Cuts without investment will not work : 9th June 2010

The need for cuts needs to be put into the context of the difficult issue of employment.

In the 60’s and 70’s successive governments tried to provide full or almost full employment by investing in industry. This resulted in massive government subsidies and a call to “slim down British industry to make it more competitive”. Mrs. Thatcher’s government was elected to achieve this objective, and the consequence was the complete destruction of Britain’s world-renowned heavy engineering industry – and three million unemployed, mainly north of a line between the Humber and the Severn.

The last government tried to create more jobs by investing in public services and giving them new tasks. The weakness of this policy was that it relied on “service industries” and inflated property prices to support the borrowing and provide the taxes required to keep the country going. The consequence of this was the crash, which has made public services unsustainable at their present level.

This has led to an inevitable call for cuts. Unfortunately, cuts of the scale required cannot be achieved without a disastrous (but hopefully temporary) impact on society. We already have over two million unemployed. The reality is probably much worse, after one takes into account all the various schemes which artificially reduce the unemployment figures.  There are very few unskilled jobs and we have families who are third and fourth generation unemployed – a kind of underclass which survives on benefits. Nobody knows how many people the cuts will put out of work, but we could end up with more than double the present number of unemployed.

Typically, the politicians seem only concerned with the immediate need to balance the books. They assume that once the budget is balanced, the economy will revive and all will be well. This is simply not credible. Our farms can barely grow enough food to feed two thirds of the population. So we have to produce and sell goods and services to pay for the food we buy from abroad. Most of  the big factories have gone and we don’t seem to make many things any more. So balancing the budget is only half the problem.

Something has to be done to make Britain a leading producer again. This requires new investment in private enterprise in a way that is directed for the public interest. This is not impossible. Most of our banks are already nationalised. They do not have to be sold after they become solvent. Years ago the French nationalised their banks and restructured them so that lending and borrowing policies could be influenced by the state. As a result France has kept its manufacturing industry and does not seem as badly affected by the recession as we are. EU rules may prohibit France from subsidising its industry, but these rules may not prevent France or any other country lending money on commercial terms to companies which are in difficulty.

We nationalised our banks, but have done little to influence their financial policies for the positive benefit of British industry. As a consequence Kraft’s takeover of Cadbury was financed by a nationalised British bank, and insufficient loan money was made available to save a northern steel works.

If cuts are necessary now, politicians need to plan for the long term. Cutting public services should only be a matter of short term expediency.