Autumn statement: a rabbit caught in the headlights!

The autumn statement has shone a light on the paucity of existing economic options left for the government and its inability to innovate.  It may be left to local economic stewardship to forge a new economic destiny.

Orthodox economic thinking, either Keynesian, monetarist, right or left, are all imperfect within the current perfect economic storm, so it is no surprise that the government appears to be like a rabbit caught in the headlights of a speedy crisis.

George Osborne and the government face a hellish beaming headlight of a deficit, which must come down.  The other headlight is dimming growth, which they must stimulate, so that higher tax receipts and falling welfare benefits reduce the deficit.  But to achieve growth they would need to borrow more, but that increases the deficit. To compound this impending road kill, is a dark future filled with unemployment, failing local economies and a fragile environment.

In this position there are three options.  Firstly, there is the position the government seems to have adopted.  It’s stunned and dithering, but it is trying to face down the speedy crisis, by doing a drip drip of stimulus for growth, whilst maintaining austerity plans, which are hitting people, families and communities hard.

In summer I critiqued the government’s existing quest for growth, characterising it as voodoo economic development.  I felt they had an approach which was attempting to turn an economy around, with inadequate resources and fragmented plans.  While the autumn statement retreats from the worst excesses of voodoo policy making, by offering more of a stimulus, it is far from decisive.

The second option would be to go all out for a new type of growth fit for these times.  To do this, the government would need to consign the consumption-based growth of the past, fuelled by a house price boom, to the dustbin, and face down the City-driven UK financial sectors.  This new growth would put more emphasis on exports, based on a hefty investment-based re-industrialisation strategy.  To achieve this, the government would not only have to harness huge amounts of public capital, but would also need to undergo a paradigm shift in thinking.  Whitehall departments such as the Treasury and Business Innovation and Skills (BIS), and civil servants would need to develop a new way of working – agencies of intervention, rather than passive enablers.

However, the government is not choosing this option. They are not prepared to take the risk on borrowing or perhaps to irritate vested interests?

The third set of options would be for the government to reject notions of growth entirely and/or hone in on economic localism and the local components parts of the UK economy.

The statement did have some warm words about cities, and at least provided some recognition that local economies exist, albeit through a centralist lens.  The £5bn national infrastructure plan, credit easing for small businesses, Enterprise Zones, and an extension to the Regional Growth Fund are all offerings which local areas and Local Enterprise Partnerships (LEPs) can make a go of.

However, the key plank to a new wave of economic localism – the Localism Act – remains worryingly silent on economic localism, and we are yet to see a permissive economic localist culture permeating skills, BIS, the Treasury and the large spending departments, such as DWP.

CLES believes local areas and LEPs must grasp some of these opportunities and move swiftly away from a consumption-led model for local development. They must develop their own local investment models and reindustrialisation strategies, harnessing their own wealth for investment purposes.  As CLES’s work on resilience shows, local areas must look long and hard at the potential in their economy and look to make them more economically resilient.  This may mean steady state economics or a plan which majors on reducing inequality, social, cultural growth, rather than the economic.

Local government has a key role to play and can’t wait around for guidance or being told what to do. The cuts are hard, but they need to get on, taking more of an activist role. They should see LEPs as key localist vehicles serving the aspirations of local businesses, communities and people, and not UK Plc.

We need all sides of the economy – public, social and commercial – to collaborate and connect up like mad.  We must locally develop a new wave of local economic activity which sees social progress which nurtures the environment working in tandem with economic success.

Above all, the autumn statement reflects an impotence at the heart of national economic stewardship. It may be left to a strident local economic stewardship to forge new local economic destinies.