If the 1% growth in the third quarter is a blip (caused by a once-in-a-lifetime Olympics surge plus a catch-up on deferred production from the previous quarter), where is genuinely sustainable growth going to come from? This is a much more worrying question than whether the double-dip has really ended. The usual sustainable growth drivers are population increase and rising incomes, development of new markets, and innovation and productivity increases. None of these apply today. Incomes are shrinking, foreign markets are subdued worldwide, and there are no large-scale industrial innovations on the horizon. Worse still, some policy measures, notably quantitative easing (electronically printing money) and competitive currency devaluations, are actually driving up commodity prices, and thus shrinking disposable purchasing power even further.
The root cause of this global dilemma is that for the last 30 years growth under conditions of neoliberal capitalism has been driven by financialisation of the economy, in particular the use of debt to create demand. It has been assisted also by steadily phasing out constraints on trashing the environment and by mis-pricing non-renewable natural resources like oil and water, all in the false name of puffing up demand and thereby future profits. Debt does allow consumption and investment to be enhanced in the short term, but of course it has to be paid back in the future. It warps the production-consumption balance between the present and the future, and if allowed to get oiut of hand generates unsustainable imbalances. This is exactly what has happened.
In the period of the so-called ‘great moderation’ borrowing against the rising value of houses between 2001-8 contributed to about half of US economic growth and nearly the same in the UK. But sustaining that artificial boost to growth requires ever increasing borrowing. In the 1950s £1-2 was sufficient to create £1 of growth, but by 2008 this had grown to £4-5. A similar pattern has developed in China which now needs £6-8 of credit to generate £1 of growth, compared to only £1-2 some 20 years ago.
Nor is this merely a national phenomenon. Global trade over the last 3 decades has been built on the same unsustainable foundations. The big exporting countries – China, Japan and Germany – financed the purchases of their own goods by lending foreign exchange reserves to the US, UK and other EU countries (particularly the now bankrupted south). The same deceptive model of growth applied within domestic societies too. Increased credit availability allowed lower income households to go on spending, concealing the increasingly stark problem of stagnant incomes.
The simultaneous exposure of all these underlying problems creates the perfect storm. Expansionary fiscal contraction, Osborne’s fantasy model, has been revealed as the pretence it always was. Making middle and lower income households pay off the accumulated debt when their increasing spend is crucial, while the super-rich who could pay it off without scarcely noticing are entirely let off the hook, is the exact opposite of what is needed. But there are none so blind as those who are determined not to see.