Howard Wheeldon says the ITEM Club is somewhat guilty of stating the obvious...
If anyone didn’t already know that the UK economy faces maybe a decade or more of re-adjustment they had better get hold of the latest quarterly report from the Ernst Young ITEM Club – an organisation that regular followers of the UK economy will know prides itself by using the same financial model as Her Majesty’s Treasury. One read of this report will tell them all they need to know about how to fix the economy, particularly when it comes to creating growth. It tells both what needs to be done and, most important of all, how all of us need to change our bad habits.
I am not about to suggest that this report is tantamount to shutting the gate after the horse has bolted, even though it may sound like that to some. Indeed, some main points from the ITEM report today do make fascinating reading as it takes the reader through a mix of problem reality and tells us all how these must be addressed. Like a bad dream, ITEM repeats what most seasoned economists and commentators have actually been suggesting for months – that UK growth in 2010 will struggle to hit 1%. A big thanks for that then and yes, most of us have also been well aware since about October last year that that the only reason UK recession ended in Q4 was those well known stimulus tricks of the trade such as the year long reduction in VAT, the historic low of interest rates through the year and car scrappage incentives along with increased consumer spending.
But while most agree that, artificially achieved or not, we really did turn the corner away from recession during Q4 2009, others rightly worry that this new found growth that may add up to less than a percentage point (the BGC figure remains 0.8% for 2010). So, right or wrong, the latest ITEM club report manages to rub salt in the wounds of consumers and companies alike telling them that the way out will be refocusing away from debt-led consumer spending and towards increased exports. Not that I disagree with the good old fashioned John Bull sentiments of the ITEM club argument of course, it is just that I think that it is a rather too obvious thing to say. My immediate thought is led to almost seeing one of those infamous flying pigs hovering overhead and the good-ship Jam Tomorrow trying to get into port carrying ‘made in Britain’ on its flag. No, I am not knocking our existing exporters – it’s just that thinking that we have the infrastructure in place to do what the ITEM club calls for is nonsense; we don’t! It would take years to put in place – twenty years perhaps – and require masses of incentive, motivation and most of all good leadership both at the company and political level. Do I think it could happen…….there goes that flying pig again!
Given the amount of investment that would be needed to take the risk of meeting just a fraction of the ITEM desire makes it in my view all but impossible to see us growing into any form of export led economy in under ten years at the very least. Although the UK has got some pretty good export capability in the form of aerospace and defence equipment, security, cars and various forms of specialist engineering that include thousands of small and medium sized companies, my overall view here is that we have probably gone far too far down the road away from being that of a manufacturing nation to turn the clock back in anything under twenty years let alone ten. Moreover, should industry even be willing to rise to the challenge of considering how it might attempt to produce and export more goods from the UK – and not just a case of importing component, gluing them together, adding just a little more value added perhaps and re-exporting – the question that appears to have been ignored is that although UK competitiveness is very much better than it was, even though our sterling based currency looks very favourably disposed to encourage more UK exporters is marred by the fact that in some peoples’ eyes (customers perhaps) we in Britain probably pay ourselves far too much meaning, we may just not be as competitive internationally as we like to think we are.
Easy for the ITEM club to suggest then, but very much harder for Britain to achieve! ITEM says that firms will “need to immediately start chasing overseas customers”. Sounds great and I have nothing against this but surely these are forlorn cries that Professor Peter Spencer, chief economic advisor to the forecasting group, chooses to use today and ones that will likely fall on mainly deaf ears of a UK industry that is already struggling to get new funding while at the same time facing up to the expectation of ever increasing taxes. In any case, just where are the incentives to come from? Government? … No. this is serious so please do not make me laugh! Government of course is not exactly flushed with money and by 2012 will have notched up no less than £1.5 trillion of national debt. Forget them then! Another reality that all too easily gets missed in this argument is that it isn’t just the manufacturing industry that we should be talking about in having the potential to increase exports – it is the service industries too. They of course include the all important and truly massive UK banking and finance and yet we already well know what our miserable government thinks about the hands that have been feeding the economy for very many years in the form of massive invisible exports.
Pity that there is no mention that I have seen in the ITEM club report today that makes the point that while Britain needs to export more it also needs to import far less, meaning it needs to make more of what it needs here at home. From acorns come mighty oaks – better perhaps that ITEM had said that just like the Chinese have done we should start small before thinking as big as they suggest. Of course, to say this would mean implying that we should start making our own washing machines, cookers, fridges, TVs, cameras and audio again, plus all the other goodies that fill the shelves of our shops. It doesn’t stop there of course – we’d need to regain all those industries that we lost back in the seventies due to our parlous state of competitiveness – you know, from ships to steel – from clothes to shoes and so on, not to mention food! The point is that far too little of what we need is made here and yet due to political correctness and our membership of the EU there is absolutely nothing that we can do to protect our industries let alone encourage new ones to start. Of course, home market or away, we would need to not just make things like cars, vans and trucks and buses but also the parts that go in them.
True, ITEM covers itself by admitting that refocusing away from reliance on consumer spending as a strategy to forge growth to one that relies on increased UK global trade in the form of manufacturing and service based exports will be “very challenging”, to which I might add that it is somewhat difficult to imagine such an overstatement. Whilst I might of course agree with the sentiment being expressed by the so-called ITEM club today and that will no doubt secure plenty of good PR for the organisation through en masse of broadcast and press headlines I am left to ponder just how valuable it is to state what many would say is both the obvious and yet likely unattainable following all the damage that has been done through thirteen years of Labour.