Unsurprising to this writer, the Tory party won an overall majority in the British general election but was its greatest recruiting sergeant, a recovering economy, worthy of its achievements and if not what now needs to be done? In response to the first part, the answer looks negative. It's true that the previous coalition Government presided over a fall in unemployment to 5.6%, among the lowest in Europe, and that economic growth last year was impressive for a mature, developed economy but that is only a small part of the picture, outweighed, it seems, by the dark side of the economy.
Britain has two persistent economic problems: falling, inflation-adjusted pay and poor productivity. On the former, inflation-adjusted pay is down by about one tenth since the start of the financial crisis in 2007, a fall not exceeded since the 1920s. This means that by early 2014 the nation's buying power was still almost 6% below its pre-recession 2007 peak, and it will not recover quickly anytime soon, according to research by the independent National Institute Economic Review. This publication predicted that the drop in inflation-adjusted wages is so steep that "it will not be until early 2020 that this previous peak is regained."
The picture for poor productivity looks even direr. After Gross Domestic Product (GDP) fell sharply in 2008-09 there was a brief rebound in 2010-11 but its growth rate since has scarcely budged above zero. According to the Bank of England, output per hour of work has not been so sluggish since Queen Victoria's time, excluding two exceptional times in the immediate aftermath of two world wars.
The weak productivity growth, said the BoE's governor, Mark Carney, is not the result of a lazy workforce, bu rather that companies have not been buying new machines and software workers to raise their performance. While there may be an element of stricter bank loan conditions and uncertainty over the economic prospects holding back such necessary investment, it seems companies have found it cheaper and easier to add people rather than buy equipment, said Carney, (and easier to release people --Ed). This parlous problem is reflected in Japan today, where the average age of the country's machinery is the highest in years because manufacturers are reluctant to spend on upgrades. At an average age of 15 years for facilities and equipment, it is the highest in 30 years. This means that Japanese companies, like Britain's, could fall behind their foreign rivals. Behind Japan's dangerous strategy of using near clapped out, low productivity machines was the country's lost decades of stagnation and deflation, which prompted companies to restrain investment. Just such a scenario could now face Britain if prompt action is not taken.
It is to be hoped that any pre-election nerves that may have held back British investment will now be dispelled, especially now that horse trading between the two former coalition partners, so emasculating for firm policies desperately needed in the country's best interests, is over. But it will need much more than a more conducive political climate.
Just as businesses have their qualms over making new investments so, too, do individuals take a more frugal view of their spending habits when the devil drives, a point that might also crimp business investment. The current labour market does not instill much confidence in that regard. Job creation, for example, between 2008 and 2014 has been dominated by rising self employment and part-time work, with the latter now accounting for 27% of the total workforce, the highest since records began and which includes many professions. The Trades Union Congress (TUC) claims that the number of part-time workers who say they want to work full-time is still almost double the number before the recession at 1.3 million and that at the moment the economy is still not creating enough full-time employee jobs to meet demand. Zero hours contracts, while suiting some, also create uncertainty over employees' future spending plans.
To avoid a long, Japanese-style situation, the British Government must take firm action over the economy, education and its social programme, all of which impact each other. Job vacancies in skilled areas run into hundreds of thousands and they do so because many school leavers' literacy and numeracy levels are lamentable. UK school leavers are among the least literate and numerate in the developed world, with 80% of 16-24 year-olds' standards no better than primary school leavers' achievements. It is the most damning indictment of British school education, admittedly influenced by social problems like single-parent families. This brings us to how social problems impact education and the economy. The Government's spending on social benefits by far and away absorbs the lion's share of total Government spending and so it is here where the scalpel must be wielded more but with expert precision. If taxpayers' largess is showered on single parent families, for example, in a way that encourages more, then not only does that increase the likelihood of children achieving poor academic standards it also diminishes the potential pool of apprentices so desperately needed in certain manufacturing industries.
The UK Government could cut billions of pounds from its budgets, with the savings partly going into measures to boost economic productivity as well as paying down its high debt. Much of industry encouragement should focus on manufacturing, particularly the export market because here the country's disturbing, chronic and worsening balance of payments crisis is a serious threat. This problem has been ignored for far too long and time is running out on both the balance of payments and poor productivity.