Friday, 21 December 2012

Growth: Terrible Idea

Governments across the Western World, none more so than the Coalition in the UK, are on their knees praying for Santa to bring them growth. Their stewardship of their citizens' well-being will be validated as soon as GDP starts to rise, because growth is good, right? But what if they're wrong – what will happen when the economy starts to grow?

I'll tell you what won't happen, a new era of responsible capitalism won't ensure the proceeds of growth are equitably shared. Before the crash, wages for low and medium level earners were stagnant, afterwards, that is unlikely to change as unemployment remains high and workers' rights are assailed.

Financial institutions are unreformed, indeed, the policy response during the crisis has been to convert their most stable assets into liquidity through quantitive easing programs. Meanwhile, companies have been hoarding cash reserves. If growth returns and this money starts to flow into the economy the result will be a surge of inflation. Defying the predictions of economists, inflation in the UK has remained above 2% throughout all except the depth of the crisis in late 2009. The waiting pile of corporate cash could turn this squeeze on living standards into a stranglehold.

With wages stagnant and benefits falling in real terms, rising GDP and the increased investment that it would bring with it could turn the dream of growth into a nightmare. The rich seeing their return on capital shoot up, while the poor struggle to feed themselves.

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