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Tuesday, 30 December 2008

Fairer, more balanced economy

Yesterday the Chartered Institute of Personnel and Development forecast that 600,000 jobs could be lost in the UK next year. This made plenty of headlines but isn't the worst forecast out there at the moment as a number of forecasting houses have already suggested that job losses could be closer to one million.

Once again these forecasts are pure speculation. Given that the economic downturn in 2009 is unlikely to be similar to anything that has occurred in the past twenty years, basing these predictions upon previous economic cycles is likely to be erroneous.

Nevertheless, whether this forecast is too low or too high, the one thing that is clear is that jobs will be lost in their hundreds of thousands over the next twelve months. Even with the errors associated with forecasting, this can be quite safely assumed.

Brendan Barber, head of the TUC, has acknowledged that 2009 is going to be a very tough year. He has taken a highly sensible approach to the recession, blaming the financial sector for the mess that we're in (probably a little over simplistic) but also stating that the government should continue to support banks and the financial system.

It is good to see the trade unions acknowledging the extent of the problems and taking a proactive stance for the benefit of the nation. Often trade unions have tended to think about their members first and the national economy second. With the whole nation in now entering recession they have put differences aside in the hope of making the recession as shallow and as short as possible.

If the trade unions can accept that many of the their members will face redundancy and / or pay cuts over the coming twelve months then they will be a key part in making this recession less painful.

Brendan Barber also called upon the government to make the economy more "fair and balanced". The word "fair" is rather loaded and means different things to different people. In the eyes of the trade unions I would imagine this would mean higher taxes on the wealthy. Although this wasn't stated by Barber I this seems to be the natural conclusion from the statement. However in a world of global competition this would be a poor idea. If by fairness he means an increase in social mobility, and an improvement in meritocracy then this is something many would approve of, something that would increase economic efficiency without the necessity to increase taxes and penalise success.

The argument for a more balanced economy is not that valid. It is true that the economy does have a large number of jobs in the financial sector, that account for a large amount of the nations wealth. Nevertheless, looking at the census figures, the majority of people are not working in financial services. Manufacturing continues to employ people in the millions and plenty of people work in construction, retail, government services etc.

Also the UK has a specialism in financial services. A combination of geographic location, established institutions and a stable political and economic environment has made London (and to a lesser extent Edinburgh) places of global financial dominance. As a result these centres can conduct specialised business demanded by the rest of the world, and as a result these businesses can command high fees. The UK does not have the infrastructure or skills base to be a major specialist in manufacturing.

A free and open economy has chosen to make London a global financial centre, and for UK manufacturing to shrink to smaller, more niche businesses. If the government attempts to artificially balance the economy it will lead to an inefficient distribution of capital and labour. The economy will be worse off as a result.

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posted by Carl Malways at

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