The Governor of the Bank of England recently stated that 5 years in from the start of the crisis in 2007 (although its roots go much earlier) we may still not be half way to a full recovery. Prof King is quite right although his horizon is optimistic. I believe that a timescale of a generation may be required. Just as it took generations to throw away the trust and values along with the industry we'd built up over a century and a half, it may take a comparable time to restore them.
What we are now left with is an economic system with a degraded version of capitalism and a state wedded to a philosophy that sees no room for direct intervention. Linked to this is the steep decline in business ethics and morality. So what should be done in response to the mess that has been allowed to develop?
First the government must operate a comprehensive economic and industrial policy that aids manufacturing, engineering and the industrial sector generally, agriculture, mining, fishing and all related productive areas. Linked to this there should be sustained research investment in science, engineering and medical technology. This policy should be a resourcing priority.
We have seen in the past five years the unreformed nature of the banks, the damage they continue to do and the bills that continue to come in. The spots run deep and they cannot be relied upon to provide the kind of service that helps to restore and develop the productive economy and provide a trustworthy, simple and honest service to ordinary people - especially savers.
Nor in my opinion can companies in other fields such as retailing be relied on to provide a plain and unpressured service. Unprincipled behaviour also runs deep there too and the temptation to exploit the 'punters' in the push for yet more profit would not be resisted for long. The answer is that government, preferably local, should establish 'exemplar institutions' wherever needed - the first being the re-establishment of municipal banks.
Economic policy should be actively Keynesian, meaning that major projects are established - and where necessary delivered - by government in contrast to the back seat, timid, private-sector-only stance taken over the Severn Barrage. Contracts should be framed so that British companies get the business. Opportunity should be taken to employ and train as many young people as possible on such projects. There are many other possible schemes in transport infrastructure. HS2 is one example, though not a particularly good one with its wildly exaggerated employment benefits.
In deficit reduction, timescales should be revised (this is happening anyway as current policies fail) and more emphasis should be placed on taxation and less on cutting benefits leaving room for investment. There are several reasons for this.
First is the fact that cutting public expenditure on projects and services also cuts employment and tax receipts and increases expenditure on other accounts such as unemployment benefit. In Keynesian terms there is also a reverse multiplier effect - the negative knock-on consequences of people having less to spend.
The greater part of the burden of present policies is born by the less well off. This is wrong both morally and in economic terms. Those who can afford to pay more in tax should do so - indeed a few notable figures have declared their willingness to contribute more. Loopholes allowing the unprincipled rich to avoid supporting the society from which the extracted their wealth should finally be plugged tight. If some say they will jump ship we should test this cry of 'wolf!' and see if we can scrape along with a few less executives on bloated salaries, bonuses and padded out remuneration packages.
There is little or no correlation between entrepreneurial activity and taxation of income at higher levels. There was much joy at the introduction of a 60% top income tax rate when this was reduced from 83% under Mrs Thatcher. In any case most of those paying the higher rate are internal promotions in large firms and not entrepreneurs.
At the same time let us encourage public spirited attitudes, a sense of fairness and a return to loyalty to country and community. The way that pay is determined for all employees should be the same throughout a company although levels would be different. If the boss gets a bonus, so should everyone else - they made it possible.
The government should push for a revised international approach to the basis of trade. Globalisation is not free trade - far from it. There should be inter-governmental efforts to rein in global corporations and their grasping owners that have decimated many western economies and there should be less knee bending to these outfits or appeasement of countries with unfair and inhuman economic and social practices. Trade in manufactures is far from free - with China cheating in at least six ways - and an utterly stupid money driven short term attitude to security of supply of key materials such as rare earths.
Fiscal and monetary policy should aim for sustainably expanding and balanced demand and related wider policies should involve major capital projects where the demand is met from domestic sources and where employment and training are maximised. The Keynesian 'balanced budget multiplier' should also not be overlooked. If the taxation of affluent people is increased and there is a corresponding reduction in taxes and deductions from the pay of less well off people, then demand rises since from an extra pound more is spent at lower income levels. This gives an initial tax neutral stimulus - and a net benefit in revenue as the positive knock-on consequences work through.
Quantitative Easing is of limited value in getting funds to productive sectors of the economy. It is not so effective as infrastructure projects in which governments are frightened directly to engage. The direct effects on manufacturing investment of low interest rates have in the past been damped and lagged at best. Eventually however lower rates should result in lower required yields and increased long-term investment if the conditions of lending are appropriate. But as smaller firms know to their cost this is not always so, the banks being what they are.
To this can be added appropriate levels and forms of taxation and public spending - I say appropriate rather than low. In the case of deductions from income, the irrational structure of national insurance contributions should be replaced with a flat rate covering all income levels. This would mean a top rate of deductions next year of 51 - 52% - well below the welcomed 60% and also resulting in a mild balanced budget multiplier effect. Government should help to make industrial winners where we still have a current edge. I don't say 'comparative advantage', a dubious concept that has rationalized retreat from manufacturing. The view that the winners we're left with should determine our future is inherently passive and dangerously vulnerable as the aspirations of China and the East confirm.
A strategy of trying to shift the economy ever more towards 'higher value added' activities, as if these were somehow protected areas and inaccessible to the countries that have acquired so much of the rest of our industry, is also destined to fail. Unless action is taken these areas will go the same way as their 'lower value added' predecessors. To imagine otherwise is at best wishful thinking or at worst smacks of a type of ignorant superiority.
The proponents of this approach of keeping ahead by moving up a line assume that there is an ever rising and straight line. But what is involved here is a rising curve of declining slope and of limited length. If this is the case, the consequences of this attempt to 'move up the curve' - in all essentials a retreat - are all too clear.
Action is needed nationally and internationally to retrieve the industry already lost. The country's manufacturing and engineering sectors must be rebuilt - they, along with agriculture and mining represent the economy's productive base. In the discussion about the future of the Euro, it is notable that the countries which are struggling most are those where industry has declined the most.
In economic policy the simple truths must be realised that in the absence of demand, there will not be production and that in the absence of production there will not be job creation. It should also be understood that the true meaning of the word 'economise' is not to make minimum use of a scarce resource but to make the best use of it.
The measures proposed here will take time to have full effect but they are urgent and the consequences of not taking action are no less severe. We are faced with choices we do not want but if, in the longer term, we want out of austerity, anxiety and lost esteem then this is the path we must take.
