False Dawns before The Rise of the Real Economy

Around this time last year, I suggested at a meeting about the West Midlands Regional Spatial Strategy Phase 2 Revisions that local authorities in Worcestershire would not recognise real sustainability (ie environmental) if this was a bus about to knock them over. So with the present New Labour Government, and the real economy : I cannot think of any minister (least of all the "prime") who would recognise this in a similar situation.

Unfortunately, I feel pretty much the same about the Conservatives and Liberal Democrats. With regard for the latter, although Vince Cable has been amongst the most reliable commentators on the current financial crisis, as the former chief economist of oil company Shell, I'm still not convinced even he fully grasps the real economy. Meanwhile, the Conservative leadership has floundered somewhat in recent weeks, and, as for Mayor of London Boris Johnson, I would suggest that he has about as much grasp of the real economy at the present time as his predecessor, Ken Livingstone.

So in this rather unpropitious context, I've decided to raise some key issues concerning the real economy, in the hope that these will help others recognise both false dawns and the "real thing". I'm going to do this with reference to :

1. The global financial system/economy
2. UK property market
3. Construction industry
4. Small and medium-sized business
5. The public sectors

Firstly, the global financial system is, I would argue, still far from adjusted to the real economy. Thus we should not put over-much weight on day-to-day adjustments in world stock markets. We should also be skeptical of government propaganda - I'm afraid that's precisely what it is ! - concerning the robustness of our own economy relative to that of other countries. For - surprising although it may seem - the United States economy is, with the exception some sectors such as real estate, better regulated than our own, and the economies of many European nations better placed to withstand a major international recession.

With regard to the UK, residential property values, in particular, are over-priced relative to the real economy, notably actual household incomes. Thus in Worcester, for instance, I anticipate that the value of small apartments could still fall by 30-40%. However, there are likely to be more dramatic declines in the values of such property elsewhere, including Birmingham. This is because one of the "urban myths" perpetuated by the present Government is that there is a burgeoning "class" of upwardly mobile young professional single people and couples, when, in fact, the growth in employment has been in low paid work of the kind more likely to generate households of multiple occupation. Therefore, until such time as there is an honest recognition of the real labour market in Britain, we cannot properly tackle real housing issues, and notably the need for the "re-construction" of the social rented sector.

Moving on to the construction industry - one of the UK's most important sectors - costs here have escalated unsustainably in recent years. Historically, the increasing costs of construction have been a key contributor to the end of the boom cycle in countries such as the UK and United States, and I, would argue, this will increasingly be the case elsewhere in the world. The Mayor of London should not, therefore, call upon national government to "Spend, Spend, Spend" on large-scale construction projects until such time as their costs are adjusted downwards.

Much has been made in recent days of the financial needs of small and medium-sized businesses, not least because these now employ, collectively, more people than large companies. It is unfortunate, therefore, that much of the "growth" amongst such businesses since New Labour came to power has been funded through the same credit boom - or, more accurately, binge - as much consumer spending. As with mortgage lending, it is highly questionable in my view, whether business lending can or should return to the levels of 2007 and earlier, and I think those UK banks who have just been bailed out by the Government will agree with me !

Finally, I would like to look at the public sector, particularly central and local government, health, education and the emergency services, but also the so-called cultural sectors. The point has been made that there are now more people employed in the collective public sectors of the UK than in Hungary before the collapse of communism; and the National Health Service is, I think, the second largest employer in the world after the Chinese army ! It is not surprising, therefore, that the public sector is more important to the economy of many parts of Britain than the private. As with the construction sector - of which it is one of the main clients ! - the cost of Britain's public sector has rocketed in recent years, and the current spending trajectory, including pensions, is, I would suggest, one of the least sustainable areas of the British economy, even for those authorities who do not had their finances "frozen" in Icelandic banks !

So how do I propose to tackle the above issues : in my Blog for the time being, is the answer. However, if someone wants to pay me fair fee, I'd be happy to advise them !

In the meantime, some may feel that in this and my previous posts I've been unfair to our Prime Minister and his Government, or "Brave Captain Brown" and his "Crew". Not so, I say ! It was, after all, former Deputy Prime Minister John Prescott, who compared Gordon Brown to the captain of the Titanic, or as the Chief Leader Writer for The Telegraph put it on 5 August :
"As befits a former ship's steward, John Prescott has a penchant for the nautical metaphor. It's proving a dangerous addiction. His blogpost in which he compared Gordon Brown to the captain of the Titanic was designed to be helpful. I'd hate to see Prezza trying to be unhelpful."
Alternatively, perhaps Mr Prescott, was, on this occasion, simply being honest, and, unwittingly, providing us with an augury of the impact of the real economy, after the false dawns of recovery.