This week’s Prime Minister’s questions has been a typically boisterous affair. The subject that dominated discussions was the economy and in particular the recent ONS figures showing the shrinking of the economy in the last quarter of 2010. This would appear to suggest we’re heading back into recession, as the impact of the VAT increase and cuts in public spending start to take effect.
As attractive as this idea is to some on the Labour benches, it is in reality an unlikely scenario. Most commentators expect the ONS estimate to be revised up. Nevertheless it seems fair to describe the UK’s recovery as fragile at best. Meanwhile in the US, Barack Obama’s State of the Union address also recognised the need to work hard to ensure recovery doesn’t flounder with a major focus on delivering more jobs and driving up employment.
But as the developed world crawls out of recession it seems appropriate to ask what sort of recovery we want. Do we simply want a return to business as it was before the crash? And if the economy isn’t to depend on financial services and the public sector then where will jobs come from?
In their new book The Road From Ruin, authors Matthew Bishop and Michael Green call for a different approach. While they don’t expect the recession to mark the end of capitalism as the defining global economic system, they do question whether we should be returning to a system of capitalism as we know it. They make the point that while the recession exposed the flaws of an economy over-reliant on financial services, there is little hope of a major rebalancing of the UK economy if the only other answer is manufacturing. As appealing as a return to a manufacturing-based economy sounds, there are smart reasons for us not making many things any more. While we should indeed celebrate and cherish the manufacturing firms we do still have, we will be increasingly outgunned by cheaper, rapidly developing economies. Knowledge-based sectors, such as financial services will have to remain central to our economy.
If business as before is no longer an option and neither is a wholesale redesign of our entire economy, the answer, argue Bishop and Green, lies somewhere in between. We need a new kind of “people’s capitalism” or locally engaged activism focused not on short-term profits but longer-term social gains.
This they have dubbed “a new capitalism for a big society”, playing to the Conservative’s latest big idea, with the notion that consumers and shareholders (and better still what they term “citizen shareholders”) need to get more involved and take an active—rather than a passive—role in everything from setting and agreeing executive pay to driving local philanthropy projects.
Yesterday it came to light that having had all its £3.8m funding withdrawn by the Department for Business Innovation and Skills, Enterprise UK—the government-sponsored charity set up to promote entrepreneurial skills and activity across the UK—had been wound up. On the one hand, it is easy to be outraged with the hypocrisy of a government that has repeatedly made claims about kick-starting the “decade of the entrepreneur”. It is also easy to see it as vindication of Richard Lambert’s attack on the coalition’s lack of any meaningful strategy for growth. It seems obvious that one thing that would drive sustainable, long-term growth is investing in, encouraging and developing future generations of entrepreneurs.
But as the austerity bites, it also seems reasonable to question whether £4m for an increasingly heavily staffed charity was the best way to encourage entrepreneurial activity. From my experience, the organisation’s best work involved bringing would-be and could-be entrepreneurs into contact with real entrepreneurs who were already doing it. Perhaps the closure of Enterprise UK is an opportunity for exactly the sort of socially minded new-capitalism organisation suggested by Bishop and Green.
Maybe it is only by rolling back the boundaries of government that the opportunities will arise for groups of willing and like-minded activists—in this case entrepreneurs—to step in and make a difference. In that way, this recovery might really create a different sort of Britain and we won’t have wasted a bad recession after all.