In Pursuit of Growth
Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.
Post War History of Britain's Economic Growth
Throughout the 1960's and 70's Britain relative to Europe experienced a paranoia about why, despite intentions to the contrary, we appeared relatively slow growing. The major mystery of the time was why Britain was slow growing. The issue was exacerbated by the fact that Britain was being superseded by the defeated powers of the Second World War. In particular, Britain appeared slow growing relative to Italy. Our domestic intention was to achieve the required dash for growth that all policy makers wanted. The issue was uncomplicated by the political leanings of whoever was in power. Britain wanted to grow but it couldn't. In the early 1960's Conservative Chancellor Francis Maude went for a 'dash for growth'. Following the election of 1964 the new labour prime minister Harold Wilson spoke of the white heat of technology in Britain. Despite addressing trade union restricted practices Britain's relatively slow growth rate continued.
In the 1970's the conservative chancellor Anthony Barber was involved in a further 'dash for growth'. Again it failed but was associated with the monetarists' belief that inflation was caused by the printing of money. Two years following Anthony Barber's dash for growth British inflation peaked at 27%. The elusive issue was not happening. Consistently over this thirty year period Britain had grown but at the relatively poor rate of just 2.7% per year. The desire was to achieve a growth rate such as that experienced in Germany, the Netherlands and France of above 3%. Why couldn't we achieve this?
From the perspective of 2012 with growth returning to be the governing issue, it is interesting to return to these questions. The International Labour Organisation predicts that growth may not return until 2016. The issue of economic growth has always been an important aspect of British political life. As always the subject of economic growth has long been a matter that consumes the interest of politicians of whatever party. The concern was one of why Britain appeared relatively slow growing but it has now become a matter of how politicians can construct a situation where the economy is able to produce growth of any nature. One of the major unspoken aspects of Britain's history with growth could be the 'them and us' society that typifies most British life. In the interests of neutrality, the whole nature of British industrial relations which used to typify the very them and us society that Britain was associated with was potentially an aspect of concern. Could it be that managers spent too much time on the golf course or Britain's trade unions were involved in restrictive practices?
The experience of Margaret Thatcher's government from 1979 began to treat these issues more directly. Today, nobody could accuse management of spending too much time in unproductive work or that trade unions were guilty of major restrictive practices. In the early 1980's both these issues were directly addressed. For a time from 1979 Britain's growth rate achieved the desired rates of growth of over 3% as shown in the table. The usual oscillations that any economy has are clearly represented here with red numbers for years of negative growth. Clear economic cycles are well represented by these figures and the extent to which Britain and by extension the rest of Europe has experienced a major situation of considerable economic recession during the 21st century, with major falls from 2008.
Britain's Real Annual Economic Growth Per Capita Since 1979
Since growth is a preoccupation of the economy at the moment, in the next table I show Britain's record since 1955 to 2012. Here we can clearly see that there is a steeper gradient in the latter years as opposed to the pre 1979 years. From the standpoint of 2012 we have a 55 year perspective on British economic growth. In a clear sense our elusive growth rate began to quicken post 1979. The years around 'big bang' were consistently above 3%. Consecutively we achieved for the first time 3 years of growth above 3%.
The Big Bang events of 1986 may have assisted Britain's rate of growth in adjacent years to that event; but possibly banking deregulation was not alone in prompting faster British economic growth. Conventionally, we assume that growth follows from demand in the economy. In some respects this maybe a Keynesian view of growth theory. The right wing of the conservative party would also contend that during the 1980's they introduced a supply side response to the growth that we enjoyed. This supply side notion alleges that the Thatcher government was instrumental in prompting a more entrepreneurial ingredient into British society.
This view is contentious but it draws support from the fact that as a response to growing unemployment during the 1980's, the Thatcher government introduced the Enterprise Allowance Scheme. The objective of this scheme was to boost the entrepreneurial activity of the latent economy. The contentious nature of this assertion draws from the fact that entrepreneurship is a fairly major activity in British endeavour; with many of these enterprises starting throughout the post war period. Entrepreneurial ideas can flourish on the strength of their merit without necessarily involving the contentious merits of the government scheme. Possibly the one reform that the Thatcher government did introduce to benefit good business ideas was that of tax reform, and the dramatic reduction in income tax that was introduced under her government. Britain has always enjoyed a flow of immigration. Immigrants' societies are often more actively involved in starting their own businesses; but this has always been the case, and apart from the tax reforms that the Thatcher government introduced and the Enterprise Allowance Scheme, implicitly entrepreneurship has been a consistent feature of British activity.
Growth has been absent in the economy for the last three quarters; the rather unexpected figure published for Q2 was low by the standards of what would be expected. The second quarter of the year covers the period April to June but Britain had been in recession since the beginning of October 2011. The rather 'disappointing' figure for the second quarter was just
-0.7%. The weather had been through this period consistently wet. The quarter also included a two day bank holiday for the Queens Diamond Jubilee held in June. The eventual figure of just -0.7% reflected badly on performance in the construction sector.
The bottom line from all this is that the underlying performance of the economy was probably somewhat better than the headline figure of -0.7% would suggest, having regard to the extra bank holiday and to the poor weather. However Britain remains stuck to this stop-go cycle of poor growth. This leads to major political controversy between the opposition and the coalition government. The Labour party as the opposition will contend that they had began to reduce the extent of Britain's recession by 2010.
The situation now however is we appear to be stuck in this recessionary stop gap. Britain now in 2012 is far less prosperous than it should have been in the absence of the governments desire to curb the excessive spending of the last labour government. The labour party clearly spent heavily. The situation is clearly very contentious which leads to major political controversy that will exist for the remainder of 2012. The Olympics which featured in the third quarter figures produced a positive growth rate of 1%. This growth rate published recently for the third quarter thereby ends the 2011-2012 coalition recession.