalition to cut worthy projects like school rebuilding, in its drive to reduce the deficit.

Labour may feel happy that things are difficult for the Coalition as this re-balancing proceeds. So far their economic plans do not add up, simply because they love big government and worse they would pay for it by borrowing more. However more attractive that road looks and, as a journey plan it is much easier to sell, it does in the end lead to only one destination. Ireland, Greece and Portugal have already arrived there.

2 Responses to “Growth. But Not At Any Price”

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