Predictions of economic disaster are always with us

Britain was meant to have sunk by now – and the developed world along with it. But the good thing about the future is you don’t know what it will bring

Related Topics

The headline “Goodbye Great Britain” ran above an editorial in The Wall Street Journal on 29 April 1975, which concluded that the high taxation, high spending policies of the then chancellor Denis Healey would result in “still slower economic growth and still lower living standards for all the British, rich and poor.”

This was, at the time, received wisdom. The WSJ article followed a cover story in The Economist headed “Steady as She Sinks” and I recall an editorial meeting at The Guardian, where I worked at the time, when one of our top columnists argued that Britain faced not just relative decline but absolute decline. 

The reason to bring this up now is not to point out that received wisdom is often wrong but to set in context current defeatism about not just the British economy but about that of the developed world as a whole. Here are some current headlines: “Harsh truths about the decline of Britain”, “Meet the new Japan – it’s called Europe”, “Canada’s younger generation facing deep declines in its standard of living”, “The Inevitable Decline of the American Economy” – and so on.

There is a lot of it about, so much that it needs to be taken seriously. There are several strands. One is to focus on demography: that ageing populations will have a smaller workforce caring for (or paying for the care of) a larger number of retirees.

That will tend to reduce the living standards of all, but particularly the young. Another is to note that productivity growth is slowing and has been for about 20 years, with the result that the still-rising living standards of the period to 2007 were financed by excessive borrowing by both individuals and government – borrowing that has now to be paid back. Still another is to focus on the impact of economic change on different income groups, and to note the median incomes in the United States have not risen in real terms for a generation. And finally there are environmental concerns, at their simplest that rising living standards have only been possible because we have been using up the planet’s natural resources at an unsustainable rate.

The difficulty for anyone trying to stand against this tidal wave of gloom is that there is some merit in all these arguments. The case for optimism is that this stuff overemphasises the negative and underestimates our ability to adapt.

Take demography. Actually as far as the UK is concerned this is not really a problem. Our population is expected to rise through to 2050 and is currently rising at 400,000 a year. Our fertility rate, unlike that of most of Europe or Japan, is at or close to replacement rate of an average of 2.1 babies per mother. As for the growing numbers of retirees, the fact that people beyond normal retirement age are staying in some form of work is a major reason for the increasing size of our workforce.

While the young will have to some extent to pay higher contributions to finance pensions, the burden can be cut by quite a small increase in the retirement age. Demography is a problem for much of Europe, for many countries face shrinking populations. It is less so for the UK and US.

Falling productivity is a real concern. There are two issues. One is the cyclical decline in productivity that seems to have happened as a result of recession. If most of the recent fall is indeed cyclical then that should not be a worry because it should be reversed as the cycle reverts. If on the other hand there is a structural decline, then it will be very hard to increase living standards.

There is some evidence that there has been a structural decline in the rate of productivity growth since the 1990s in the developed world. Part of the problem is that it has proved harder to increase productivity in service industries than in manufacturing, and as the former grows in relation to the latter total productivity is likely to lag. It is obviously tougher to increase productivity in a university or a hospital than in a car plant.

There is no easy answer to this. Some activities, such as looking after older people, will always need human beings – and caring and trained ones. What we don’t know is whether better application of the new technologies could boost productivity in ways that are hard to envisage until they happen. Think of Moocs – massive open online courses – which may be creating a revolution in education. Or think of the ways in which public services could be simplified to improve efficiency: a much simpler tax system for example. Should the legal system be simplified to cut costs? To what extent do compliance costs reduce efficiency? Intuitively there must be huge potential gains to be made but how we structure society to deliver these is harder to see.

Of the rest, well, debts have to be repaid in some way or other and that will be a drag on living standards here and elsewhere. But another three or four years should see debts in the UK and US at an acceptable level. There are no easy answers to issues of inequality and the environment – subjects for a much longer column than this. But the big point surely is that if we are thoughtful, numerate and intelligent there is no reason why we should be unable to apply our ingenuity to improve living standards for all. We have always managed to do so in the past. Why not now?

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Year 5 Teacher

£80 - £140 per day: Randstad Education Leeds: Year 5 Teacher KS2 teaching job...

Software Developer

£35000 - £45000 Per Annum Pensions Scheme After 6 Months: Clearwater People So...

Systems Analyst / Business Analyst - Central London

£35000 - £37000 per annum + Benefits: Ashdown Group: Systems Analyst / Busines...

Senior Change Engineer (Network, Cisco, Juniper) £30k

£30000 - £35000 per annum + Benefits: Ampersand Consulting LLP: Senior Change ...

Day In a Page

Read Next

i Editor's Letter: A huge step forward in medical science, but we're not all the way there yet

Oliver Duff Oliver Duff
David Cameron has painted a scary picture of what life would be like under a Labour government  

You want constitutional change? Fixed-term parliaments have already done the job

Steve Richards
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album