The Government’s Growth Plan: Higher Unemployment
So there isn’t really any question on the facts – Tory policy will increase unemployment. The defence offered is quite straight forward – there is no alternative; we must pay down our debt.
Meanwhile the coalition is strangely quiet on its growth strategy, with last year’s long-trailed White Paper postponed. I say strangely quiet as their target is quite clear: an increase in net exports and investment. What they seem reluctant to talk about in public is how this goal will be achieved.
Could it be that unemployment is not just “a price worth paying” to regain fiscal credibility but actually a crucial component of their growth strategy?
The government like to talk about using UK diplomats to sell UK goods abroad; I call this the “Ferro Roche Growth Plan”. It’s a nice idea but one unlikely to work, especially as UK Trade & Investment is already rated as the best export promotion agency in the world and it has yet to achieve what Osborne & Co are aiming for.
Another way to boost net trade would be to devalue sterling further. But it’s also hard to see how that could be achieved in an environment in which nearly every country is trying to do the same.
So that really leaves what economists like to call “internal devaluation” as the only route to achieve the competitiveness needed to meet the Government’s aim of a large increase in net exports. In other words, reducing domestic costs.
In plain English this means cutting labour costs. In even plainer English this means cutting the wage bill.
And the best way to lower wages (relative to what they would have been) is to increase unemployment and so loosen up the labour market.
Maybe Osborne does have a growth strategy; he just doesn’t feel he can talk about.