The time has come for frank talk about the downsides of globalisation, Mark Carney said last week. The governor of the Bank of England reasoned that trade and technology make countries better off, but do not raise all boats nor help all areas. Losers should be compensated, he said.
There was nothing objectionable nor, indeed, new in Mr Carney’s words. And it was precisely the lack of any specific proposals that led Gavin Kelly, the chief executive of the Resolution Trust, to respond succinctly. “Stop calling me a ‘loser’ and do something about it,” he urged the governor. His reply was valid, but first we need to have the frank talk about Britain’s economy that the BoE governor promised and did not deliver.
To start, we should dismiss much lazy talk linking populism and Brexit to a backlash against globalisation and inequality. UK inequality is stable and those who have done worst in the past decade - the young - were much more likely to vote Remain. Brexit has its roots much more in elderly nostalgia than in economic hardship.
When we talk about the economic pain of the past decade, the second piece of frank talk should be a call to everyone to stop blaming others. There is not a group or a region in the UK that has prospered since 2007. London has seen the lowest hourly wage growth since 2008 of any UK nation or region. Britain’s wage weakness has mirrored its productivity woes.
With our eyes on the future, we have to recognise that geography matters. Towns located close to coal seams or the seaside were perfect for industry and respite 100 years ago, but not today. Britain can choose to pump in welfare, but this is not compensation for lost relevance. We can build infrastructure, but this is not sufficient to overcome locational disadvantage. The young and more mobile will continue to leave and public policy will fail to stop them.
With these bleak facts in mind, we must accept there is no simple answer to the question of what to do with depressed towns. Encouraging people to leave is toxic for the left behind. Forcing people to stay is worse.
We also suffer by limiting expansion in more dynamic towns, cities and regions. Jobs growth has been highest in already high-wage, low-welfare cities. But welfare bills are rising fastest there because unnecessary pressure on rents is raising housing benefit bills. Government should encourage much more home building in the south of England.
Allowing more development and people, including very valuable immigrants, in and around London does not suck the life out of the rest of the country. Instead, it fosters growth, Britain’s success and gives the exchequer greater funds to help more depressed areas. Victorians fully understood this frank talk, but we like to brush it under the carpet.
Of course transitions are painful. That applies whether they are caused by trade, technology, changes in tastes or just bad luck. Society has a responsibility to mitigate losses, but cannot fully insure people or places. The pain is much easier to bear for a country in a period of rapid rather than slow growth. Unfortunately, after eight years of over-optimism about productivity growth, a desire to limit net migration, an ageing population and with the UK already at record employment rates, it is wishful thinking to expect anything other than slow growth in the years ahead. Be prepared for more anger.
All of these difficult truths were evident before the EU referendum. And Britain is now embarking on the huge additional transition of Brexit, which will generate many more losers. Carmaker Nissan workers in Sunderland seem to have dodged an early bullet. Others will not be so lucky.
Economists warned that the additional transition of Brexit was unlikely to improve Britain’s lot. It seems frank talk is not so popular after all.