Critics of the UK government calling for new growth strategies miss the point. Growth is not something concocted by the state, like a health potion at the chemist. Our job is important but modest: to create an environment for business to expand, invest and innovate; reviving what John Maynard Keynes called “animal spirits”.
Some commentaries assume that achieving financial stability through fiscal discipline is a simple problem. It is not, but tackling it in an orderly way is far better than being dragged kicking and screaming by the bond markets, like some of our European neighbours. Even the critique by Richard Lambert, departing head of the Confederation of British Industry, starts with a strong statement of business support for our deficit reduction commitment (and criticism of our predecessors).
Beyond this, growth must be driven by private investment, not government or private consumption. It must also be led by traded activities, notably manufacturing. Again this is not easy, though data suggest the picture is improving, in significant part due to rebalancing through devaluation. The last government only paid lip-service to this model. An asset boom delivered seemingly endless consumption-based growth, but did not make Britain a great place for business. The strong exchange rate suited the City of London, but not manufacturers. When they turned to this issue, after the recession wrecked their model, it was too late.