We need a revolution to kickstart our sluggish economy
IT WAS noticeable in the election that despite the UK economy being in a parlous state (there was zero growth in the last quarter for example), there was no discussion about it from any of the major political parties. With this in mind, if there is one book that needs to be taken seriously in the coming year it is Creative Destruction: How to start an economic renaissance, by Phil Mullan.
What is fascinating about his thesis is that it calls for both an industrial and political revolution to overcome what he describes as a zombie economy.
The thesis in a nutshell is this: Despite talk of structural barriers to transforming economies – globalisation, ageing and technology – the reality is that the close to zero growth Western economies are a product of a fatalistic, flaccid and feeble political class. It is not objective difficulties that have led to decaying economies over the last quarter of a century (and arguably since the 1970s). The problem lies in the mindset of an anxious elite who have created a capitalist dependency culture.
Within Western economists, Mullan notes, we now have something new, a set of ideas that deny the need for creative destruction – the process whereby ailing businesses go to the wall and dynamic productive ones emerge. For 200 years, from Adam Smith, Karl Marx and Joseph Schumpeter the idea of creative destruction was fundamental to the understanding of the workings of capitalism. Today, this idea has been replaced by a type of economic precautionary principle that is holding back the industrial revolution we need.
Increased productivity is the fundamental necessity for a dynamic, high wage economy. Rather than encourage this, government, economic and banking policies and approaches are all about being “strong and stable”. Talk of sustainability has replaced talk of growth and the result is neither strength nor stability but decay in a low productivity, low wage economy.
Sluggish areas of the economy, where there is no increasing productivity and little investment are kept on life-support through low wages, low interest rates and increased state spending. The result is that productivity has fallen in half of British businesses in the last 15 years, with a third of firms now making a loss.
The current managerial, risk averse and technocratic elite are incapable of climbing out of the rut we are in and need to be swept aside. Without this political, industrial and existential leap, Mullan concludes, we face another crash. I’d say it’s time for a revolution. Happy New Year.