COMMENT 129

Avoiding boom-bust or the second time in recent memory a Conservative government is telling us we can look forward to a long period of sustained growth. Are they kidding us and themselves again? F The message in the second half of the 1980s was that slashing red tape had transformed

the supply side of the economy so that high growth would no longer mean rising inflation. Yet in retrospect the major result of deregulation was demand going mad as consumers took advantage of a liberalised financial sector. The supply side failed, just as it always had. And, as John Wells argues in this issue of New Economy, even the 1980s productivity ’miracle’ is now in question.

Today, people with short memories are predicting a golden scenario. Inflation is dead, say the most optimistic. Again we are told by ministers that the new deregulated supply side guarantees that higher demand will enable the economy to grow without igniting inflation. And yet the financial markets have been taking fright about the potential for inflation.

For once the money men may have it right. Britain’s economy lacks the capacity to stand up to an increase in demand. It lacks the social cohesion to prevent wage-leapfrogging being the consequence of a faster growing economy. It lacks a supply side capable of delivering prolonged increases in productivity. That is why most of the articles in this issue are pessimistic about the chances for prolonged growth. The recovery, they say, will end in tears. Britain badly needs to be clear about these shortcomings. Reform is wanted in all areas. Skills is an obvious one, and Jonathan Haskel and Chris Martin show how skill shortages retard growth and mean the brakes have to be applied too soon. But reform must go wider.

Anticipating the publication of the report from the Commission on Social Justice, Robert Walker argues that for all their rhetoric, the Conservatives have both discouraged work and increased poverty. He suggests that intelligent policy can, by reducing poverty, increase our sense of community and at the same time improve vital incentives to work. Success here would increase the underlying potential growth rate and reduce the chances of the recovery hitting the bottleneck buffers too early.

As argued before in lVm Economy Britain needs institutional reform to encourage long termism in investment and a framework within which market forces can operate to promote innovation and efficiency while limiting the possibilities of boom and bust. Of course, the dynamics of capitalism arid the shocks that hit the system, will always present problems. But as articles by Andrew Trigg, John Eatwell and Rebecca Driver and Simon Wren-Lewis argue, these can be tackled if slavish adherence to market policy and non-interventionism is deserted. Macroeconomic fine-tuning may be out of fashion, and justifiably. But ex-Chancellor Lawson’s recent assertion that policy cannot help iron out some of the extreme ups and downs of the business cycle is clearly nonsense. He should know better. His misguided macro policy gave us one of the great boom-busts of all time.

We all want an economy that grows without booms and slumps, that reduces unemployment and begins to mend the chasms in British society. That will not come from abdicating responsi- bility in favour of the myth of the market’s beneficent, invisible hand. Positive steps must be taken to keep growth on track- and sooner rather than later. We won’t achieve it just by hoping.

DAN CORRY

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