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Very useful and wide-ranging study of Britain's economy
on 9 November 2010
Renowned commentator Will Hutton has written a brilliant book on Britain today. Wide-ranging, it covers the economic crisis, politics, society, education, and the ongoing technological revolution.
He denounces the destructive power of `the financial, media and bureaucratic elites' (a long-winded way of saying `ruling class'). He notes that the rich avoid £12.9 billion a year in tax and that a third of our top 700 companies pay no tax.
He points out that hedge funds buying credit default swaps [CDSs] in huge volumes triggered both the banking crisis and Europe's sovereign debt crisis. Their buying of CDSs on Greek government debt in April forced the huge IMF/EU bailout of Greece.
Debt and debt-related building and real estate services accounted for half Britain's growth between 1997 and 2007. Two-thirds of loans were house mortgages and a fifth was in commercial property, while manufacturing's share of output fell by two-fifths to 12 per cent, the world's fastest fall.
The crisis cost us 10 per cent of output, £1 trillion, smashing the myth of a golden age based on financial services, open markets and an endless credit and property boom. Then we gave the bankers £1.3 trillion, worldwide, £14 trillion.
Even the Bank of England says that another crunch is highly likely. £530 billion of corporate debt has to be refinanced by 2015 before any new money will be lent. Europe's private-equity firms have to repay £185 billion by 2016, yet in 2009 they paid back just £4 billion.
Hutton writes sensibly, "The rise of the BNP cannot be explained by saying that Britain is suddenly more racist than it used to be. It has happened because too many immigrants have access to free prescriptions, medical care, schooling and housing before they have made adequate contributions." The EU orders us to give new immigrants immediate access to benefits.
The USA invests 3 per cent of its GDP in universities; Europe's average is just 1.4 per cent. 73 per cent of the science papers cited in US industrial patents in 1993-94 came from public science sources. As Hutton notes, "the university remains the principal institution that creates the cumulative scientific and technological knowledge on which innovative ideas are built. ... It is a strong sector that should be guarded and nurtured; instead, it is being threatened by spending cuts."
Britain has 8 universities in the world's top 50, and 29 in the top 200. Our universities are great national resources, `fundamental sources of competitive strength'.
He points out that, for 200 years, countries with the highest social spending as a share of output have grown most. There is no link between high public debt and lower growth until debt reaches 90 per cent of GDP. Higher borrowing, if used to invest, can bring growth. Every extra one per cent of GNP borrowed cuts the recession by two and a half months (IMF figure); every extra one per cent of capital spending also boosts growth permanently by 0.3 per cent a year.
Hutton says we need `an economic development strategy', with a Knowledge Bank, a Life Sciences Bank and a National Infrastructure Bank. He asserts, "There has to be a willingness to spend, borrow, reshape finance and protect investment at all costs."
But now, as he laments, "the debt moralists are in control, denying the government essential flexibility and agility over borrowing. As a result, the next decade will be far more traumatic than it need be."
He warns us against accepting the government's spending cuts, which he says `threaten the very fabric of British society'. He says its programme is `the closest thing to an economic scorched-earth policy this country has ever seen'.
Yet in the same paragraph he writes of the government, "In the immediate short term this feels like a partial assertion of us over them, and welcome for it." In 1997 Hutton put his faith in Blair and in `stakeholder capitalism'; now he seems to believe in Cameron's `big society'.