Brexit can’t cure these self-made ills

THE 21st Century has so far been quite a ride. From the dotcom bubble and crash, to the financial meltdown, austerity, a Eurozone crisis and Brexit. The financial meltdown of 20072008 was in part a result of the dotcom crash and the policy responses to it, and then a precursor to the crisis and policy mistakes that followed.

History is on my mind because this will be my final column as City Editor of The Mail on Sunday and I am reflecting on my years at this paper reporting on financial affairs. The financial crisis was most definitely the watershed. But what is concerning is that, while much has been done to cleanse the global financial system of its excesses and to try to make banks less risky, there has been a serious failure to rebalance our economy.

The policy of austerity was a blunt mistake. It was pursued not just by the Coalition Government here in the UK, but by many governments. It was a policy that has hampered rather than helped economic recovery and reform.

The belief that the main objective of Government after the crisis should be to balance their books as soon as possible was mistaken.

It should instead have been to stimulate productive growth, through public investment which in turn would have stimulated private investment.

A faster recovery, higher output and therefore higher tax revenues for government would have done far more to reduce the public spending deficit than austerity ever has.

That was not the path taken. Instead what recovery there has been has come overwhelmingly from consumer spending and much of that through consumer borrowing. Business investment has remained weak.

The economy is fractured and fragile. We may have record levels of employment, but a huge proportion of the new jobs created since the crisis are parttime, short-term or insecure. Average pay has failed to keep pace with prices.

This type of employment and the understandable reluctance of many businesses to invest in expansion, technology and new thinking go a long way to explaining our productivity crisis. More of us are working, but for less money in real terms and we are producing less per hour than comparable economies.

In the last couple of years there has been a widening realisation in many countries that what has been prescribed has not worked.

Finding a way forward is a huge challenge, but of one thing I am certain, the correct answer is not Trump-style trade wars and it is not Brexit.