Steel yourself: this is the world we live in now

It is deeply damaging when staff are being made redundant for managers to have fat severance packages

This is the age of insecurity. The misery of the job losses at Corus should remind all of us that there is no escape from wrenching, disturbing, even frightening economic change – and that such change will continue through the developed world for the rest of our days.

This is not just a steel story or indeed a British story. It is universal. Yesterday, as Corus announced it was cutting 1,150 jobs, Ericsson, the Swedish telecom group, said it would cut 13,000, half of them in Sweden, the rest around the world. Corus has already shed 10,000 jobs, while Ericsson has shed 45,000. You may think of steel as an old industry, challenged by production in lower-wage countries such as Brazil and Korea, though actually steel is very hi-tech nowadays. But you could not think of telecommunications as being low-technology.

What has happened in both industries has been a sudden and unexpected fall in demand, coupled with a price squeeze. I noticed another story yesterday: new car prices are down by 1.5 per cent (and second-hand by 10 per cent). Great news for car buyers; not so good for people who make the steel.

This is the world we live in. In the short term we should not expect things to get any better, either here or in mainland Europe. Much has been made of the excessive optimism in the Chancellor's forecasts but our problems seem mild when compared with much of the Continent. The German government cut its growth forecast for this year from 1 per cent to 0.7 per cent, while France revealed that contrary to earlier estimates its economy shrank in the final quarter of last year.

So what's to be done? Well first, more a social than an economic point: part of the responsibility – not all of course – lies in poor management. It is deeply damaging when large numbers of staff are being made redundant for the senior managers who have presided over such a disaster to leave with fat severance packages.

It is quite true that the contracts of senior managers are freely negotiated at the time they are appointed, but there is plenty of evidence that shareholders feel that this is a rigged market. Fat cats decide the pay of other fat cats. One of the few sliver linings in the present downturn is the pressure it has put on companies to redraw executive contracts so that they do reward genuine merit and don't reward self-evident failure. The second thing to do is to have macroeconomic policies that do not stifle growth. We have those in Britain (and in the US) but not in much of continental Europe. The European Central Bank has set interest rates that are too high for the eurozone's largest member, Germany. While you have to have some sympathy for the ECB's nightmare job of fixing a single interest rate for such a diverse region, it would have been safer had it erred on the side of expansion.

Clearly, too, the European Stability and Growth Pact will have to be recast so that it does not force governments to cut their deficits in recession: the time to trim is at the top of the cycle, not the bottom.

The central point here is that in a time of big structural changes it is important to have decent growth. Growth enables societies to ease the pain of structural change. Losing a job is more bearable if you can find another quickly.

Those are general points and easy enough to say, if fiendishly hard to act upon. But coping with continuous unpredictable economic change is not a matter of applying grand principles. Rather it is one of attention to detail and in particular creating business and government structures that are responsive to change. For example, if there is a strong market signal that the economy needs something – such as more houses in the south-east of England – then you have to be careful not to resist it. That is why the present Government's policies on the expansion of housing in the South-east should be welcomed rather than reviled. But the plans are probably too prescriptive because in another five or 10 years' time we may find that we don't need the homes – or that we need even more. The trick is to plan to be nimble.

To take the present plight of Corus workers, it makes no sense for outsiders to urge general solutions. Instead, the sensible way forward is for the individual communities where jobs are being lost to identify local comparative advantages and see where the next set of jobs might come from. You have to remember the UK has created more jobs in the past decade than any other European economy. Our problem is that these jobs are often in the "wrong" place and require different skills than those of the people who are displaced.

That leads to issues about retraining and education. But here too there is no magic wand. Not only do we not know what skills will be needed five years from now. The guesses that we might have made five years ago on the skills in demand would probably be wrong. As the poor employees of Ericsson will recall, telecommunications was the great boom industry – the one sort of activity where jobs would be safe. All we can do is to make sure that people have as good a general education as possible (most of the new jobs need quite high levels of education) and the opportunity to retrain as the skills needed by the market-place shift.

A final point is that most new private-sector jobs are created by small companies, while most jobs lost are lost by large ones. That is why we keep on reading stories of more and more job losses, yet the economy is a net creator of employment and earnings are still rising faster than prices. There is a powerful moral here. Economic success is determined not by the extent to which jobs are saved but rather by the speed at which they are created. This Chancellor, to his credit, understands this intellectually – hence his banging on about enterprise in successive Budget speeches – though his actions sometimes belie his words.

We are beginning to catch a feeling for the way our economy, the European economy, indeed the whole developed world economy, will develop over the next generation. It will be difficult to carry on increasing living standards in the face of shrinking workforces in most developed countries. Unless there is some global trade war, there will be ever greater competition in basic products from low-wage countries.

To some extent, we can compete against this by being cleverer and increasing our productivity by enough to cover higher labour costs. But the more we are successful in increasing productivity, the faster jobs in industries such as steel (and probably telecommunications, too) will fall. Some jobs will and should be saved. But the relentless shift continues. Meanwhile, the new employment will be in jobs we have not even thought of. Ten years ago, who had heard of a web-page designer?

There is a further problem for Britain. We happen to be located close to a market, continental Europe, which will, for demographic reasons alone, inevitably be a slow-growth zone. It is an obvious market, a rich one and a big one, but it will not grow much and such growth as does take place will be in servicing a rapidly ageing population. There is a cyclical problem in slow European growth – poor exports to Europe account for much of Corus' difficulties – but there is also a structural problem that won't go away. The long-term lesson is that we need to think of ways of widening the country's markets.