Thursday, 28 July 2011

Sustainable growth...

We need growth.

If we are to move decisively out of stagnation, create jobs and pay down the deficit - then we need growth. And not just any growth, 0.2% over the second quarter is just not good enough. Anything less than 0.8% to make up for previously disappointing figures is too small to be of any use whatsoever according to the shadow chancellor. Or is it?

It is now widely accepted that although spending cuts have yet to bite, it is the fear of future cuts that is affecting consumer spending - or the lack of it - directly suppressing demand and leading to low, anaemic growth.

Or is it? You see, those earnings must be going somewhere. I grant you that inflation is currently running at over 4% - which will eat into weekly shopping budgets - and unemployment has risen - even if only marginally, which will devastate a small minority of consumers, but where's the rest going? If the vast majority of employed consumers are not spending, where is that money going?

The answer of course is savings. People are making sure that they live within their means. They are paying down their debts, re-paying mortgages, credit cards and loans. The banking figures - a net re-payment of over £2.5 billion over the last quarter - bear this out.

Now I understand that growth is essential to an expanding and thriving economy trying to attract investment. What I am suggesting here is that as well as re-balancing the economy both structurally - through greater reliance on manufacturing rather than financial services - and geographically - to address the north/south divide - we should also be seeing these figures in human terms. These are not just cold figures. These are people voting with their wallets, telling us that they want and are pursuing, sustainable long-term growth. That is, a lower level of overall consumer spending in order to ensure it is both sustainable for the long term, as well as being backed up with a level of individual wealth (or savings) that is both substantial and therefore induces confidence in the future.

Once consumers have built up that blanket of savings security, we will again see a further rise in consumer spending. But I think it is not unreasonable to expect - and indeed the government should be encouraging through active promotion - long term sustainable growth that consumers - always ahead of governments - appear to want.