Britain’s bonsai tree economy
Restoring Britain's Dynamism: Removing Barriers to Economic Growth
On 7 October, the IEA organised a panel discussion entitled “Restoring Britain’s Dynamism: Removing Barriers to Economic Growth” at the Conservative Party Conference in Manchester. The IEA’s Editorial Director Kristian Niemietz was one of the panellists. The article below is based on his opening remarks.
The fact that we’re even having this event, under this title, is itself an indication of the problem.
There was a time when you would have thought: isn’t virtually all economic policy ultimately about economic growth, directly or indirectly? Why do you need to specifically single that out? Why would you put that in the title? Unless you are talking to an audience of Degrowth fans: can we not just take as a given?
But the title makes sense today. For the simple reason that we’ve barely had any growth for a long time.
Last time I checked, average wages were about 4% higher in real terms than they had been in 2007. Britain is not a noticeably richer country today than it was in the final days of Tony Blair’s government.
That was 18 years ago. If you are a young adult today, you have basically spent your entire life in a nearly stagnant country. If you are a Millennial or a Zoomer, and you entered the labour force after 2007, you have spent your entire career in a stagnant economy. You have never known what it’s like to be part of an economy where things are on the up.
Well – not quite. There’s one thing that has been on the up: housing costs. We are getting to a situation where we have the economy of Greece or Portugal, but the house prices of Luxembourg or Switzerland. That’s not a great combination. That needs to be the other way around.
Think about the psychological impact of all that. We know from empirical research that people who spend their formative years in prolonged recessions are more likely to adopt a zero-sum mentality. They are more likely to think of economic life in terms of distributional conflicts.
That has spillover effects into the marketplace of ideas. It stacks the odds against those of us who believe in the market economy.
Even at the best of times, it is difficult to convince people of the benefits of capitalism. Instinctively, almost everyone is an anti-capitalist. We just don’t like capitalism. It feels wrong. It rubs us up the wrong way. There’s something in our DNA which rejects it.
But as long as a capitalist economy clearly delivers the goods, enough people will be prepared to ignore that impulse. When it doesn’t – they won’t. A generation that has only ever known economic stagnation is never going to be pro-capitalist.
Which is exactly what we see in all the survey data. Millennials and Zoomers are way to the Left of the generations before them. With Millennials, it hasn’t always been this way. If you look at surveys from the early 2010s, you won’t get the impression that British Millennials are a particularly left-wing generation. They weren’t, at the time. But they very much are now. Instead of going through a youthful socialist phase, and then growing out of it, they started out soft-liberal or apolitical, and then they belatedly grew into socialism in their late 20s or their 30s.
This was entirely avoidable. It was their experience of the economic conditions of the 2010s – the combination of stagnant wages and rising housing costs – which drove them to the left.
Why did this happen?
It was not supposed to happen. If you look at conventional measures of economic governance, such as the World Bank’s Ease of Doing Business Index, or the Fraser Institute’s Economic Freedom Index, you don’t get the impression that this is a terribly badly run country. Britain’s scores on these measures range from very good to at least OK. There is no way you would look at those numbers, and think, ‘This country seems completely dysfunctional, I bet they haven’t grown in 18 years.’
Regarding taxes: of course they’re too high, of course they’re too distortionary – but not more so than in lots of other economies. It’s bad, but not 18-years-of-stagnation bad. It’s not the bottleneck.
The bottleneck is something much simpler than that. It is that Britain systematically deprives itself of the key input factors for economic activity: buildings, infrastructure and energy.
Our residential housing stock is about four million short of the European average. I haven’t seen comparable figures for office space and other kinds of business premises, but it must be the same thing; I have seen rent level comparisons which look just like those for residential housing.
Our road network is about a third shorter than the EU average, and our electricity generation is a third below the EU average as well. They’re much further behind the US level. That’s why nothing grows here. We’re simply not giving it the space to grow.
Britain’s economy is like a bonsai tree, a tree that is not naturally small, but that is artificially kept small, because it is constricted by a tiny flat pot where its roots can’t grow. That pot is the land use planning system, it is NIMBYism, it is all the environmental and building regulations that make it impossible to build things here.
None of this is new. I am quite aware that I haven’t said anything original today. You have all heard variations of this many times before. You can find it in government White Papers and expert reviews from 5 years ago, 10 years ago, 15 years ago, 20 years ago… the Barker Review, which already made a similar case, is from 2003 and 2004. You can find think tank reports on it going back much further.
Politicians talk about the need to build more, but they only do so in the abstract. Never when there is any kind of resistance from NIMBYs. Never when it matters. I wish pro-development, pro-growth politicians had more of a Michael O’Leary attitude. There’s that famous quote from Michael O’Leary: “People say the customer is always right, but you know what – they’re not. Sometimes they are wrong and they need to be told.”
The same goes for NIMBY voters. They may hate development, but if you give them what they want, they will hate the consequences of that even more: they will hate the economic stagnation, they will hate the political upheaval it causes. And even though they asked for it, they will still hate you for giving them what they want.
So don’t give it to them.
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Great observation Kristian. But it’s not building infrastructure or energy that comes first, it’s money and money to spend! That’s the first and singular thing we need!… MONEY. And Capitalism is a self fulfilling prophecy. The rich eventually get it all . It’s like a boa constrictor slowly wrapping itself around you before it starts to squeeze and eventually squeezes the life out of you! We are in that finally phase now. We need to wake up and see some intervention has to be made. You in your piece state we need to intervene in the planning laws. And in telling nimby’s to belt up! (To green belt up lol) so intervention is clearly needed. Yet, …. Why are you not all saying the same thing about Capitalism and their hoarding of the money!? You have only got to look at the likes of Musk and Bezos to see where the money is going. But in all honesty they are not the richest, oh no. The real ones are never seen or heard they are those who keep quiet. Saudi Arabia and the oil rich. They are South American Drugs organisations or they are Chinese politburo who keep on stacking it. The biggest earners are still drugs, guns and oil and gas. It’s also big commerce industry and conglomerates. Rich Countries like Saudi and USA. It’s rich individuals like Musk. Their stockpiles of money is stratospheric. But combined they are all gatekeepers of the vast majority of our actual money. Because Capitalism doesn’t prevent it, it allows it. So I think it’s becoming more clearer now than ever. For all the bonsai tree reasons you state Kristian, that we need intervention. To be fair, we have had no way of knowing or tracing money and its ownership before. But we do now. It’s why I assert that all the old dead and historic economists of the past would have all given a better outcome to their theories, had they had the knowledge of modern internet banking. Smart cards and smart phones that cannot only tell who their owners are but what they have and how it’s spent. So it’s a game changer in ensuring a better flow of money than that of the capitalist boa constrictor! ….. Kristian, you have to see that the reason why we can’t grow or be a bigger bonsai let alone a great oak or cedar is not a lack of building of homes and infrastructure or power stations. It’s the lack of money in hand to build them! The governments are skint. People are skint. Even the Banks don’t want to lend and bureaucracy strangles even further our needs. Now we maybe skint which means the government is skint as we pay the bloody taxes! So where is all the money!??…. A really good question. As I have pointed out, it’s not disappeared! It’s not been lost, it may have been stolen! As we allow fraud at astronomical levels to occur. And we know the rich avoid and evading taxes. Your understanding of taxes is less than understanding. Taxes have pre tax triggers. These triggers are all transactional. When money has to change hands. It’s why I say, that income tax is not paid or triggered by the wage of the worker. That’s just calculated on his or her wages. It’s pre ordained by the company who pays the tax in calculating the need for that employee and factoring in to the business model the affordability of that employee and charging the consumer or real employer the necessary higher amount to incorporate the taxes and wages as a combined figure. They have to pay it in total, wages and taxes and Nic. So it’s an illusion tax, income tax is triggered by the transaction having to be completed. Their payment! It’s their business that pays it NOT the worker. So it’s like any other sales tax like vat or duty. Even a demand tax like business rates and Council tax are triggered by the demand and need. As money has to change hands it takes the tax in that direct way. They are all transactional. Even windfall taxes are the same demand. That’s why wealth taxes won’t work. It’s not transactional. It’s arbitrary. And the total wealth is unknown or hidden or valued incorrectly. And wealth is not money. Money is a token of fair exchange if work. Whereas wealth is what you buy and own with the money. Yours and the capitalist view is money and wealth are the same thing! That can be kept. But as I have said, where does the ownership of money stop? Because the inevitable conclusion is the rich will get the lot! So at what point do we intervene? Once they get it all? At what point do the rich say, hold on we are rich enough? Well it seems never! Only I and it seems Gary Stevenson are saying intervention is required., but he says tax them and I say make them spend it! My way is best. Sorry Gary. Spending money back for us to spend is the only way you get growth. You can only get growth from the people getting money and spending it in their masses. Not by governments taking their tax. What about us! The rest if the people who need actual free money from their spending rather than debt ridden money that has capital interest and in the case of investment, and PFI the added weight of future profits or exorbitant fees! No, we need freely spent money to return to the people’s pot of the goose that lays the golden egg of growth! After all Kristian, we need money to spend to grow. Buildings and infrastructure won’t get built without it! So look to the lowest common denominator for the real reason and answers to grow! It’s simply the rich hang on to money for so long and in such vast sums the real economy can’t pay sufficient taxes! Because the money isn’t in our pot, it’s in the pots of those who hoard it! Away from our reach. That’s the reason Kristian. That’s why the IEA are blind to it. Because they think the money is still out in the aether. It’s not, it’s tucked away out of sight out of reach. We need to put a spend by date on money digitally. Make money rotate. That’s the only way to get growth sufficient to end this malaise.