A lone voice with an econium for growth?

Martin Woolf has produced an econium to growth and posted it in the FT.

People care about their standard of living. Democracy is simply far stronger if it is possible for everybody to become better off. Growth provides that. Universal suffrage democracy was the child of modern economic growth or, more precisely, of our consistently increasing ability to produce goods and services people want. Growth was the foundation of democracy. It remains its foundation today.

It is very important that we understand this, we are  four weeks from a budget which will make middle and upper earning people worse off so that we can grow our economy and deliver democracy accompanied by a better standard of growth. I think we need to differentiate between austerity, where we are saving ourselves from crisis and investment which is what we do to grow.

It is hard for a Pension Minister to say that it is his own departments and regulators who have strangled growth since they were only following a pathway laid down by the Treasury and ultimately by the Cabinet of Government for most of the first quarter of the century.

De-risking was the notion, growth was out of fashion. In pensions that meant managing positions against liabilities that were considered unmeetable without drastic contraction. Our reaction was to stop accruing more liabilities and considering an end game which we believed would ultimately relieve the economy of its chains, the wait of pension promises. We kidded ourselves that paying 8% of band earnings (little more than the national insurance paid into SERPS/S2P) would make it alright.

Now some think that moving from 8% of band to 12% of pay into workplace pensions will undo austerity. It won’t- it is just another form of austerity for workers if it is not accompanied by a means to assure people of income in retirement that makes them feel better off. Actually, we are looking for answers that will suit those who profit from the current system of saving – the wealthy, the wealth management and the inheritors of wealth.

But back to Woolf

The government wants to bring the deficit under control, meet its spending commitments and not have to raise taxes. Unfortunately, this combination is impossible in today’s slow-growth economy. Above all, as a result of a more realistic productivity forecast from the Office for Budget Responsibility, the chancellor’s “fiscal headroom” is likely to disappear. She must now make some hard choices in the Budget due in November.

As I see it, we are not living beyond our means, we could go on sapping the tree till the tree was dead, and that would mean no tree for generations to come. We have to put some money back and stop sapping our economy. That is not austerity, it is investment – like what happened after the second world war. The crisis of the past fifteen years feel like fighting a war – no winners for the past 15 years though.

In brief, there has been a huge slowdown in economic growth in the big high-income democracies since the financial crisis, with the partial exception of the US. – Woolf ;FT

Woolf goes on to show that productivity in Britain has been low for some time but is now no lower than some of our rival G7 economies, we are all in the poo together, even America, though it has bought up creativity through technology purchase (including UK). It is now buying up our capital in our pensions (Woolf doesn’t mention this but could).

Woolf’s answer is to invest, to use the remaining capital that we have in this country to create growth from the bottom up, bringing the cost of power down, helping universities.

And eventually he comes to the statement of the obvious, that we need to invest our long term savings (our pensions) for productivity, for growth and for the well-being that allows us democracy.

Faster growth means embracing change. Planning reform, above all, needs to mean something. Again, the UK needs to create a more dynamic “start-up economy”, with the new businesses being created also supported to become world beaters. Universities must play a central role in this. Also crucial will be lowering the UK’s exorbitant electricity costs. Not least, there must be much higher investment.

The UK has the lowest investment rate of any leading high-income economy: between 2007 and 2025, this averaged a mere 17 per cent of GDP. Its national savings rate is still lower, at just 14 per cent. This means it is very heavily dependent on foreign savings.

For most of this century we have lived in deficit, invested and saved little and the net result is we are bottom of the investment and savings table

Woolf concludes

Radical pension reforms will play an essential part in raising both investment and savings rates

Radical Pension Reform is not  austerity” that was a failure to invest for the future and it has meant that we have allowed many of our great investables to be bought up by overseas countries.

We insist on our principles, the Government its fiscal principles, our pension conference – our fiduciary principles, but this doesn’t help us much when we’re in a mess.

Woolf ends up talking about the nation and the budget, I can translate that into our state of pensions and the recent frivolity in Manchester (which so annoyed me and much more the Minister). This statement from Woolf goes equally for taxation and pension reform

Fortunately, the system is in such a mess that radical change is both possible and beneficial.

It’s tough being the lonely voice isolated in a hall of people demanding more of the same, but this time it’s necessary