by Michael Kitson, Assistant Director of the Centre for Business Research
How can we turn George Osborne’s much used phrase “march of the makers” into reality? We need to rebalance the UK economy: rebalance our industrial sectors; rebalance our regions; and rebalance our balance of payments.
But two years on from when he first promised to deliver that “march” there is still a problem as the financial sector remains seized up, with many small and medium size enterprises unable to access funds to borrow to invest.
The importance of innovation
We also need to look at how our economic system is failing, where are the structural holes and structural flaws in our system? We need to invest more in science and technology and we need to get those ideas into businesses, not just manufacturing but also into the service sector. We need to create the structures that ensure businesses of all sizes can be innovative and are enabled to develop new products and processes. At the moment there is no coherent strategy to do this, just a series of encouraging initiatives, and businesses are failing to innovative because they cannot access funds or ideas. A proper industrial strategy could solve these problems.
We cannot continue to borrow to spend
Crucially if we did allow business to innovate, this would be good for our Balance of Payments, which has been in deficit from the early 1980s. This means that the economy has been spending more than it earns, we are good at consuming and not very good at producing and we need to change that around. We have borrowed to spend and we can no longer rely on the rest of the world funding our consumption habits. We need to pay our way and to pay our way we need to get better at producing goods and services, we need to be innovative and produce more that is the way forward.
Focus on growth not austerity
The focus at the moment is too much on austerity and not enough on long-term growth. We need to rebalance our economy and rebalance the economic agenda, we need to focus more on how we are going to get long term growth rather than focus on austerity because austerity can destroy the long term foundations of economic growth.
The long term economic outlook for the UK depends on what happens in the rest of the world. We are not isolated from the problems in the Eurozone as this is one of our main markets. Growth in the newly industrialising countries, Brazil, Russia, India, and China, will help the world economy, and as they grow they will buy more of our goods and services helping us to grow too.
The current political focus on immigration will harm economic growth and will harm innovation. We need to be attracting talent from around the world to help drive innovation and growth. It is not surprising that we see the focus on immigration at the moment, we saw it in the 1930s, when we suffered the great slump, and we saw it in the 1970s with the rise of the National Front. Economic problems often result in a focus of “blaming” somebody else, blaming immigrants, and blaming other countries. We need to remain an open society and that means open to people coming in from abroad.
Investment is essential for long-term economic growth. We need investment in economic capacity – which could be driven by a National Investment Bank, charged with the role of developing long-term growth in key sectors. We also need investment in people – reversing the policy on immigration and being open to talented people coming in from abroad. The solutions are available: drop the dogma and grasp them!