More than anything, next year will remind us what a capricious mistress capitalism can be. It is surprisingly easy, in fact, to predict what will happen to the economy as a whole in 2009, if only because the credit crunch has become such a central factor – the biggest of "known knowns", and we know it is very unlikely to get better before it gets worse. We can see it with our own eyes as we wander round shops, watch it in the value of our pension pots, hear it when people say business has "fallen off a cliff", as they so often do now.
If in doubt, it's usually a good rule to go for the most pessimistic forecasts. At least that way you might get a pleasant surprise, though it is fair to add that even the gloomiest Cassandras this time last year look absurdly upbeat in the light of subsequent events.
With foreboding, then, we turn to those grim assessments, which tell us that the economy will shrink by about 3 per cent next year. That's a big number; it means a lot of lost output that will be lost for ever, about £40bn worth, or enough to double the schools budget. All of 2008's (feeble) and 2007's (respectable) growth will be wiped out. A contraction of 3 per cent means that we will be no better off, nationally, at the start of 2010 than we were in 2006.
The human cost of the recession will be grave; 3 million unemployed by the end of 2009. Capitalism is going to spread the pain very unevenly, and very unfairly. For some, say those in relatively secure public sector employment with tracker mortgages and final salary pension schemes, and who happen to run a larger car, 2009 might be a relief. As mortgage payments, taxes and prices fall (especially for petrol, food and domestic gas and electricity), many will see their standard of living rise. Prices in the shops will fall next year; that will be a welcome novelty.
Who will pay for the downturn? That 3 per cent fall in national income won't translate into a 3 per cent fall in income for all; some people will be wiped out in 2009, just as others enjoy a surprisingly comfortable time of it. There will be winners and losers. This is where capitalism gets itself into trouble: the sheer randomness of it all. If you worked for Woolworths and have a big mortgage and negative equity ... well you can write the rest of the miserable script. If you happened to work for a more fortunate retailer, and you hang on to your job, things will not be so bad. Where's the justice? Why should government save car-making jobs and bankers – but not those of shopworkers? And why should the public sector enjoy greater security of employment and pensions?
As in the early 1980s and 1990s, people will be thrown out of work and their homes, and families broken up for no rational reason. The problems facing the economy are man-made; some will ask if the system can be remodelled by man. That's how we got Marxism, and Keynesianism, in the first place; the caprices of capitalism force every generation to think again.
So it's no wonder that Richard Lambert, Director-General of the CBI and a sort of Archbishop of Capitalism, has chosen to speak out. He tells us that "a painful recession is going to test public support for the market economy and for robust competition policies. Business leaders are going to have to develop an exit strategy in order to get the private sector back in control of its own destiny when normal times return". He's worried, isn't he?
When the leader of the CBI, sounds so concerned about the future of capitalism, it is a sign that something is up. Thoughtful as ever, Mr Lambert can see the dangers. An economic system is only as good as the prosperity it delivers. Nothing is immutable. As in the 1930s, if free-trade free enterprise is seen to fail, then people will look for alternatives, and not always palatable ones.
Thirty years ago next year – May 1979 – the nation turned to free market Thatcherism as we forgot what the 1930s had brought and decided that our social democratic semi-planned economy had failed. Now we've forgotten the miseries of economic planning, we are turning against the markets and Thatcherism. Maybe this swing in the pendulum is inevitable. However it is odd that we hear so little from the "anti-capitalists" these days. They were rioting a few years ago when capitalism was delivering the goods – steady, low inflationary growth, jobs, prosperity. Where are the anti-capitalists now, when we might like to hear their critique? Where is the Keynes for our times?
And when will Mr Lambert's normal times resume? What will normal be? Normal times, we can be reasonably sure, will return only slowly, for three reasons. First, the shock of mass unemployment will shatter confidence, and will persist long after the recovery has started, just as it did in the 1980s. Confidence will not easily be nurtured again after such a searing experience. People will be fearful, and rightly.
Second, the banking system will take years to repair itself. Talk to car dealers, or farmers or shopkeepers; they will tell you. The banks have not the money to lend. At some point in 2009 the government will have to answer the question; do we want a smaller, more profitable banking sector able to sustain itself and make its own lending decisions; or do we want one run for the benefit of the community and the wider economy? If the latter, why not nationalise the lot? One way or another, credit will not be in plentiful supply, no matter what Lord Mandelson and the Bank of England might wish.
Third – and here the Tories and the critical Anglican bishops are right – the recovery may be hampered by higher taxes, to pay for the current spending splurge. The detail may differ, but whoever gets into power next time will be faced with a British economic problem familiar to older citizens: slow growth and high unemployment. Behind that will be the search for new engines of growth to replace the failed motors of finance and housing. Until that happens we cannot have confidence about when or how the economy will recover. Bleak, but true.Reuse content