Getting There

Being the final part of an eight part series on the Virtuous Economy and the Common Good.

This is no small task indeed given the state that we're in. For a full realisation of a virtuous economy a timescale of a generation or more may be required. Just as it took several generations to throw away the values of centuries and the manufacturing industry that we had built up over more than a century and a half it may take a comparably long time to restore them.

What we are now left with is an economic system and philosophy which is the worst version of itself, but it is one that it is not incapable of redemption - in the longer term - given the will to do so and a policy that is sufficiently firm, direct, consistent and well advised. Closely connected to this is the widely noted moral decline on which we have commented. So what should the government do in response to the mess that has been allowed insidiously to develop?

The government must operate a comprehensive economic policy that commands the support of manufacturing, engineering, the industrial sector more generally, agriculture, mining, fishing and genuinely productive areas related to these. There will also need to be sustained and unthreatened investment in scientific research, engineering and medical technology and research. Once established, the fulfilment of this policy should be an unambiguous resourcing priority.

It must be unafraid to establish virtuous exemplar institutions wherever needed. There must be exemplary conduct by national leaders, both political and business and the government should set up appropriate bodies to bring this re-education about. In these days of conscience dimmed, there should be increased recognition of the role of the Churches and religious organisations through expanded informal outreach.

Secular and voluntary organisations with the common good at heart need encouragement rather than cutbacks. Home and family life should be more clearly valued by society. Political systems should be less tribalistic so allowing more consensus building. Citizenship programmes should be expanded and recast in terms of virtuous conduct and the common good. All this and more, to be sustained for many years.

The macro foundation of economic policy should be a genuinely Keynesian approach - not one in name only. This means major projects established and where necessary delivered by government. I take the view that it should also involve the setting up of public sector exemplar institutions such as municipal banks as previously discussed. In the reduction of the fiscal deficit, timescales should be revised and more emphasis should be placed on taxation and less on cutting expenditure leaving room for investment. There are several reasons for this.

Firstly there is the obvious fact that reducing public expenditure on projects and services directly reduces employment, income tax and VAT receipts and increases expenditure on other heads of account such as unemployment benefit. There is still an overall net reduction of course - providing a low enough weight is attached to the depressing effects of lowered expectations of employment and income in the wider population and consequent reductions in expenditure and VAT receipts on this account. In Keynesian terms there will also be a reverse multiplier effect - the knock on consequences of people having less to spend.

It is well recognised that the greater part of the burden of present policies is born by those who are less well off. This is entirely wrong both morally and in economic terms. It need not be so. Those who can afford to pay more in tax should do so - indeed some notable figures both here and abroad have declared their willingness to contribute more. This in contrast to the picture that has been painted of a mass exodus and a decline in entrepreneurial activity. Let us test this blatant cry of 'wolf!'. Let us see if we can scrape along with a few less executives on bloated salaries, bonuses and padded out remuneration packages.

At the same time let us encourage public spirited attitudes and the beginnings of a return to loyalty. There is in fact little or no historic correlation between entrepreneurial activity and taxation of income at higher levels. Initial attitudes depend to some extent on the direction of travel. For example, there was much joy at the introduction of a 60% top income tax rate when this was reduced from 83% by the conservative government of Mrs Thatcher. Most of those paying the highest rate are internal promotions in large companies and not entrepreneurs, whose motivation is not driven solely by money.

The government should lead the way to a revised international approach to the basis of trade. Globalisation is not free trade - far from it. There should be an inter-governmental push to rein in globalised corporations and their owners and there should be less willingness to accept excuses from them or from countries with unfair and unsavoury economic and social practices.

Fiscal and monetary policy should aim for sustainably expanding and balanced demand and related wider policies and practices should, as we have mentioned, involve capital projects and ensuring that, pressing the boundaries as far as possible, the demand is met from domestic sources and that in capital projects employment and on the job training of younger people is to the fore. An example of a large capital project would be the construction of a Severn barrage that would contribute 7% or more of total electricity demand. This should have been done long ago of course, in place of earlier tax cuts.

The Keynesian concept of the balanced budget multiplier should also not be overlooked. If the taxation of more affluent people is increased and there is a corresponding reduction in taxes and deductions from the pay of less well off people then demand increases (because of a higher marginal propensity to consume at lower income levels) giving a stimulus with no initial budgetary consequences and indeed a positive benefit in revenues as the positive knock-on consequences work through.

Furthermore, as we have seen 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 have become frightened directly to engage. High speed rail (and its rather pumped up benefits) is a partial exception but one can think of much more productive ways to spend this colossal sum either within the transport sector or beyond it.

The age of one club golf are well and truly over. In any case, 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 the case.

To this can be added appropriate levels and forms of taxation and public spending - I say appropriate rather than low (neither term being uniquely defined) although levels are a matter for debate. For example in the case of deductions from income, the irrational structure of national insurance contributions could be replaced with a flat rate covering all income levels. This would mean a top rate of deductions of maybe 56% - below the euphorically greeted 60% of previous mention and resulting in a mild balanced budget multiplier effect. The tax structure also affects payout pressure and should reward longer-term outlooks.

A pro-active environmental policy far from hobbling industry should be constructed to provide stimulation. Environmental standards achieved in advance of other countries but, crucially, which are likely to be followed, should give domestic suppliers a competitive edge.

Government should help to make winners and widen support where we still have a current edge. I hesitate to say 'comparative advantage', a dubious concept that has provided a rationalization for retreat from manufacturing. The view that the winners we're left with should determine our future is inherently passive and dangerously vulnerable.

Traditionally one thinks of the concept of comparative advantage in terms of tangibles such as natural resources, but it is now linked to less tangible or persistent things such as exchange rates, regulatory regimes, skills, language, time zones and for manufacturing, commitment to long term investment.

Trade in manufactures is far from free, a fact from which our rivals gain more than ourselves. There is a distinction to be made between globalisation and its attendant ills and the dream, for some, of free trade. Government also means local government. For example, Birmingham does business in the billions and has extensive local knowledge and should be resourced for pro-action complementary to existing initiatives.

It should be said though that the advent of relative (and for some people absolute) austerity may have an upside. This is because the unwelcome change gives people the opportunity to reflect on the 'disvalue' of consumerism and the chance to adopt simpler and more worthwhile ways of living.

But beginnings can be particularly productive when the curve rises quickly and some of the most fruitful gains can be achieved first. But it is also as well to be aware of what will not work. For example reliance on services and in terms of production the 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.

This may appear briefly to work, but unless action is taken we should be sure that these activities will eventually 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 an unsavoury and ignorant superiority.

Furthermore, the proponents of this approach of keeping ahead of those who have taken so much of our industry by moving up a line seem to assume that there is an ever rising and straight line. In contrast, I take the view that what is involved here is a rising curve but of declining slope - and also which is likely to be finite in length. If this is the case, the future consequences of this attempted 'moving up the curve' approach - which is in all essentials a retreat - is all too clear.

I have stated in an earlier section that steps need to be taken 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, as was recently said of Greece in particular, that don't produce anything.

In macroeconomic 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. In this it should also be understood that the true meaning of the oft used word 'economise' is not to make minimum use of a scarce resource but to make the best use of it.

The advancement of the common good requires the provision of good public services and simple and trustworthy services now associated exclusively with the private sector - such as banking. There are many who take the view that there is a role - indeed an enhanced one rather than the continuously diminishing one we have seen in recent decades - for these services to be provided by the public sector - or at least by organisations that operate with public service values.

All this stands in stark contrast to the ethos prevailing in certain sectors such as the banks, specific companies and, regrettably, in a good deal of the private sector. Economic actions on a robustly Keynesian and direct basis will help enormously in the medium term. Psychological and moral changes will take longer but they are equally important if we are not to encounter the same near catastrophic circumstances once again.

Is all of this impossible? Certainly not. It is just very different from what we have been doing these decades past. It is difficult and in some respects not unlike the situation with climate change where we are surrounded by scientific evidence with a sprinkling of influential, self interested deniers.

The measures involved will take a long time to have effect but they are non the less 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. We must not return to the state that we're now in.