Saturday, 2 June 2012

Double dip? It's ten years of change and pain ...

One thing I get depressed about whenever I read commentary on the world's financial crisis - and that's the lack of any historical perspective - either forward or backward.

The political debate seems to be stuck in an argument from which there is no way out: spend more and have more debt, versus more austerity and stifle growth.  And all looking for short-term fixes.

In the UK, overall it is the left that tends to depress me more.  Three reasons: 

First, their refusal to acknowledge their own pivotal role in mismanaging both the economy and public finances. 

Second, their unshakable view that more borrowing is the key to unlocking growth, with the state in some magical way doing better now than it has done before while using the same tools. 
And third, the endless batting of the government with the accusation of creating a 'double dip' recession, as if this is the worst of all scenarios. 

Sooner or later we have to face up to the probability that there is no quick fix.  After four years of pain, we should have some inkling that this is the case.  Depressions, or extended periods of economic readjustment, can take many, many years to work through.

Complex change leaves governments floundering

The so called 'Great Depression' or 'Long Depression' in the 19th century took fifteen to twenty years to work its way through the system (some countries recovered a bit faster than others).  Like our own one today, it began with financial crises and banking failures.  But it was also a time of rapid globalisation and technological and social change.  New industries were emerging, and there was massive adjustment in world agricultural markets with the opening up of North America.

The point is that governments then, as now, were mostly clueless as to what was the right response.  And that is because with the complex trajectories of change, there is no single way to deal with it.

And not all the direction of change is negative in any depression.  Some parts of the economy do better than others.  Some may be in inexorable decline, while new areas of activity emerge and grow, bringing new pockets of prosperity amid the gloom.  This is as true for the 1930s as for the period around 1873-1892.  And, I would hazard, it's true today too.

So, as the saying goes, we can't expect the same kind of thinking that got us into this mess to get us out of it.  We need to identify the new trends, the siesmic shifts that are going on in the economy, and try to back the winners.

Huge new markets are emerging in Asia, Africa and Latin America, with fast growing middle classes that have a huge appetite for new services and products, and populations that are demanding much improved infrastructure.  Much of the rhetoric to date has been about seeing these new economies as a threat to our industries rather than as the opportunities that they are.  How well geared up are we to seize these opportunties?  What are governments doing to support companies adapting to serve these markets?

New ways of working bring new opportunities

And, of course, the new world of work that is emerging has a key role to play.  On the one hand Smart Working helps companies to become more agile and competitive, with the ability to enter new markets without having the massive overheads of a traditional global company.

On the other hand, the nature of small business is changing.  We are all familiar with the idea of a Microsoft or HP or Ben & Jerry starting out in a home or garage.  But we are less familiar with the idea that running a business from home could in ten years' time be the new normal.  Perhaps, like getting over a painful illness, the recovery begins at home.  Growth is not about spawning a handful of giant companies to create jobs, but about creating a long tail of enterprising freelancers and micro-businesses, creating the spirit where people can stand on their own two feet economically rather than stand in queue for a job.

And the new kinds of technology-enabled working practices will interact positively with the new high tech sectors that are emerging: artifical intelligence, robotics, new media, and even sectors we may think of as having a need to be based in a lab or research facility such as biomed, biotechnology, nanotechnology and new forms of manufacturing.  While there's a good deal of physical resource involved, much of the work will be carried out by people working in distributed and virtual teams, and by small businesses and freelancers operating as contractors who may well be located anywhere.

In this context the big government-sponsored solutions of the past just will not work.  The days of the big inward investment that creates 5,000 jobs at a stroke are more or less gone.  Throwing money at society generally will be a good way of picking losers rather than winners in a fast-changing economy.

So what we need is to stand back a moment and think of what the world of work is likely to be in twenty years time.  This is the horizon to be looking at, not the next election.  Then what is needed is to support the development of the physical and skills infrastructure that is needed to deliver the maximum benefits for this new world.

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