Economic recovery: ‘It’s all about DEMAND, stupid!’

Sometimes, I reach my wits’ end with the ideas and pronouncements of the ConDem government, especially the Con part. Quite often, actually. Very often, even. You see, I swim in the kind of pond that Tory dreams are made of. I’d be an ideal Tory poster-boy, if it wasn’t for all the ways in which I’m not.

I grew up poor, in a small terraced house, with a stay-at-home mother who had aspirations for us, and a tough but kind, steel-working dad. We had no phone in the house, nor did either parent drive, until well after I left home and got married. My mother knew her kids were capable of good things, and pushed us – but never over-hard – to develop ourselves. I discovered a talent for business and ended up in a well-paid job that takes me to weird and wonderful places all over the world, exporting British goods and know-how. I regularly meet with company owners, chief execs etc and am quite at home in that setting – Tories would say I’m one of their much-loved, aspirational ‘strivers’. (All of this feels uncomfortably like blowing my own trumpet, but I feel I have to establish some bona fides against the usual Tory get-out that I just don’t understand – because I’m a socialist, these blinkered people assume I can’t possibly hold my own in the ‘real’ world.)

But here’s the main flaw – I never forgot where I came from, nor did getting educated and learning to move in supposedly ‘exalted’ circles ever fool me into believing the things that Tories believe about life, society, social responsibility, or that paying my taxes is something best avoided rather than a privilege to contribute to a good, just society.

One of the things I did learn, from 20-odd years (so far) of doing what I do, is something that shows the current Tory plans and pronouncements about how to stimulate growth for what they are: a) idiocy; b) a Big Fat Lie; c) self-defeating.

Just off the top of my head, the latest Tory ideas to stimulate growth have included:

1) Cutting the taxes of the rich to ‘promote aspiration’, paid for by a squeeze on pensioners, the NHS and those on benefits.

2) Cutting corporation tax on the premise that this will encourage companies to invest.

3) Making it easier and cheaper firing employees, on the premise that this will encourage companies to employ.

4) Cutting public spending and making it easier for private companies to win public contracts.

5) Introducing ‘market-facing’ pay (i.e. paying less in poorer areas) on the premise that this will make it easier for the private sector to find and win employees.

The stated aim of these and other measures is that they will stimulate growth in the economy, reverse the (now double-dip) recession and be good for the country eventually (somewhere over the rainbow, no doubt!).

Well, one thing I’ve learned in 20-odd years of working in high-end is this. You won’t need to take notes, as it’s very, very simple – so simple that really even our right-wing politicians should be able to get it. Ready? Then here it is:

When it comes to investment, capital expenditure, expansion, taking on employees and anything else to do with growth – DEMAND IS E-V-E-R-Y-T-H-I-N-G

See, I told you it was simple. When talking about the economy and the deficit, the Tories love to parrot spurious comparisons with household finances. You know the kind of thing: ‘a housewife understands that if she’s in debt she has to cut household expenditure’. Quite apart from the fact that cutting is not the only option, as she can look, or her husband can look for more hours or a better rate, or whatever other ways you can think of to increase income rather than cut spending, the Tories know full well that a national economy doesn’t work like a domestic household budget.

But, since Tories like simple illustrations, I’m going to use one to demonstrate what I mean about demand – the difference being that these comparisons actually hold water.

Imagine you’ve just eaten a massive meal. So massive that you’re completely full and even the thought of an after-dinner mint makes you feel like throwing up. There is no demand in you for even a tiny morsel extra.

Now, I’m the restaurant manager, and I’ve got food left that I want to get rid of. So I come to you and try to get you to eat more, but no dice. So, I offer to make it very, very easy for you to eat. I’ll cut the food up and feed it to you personally, or even chew it for you first – it’s so easy, no effort at all, surely you’ll take just a bite? But of course, you won’t. You have no appetite. So I go further: ‘Look, I’ll make it really, really cheap. I’ll give it to you for next to nothing – in fact, I’ll give you it for nothing. Cheaper even than the Chinese place round the corner!’ But you’re not tempted, even if I’m giving it away – you’re stuffed, there’s no demand.

The measures this government is pushing – all the ‘supply-side reform’ guff, won’t create a jot of growth. In fact, because they’re taking money out of the pockets of the people most likely to spend it – and making them scared to spend what they do have – they’re reducing demand, and reducing people’s resources to be able to spend and satisfy what they do have.

These measures are the equivalent of mugging my hypothetical restaurant customer on his way to the restaurant and doing a forced stomach-stapling on him before he gets there. He’s going to eat a lot less, get full a lot faster, and the restaurateur’s situation is going to get even more grim. He’ll fire his chefs, his waiters, and probably close down the restaurant.

All the low taxes, all the slashed regulation in the world won’t stimulate growth, because companies need to make profits – and there’s no profit in buying machines, setting up factories/offices, employing people, if the demand for what those machines/offices/factories/people produce isn’t there.

On the other hand, if demand is there, businesses will do whatever they need to do, and comply with whatever regulations they need to comply with, to be able to meet that demand and make a profit out of it. And if they don’t, others will, or someone will see the opportunity and set up businesses to do so.

It’s like the theory of evolution. All the massive variety of creatures we see in nature exist because there were ‘profitable’ niches to fill in the ecosystem, and they adapted to fill them. Any opportunity, no matter how small, gets filled because there’s profit in it for the animals that do so. There are vents under the sea that keep the water just below boiling point – and there are creatures who’ve adapted to thrive in that environment. Others have developed antifreeze in their blood to be able to survive under the antarctic ice-caps. These adaptations weren’t easy, but they happened because there was an opportunity to exploit, and if one creature won’t/can’t do it, another will.

If we want economic growth in the UK, the very last thing we should be doing is taking money out of the pockets of the low and middle earners – because they’re the numerous demographic groups capable of generating enough demand that companies need to expand, invest, employ in order to meet it. Cutting public sector employment, which private companies can only replace by reducing wages, won’t result in overall growth, because again the funds of the potential, large-scale demand-generators is being reduced. Cutting corporate tax, or tax on the wealthy, won’t create growth, because those people and companies want to make a profit – and there’s no profit in expanding if there’s no demand for existing production, let alone additional.

I’ll finish by passing on what I consider to be the best idea for growth that I’ve heard. It was put forward on a comedy show on Radio 4, but when they heard it they got serious, because it really would work (though it would drive any right-winger insane). Instead of spending on tax-cuts for the rich and for companies, or quantitive easing or any other measure, give every single person in the country a sum of money – let’s say £15k – cash into their hand or bank account: on condition that they spend it all in the next 6 months. It would actually be fairly cheap to do so, but it would be guaranteed to create that magic, missing ingredient: DEMAND.

That particular idea may seem a little off-the-wall, but however you create demand, it’s really just common sense. The measure of any measure the government is considering can be judged as good or bad on the simple criterion of whether it’s going to put money into the pockets of most people who’ll spend it, or take money out and make them spend less. I don’t think it’s too much to expect our politicians – even Tory ones – to have a little common sense. Do you?


  1. Reblogged this on skwalker1964 and commented:

    From some of the things I’ve been reading lately, including some of the comments on the blog, it seems like it’s time to reblog this post on why austerity can only make the economic situation worse, and what the government should be doing if it wants to make an improvement (which is highly questionable, since they’re using the austerity-excuse for ideological ends).

Leave a Reply

%d bloggers like this: