Introduction
I embarked on this book as a sequel to The Storm, which was my attempt to explain the 2008 financial crisis and its aftermath. The Storm was by no means the most eloquent, insightful or profound analysis of the crisis, but it had the merit of being one of the first to hit the bookshops.
One motivation for writing this sequel is to update the arguments and review the evidence at the current, awkward juncture, when there is a sense of relief that the crisis has seemingly passed and economic recovery is taking place, but also a continuing worry that there are deep-seated problems at home and abroad that haven’t yet been satisfactorily resolved.
A further motivation derives from the fact that I have spent five years not merely as an observer of the economy but as a senior member of the coalition government. My Cabinet responsibilities – for Business Innovation and Skills (BIS) and as President of the Board of Trade – put me at the heart of many of the debates around the economy, both within the coalition and outside it. Those debates broke surface mainly in the form of sound-bites, or leaks, or heavily spun comments. I felt it would be useful to describe the issues in a more coherent and transparent way.
For these reasons, I embarked on this book in the latter stages of my period as secretary of state. In the event, the rules surrounding the propriety of ministers’ publishing activities prevented its completion. The ending of my parliamentary and ministerial career was brutally sudden, but has liberated me to return to the text without the previous inhibitions of collective responsibility.
The election campaign reinforced my determination to publish. At a very general level, the campaign had an economic thread: in most parts of the country there was a collective judgement that the coalition had been broadly successful in securing recovery, and that this should not be put at risk by allowing in what was successfully portrayed by the Conservatives as a destabilizing left-wing alternative of Labour and the SNP. One personally painful consequence was that even those of us who had contributed substantially to the economic recovery were swept away. I have described elsewhere (New Statesman, 22–28 May 2015) how the Conservatives’ ruthlessly effective deployment of the ‘politics of fear’, combined with disillusionment with the coalition among left-leaning voters, squeezed my party’s support to disastrous levels.
However, aside from the broadest generalities, the economic debate around the election was beyond abysmal. Except at a few, niche hustings meetings there was no discussion whatever of the key question of how we should raise productivity levels and living standards. Austerity was discussed as if it were some self-imposed, masochistic fetish enjoyed by some and hated by others – an economic version of Fifty Shades of Grey. Crucially important issues like housing were addressed by policies (‘Help to Buy’ and the further discounted ‘Right to Buy’) so cynically populist that they seemed calculated to make a bad problem worse by boosting house price inflation. More generally, ‘Abroad’ was largely wished away – except in the context of immigration. As was the future, which gained far less attention than the attribution of historic economic guilt, about which the Conservatives were obsessed. As a parliamentarian for eighteen years, and a Cabinet minister for five years, I am far from being a politically innocent policy wonk, but I do believe that economic policy should be debated more seriously.
The election also exposed a deeper and more alarming undercurrent, as the issues of Scotland, immigration and Europe generated an emotional reaction more powerful than the traditional class-based tribalism of British party politics. Twenty years ago I wrote one of two pamphlets for the think-tank Demos about the emerging ‘politics of identity’. It described how people were either developing ‘multiple identities’ in response to growing globalization, or were retreating into political or wider social movements built on race, religion, language or national identity. At the time, the pattern fitted the collapsing autocracies of the USSR and Eastern Europe better than the mature Western democracies. Although I anticipated a similar shift in the UK, I scarcely imagined that in my suburban London constituency, as well as in Scotland, the battles of Bannockburn and Culloden would be refought in people’s minds. The practical consequence of the politics of identity is that, for years to come, British politics will be dominated by the future of the Union, by debate about our continued membership of the European Union, and by the perceived threat of Islam. For a country like ours, which defines itself by its self-confident openness to ideas and commerce, the dangers of a revival of nationalism and the fear of others are especially acute.
My approach to these problems and to this book, my assumptions and prejudices, are governed by my own experience. I was taught, and have taught, the standard macroeconomics and microeconomics applying to the UK and other developed economies. I was a disciple of both Adam Smith and John Maynard Keynes, liberals both. But until becoming an MP in my mid-fifties, I had done no serious work on the UK economy beyond pamphleteering on free trade, liberal immigration, Britain’s membership of an open European Union and, somewhat ahead of its time, Scottish home rule. My experience of UK national policy-making was confined to a brief interlude in the diplomatic service and an even briefer period as John Smith’s special adviser at the sad, decaying end of the Callaghan government, at the Department of Trade – episodes I described in an earlier book, Free Radical.
My passion and economic expertise had primarily been in the field of development: trying to understand what turns poor countries into rich(er) ones. I have seen theories of economic growth brought alive as poor countries have adapted and used technological progress rapidly to transform previously agrarian, peasant economies. My professional (and personal) life is framed by my fifty years’ experience of India: as a travelling student seeing a vast sea of poverty and hunger, with some islands of urban commerce and state-controlled industry; and as a British minister, prom...
