It just isn’t working

One of the present Tory government’s favourite mantras, that its “long-term economic plan” is “working”, is a classic example of effective propaganda – repeat it often enough and, in the minds of the public, it becomes true.

 
But chancellor George Osborne’s so-called “long-term” plan, is in fact, one that’s mired in short-termism.

 
The Independent’s economics editor Ben Chu highlighted earlier this week that the chancellor’s obsession with reducing the deficit and achieving an overall budget surplus by the end of the decade will only further hinder any chance at Britain’s economic growth by choking productivity.

 
Chu explained that achieving an overall surplus would completely preclude any possibility of public investment in infrastructure.

Penny wise, pound foolish

 
“This is penny wise, pound foolish,” Chu argued. “Borrowing to invest is entirely sensible; if spending enhances our economy’s productive capacity, it ultimately pays for itself. The fact that future generations will benefit from infrastructure spending today also makes it reasonable to finance it through borrowing paid back over time (especially when record low borrowing costs are available).”

 
Chu noted that this public investment which Osborne has rejected benefits the economy as a whole.
“Better transport links help goods and people move around the economy more efficiently,” he said.

“Faster broadband helps businesses expand. And try running any kind of commercial organisation when there’s a power cut because the generating stations are too old or over-capacity.”

 
Private sector investment is also at an all-time low.

 
The Bank of England’s chief economist Andy Haldane told BBC Newsnight last month shareholder power was to blame – a greater share of profits is going to shareholders rather than being reinvested in private companies.

 
Haldane pointed out that in 1970, only ÂŁ10 out every ÂŁ100 in profits was paid out to shareholders through dividends, but now that figure has skyrocketed to between ÂŁ60 and ÂŁ70 per ÂŁ100.

 
In the past, shareholders held on to shares for an average of six years, while now, the average is only six months, suggesting that shareholders who are charged with making important decisions for companies are not ultimately concerned about the long-term health of these companies.

 
Haldane said that UK corporate law was a big part of the problem because it granted too much power to shareholders. There are other corporate governance models however, in which customers and workers have a greater say, such as in Germany.

 
Unite assistant general secretary Tony Burke criticised the government’s hypocrisy on productivity.
“It is all very well this government talking about increasing productivity but they seem to forget that the key elements to improve productivity are now missing from the UK economy thanks to Tory economic policy,” he said.

 
“These key elements include investment in infrastructure, investment in education and technical skills and most importantly investment in people,” Burke added. “Germany is always quoted as the powerhouse of economic productivity and the reasons for this are that trade unions are built into the fabric of the German economy.”

 
“Informing and consulting with the workforce is a given and investment in education and skills are seen as the future of economy – if only this was true of the UK,” he went on to say. “This government has not got a clue about what is needed for the UK economy to grow; an industrial strategy would help!”