This speech outlines Cameron's strategic gamble of ploughing on with austerity and using quantitative easing as a palliative
Never mind. The economy continues to tank, but David Cameron has a plan. Judging by today's speech, it appears to be the same plan that he was brandishing before the election, after the election and at every development since: spending cuts, welfare cuts, corporation tax cuts and deregulation.
It might reasonably be asked when this plan is going to start working. However, as the prime minister finger-wagged in a deliberate echo of Margaret Thatcher, "there is no alternative". Changing course now will simply push us into the abyss.
What is the state of affairs Cameron seems to think worth defending? In the last quarter of 2012, the British economy contracted again. If the first quarter of 2013 follows suit, we will have entered a triple-dip recession. The value of real wages has fallen by 3.2% over the last two years, one of the biggest declines in Europe. The country's leading high street chains have gone into administration and started shedding thousands of jobs. At the end of February, Britain's credit rating was downgraded by the ratings agency Moody's. Explaining the decision, it referred to the UK's "materially weaker growth prospects" over the next few years.
Cameron's response to this has been to blame the last government. In this speech, he attempted to go a little bit further in fleshing out his analysis. He argued that Britain had become too highly indebted, whether it was the government, households or business. But while he conspicuously had little to say about the reasons for high corporate and household debt – the fact that financialised debt was structural to the growth model launched under Thatcher – he claimed that years of tax-and-spend Labourism had driven the structural deficit to a high of 7% in 2008. This was disingenuous. Labour was obsessed with paying off government debt. In its first few years, it actually created a moderate surplus. The deficit only exceeded past levels after the credit crunch had hit.
Cameron's main point, however, is that the country is uncompetitive. The business tax regime is too onerous. There is too much red tape. The welfare system doesn't incentivise work. Not enough 16-year-olds get a grade C or above in English and mathematics. There is nothing solid behind these claims. Businesses always complain about taxes, but they make their investment decisions based on other things – otherwise, Andorra, Cyprus and Bulgaria would be booming hubs of global capitalism. Every rewritten regulation or clause isn't a stranglehold on investment. There's no evidence that cutting welfare increases employment; cutting unemployment is what cuts welfare costs. And the proportion of A-C grades has consistently risen for more than two decades.
But the overall strategy implied here is one aimed at stimulating a private-sector-led recovery by reducing the costs of investment. Cut taxes for businesses, reduce the cost of labour by getting people off benefits and into the labour market and reduce the cost of the state to the economy as a whole.
The problem with this strategy is, precisely, the private sector: it is not exactly straining at the leash. The evidence is that businesses are on an investment strike not because of taxes, or benefits, but because they see few options for profitable investment. As David Harvey has pointed out, this is a structural problem; the world economy must find $1.5tn in new investment opportunities each year, just to sustain growth at normal rates. That is becoming increasingly difficult, especially in declining economies like the UK.
In such a situation, cutting government spending and reducing public sector jobs is simply a route to further economic contraction. And we have not even seen the worst of the cuts yet – most begin to come into effect this spring. Cameron's only response to the resulting stagnation of the British economy is to stress more export-led growth. But Britain is not a strong exporter, and its performance has only deteriorated.
Perhaps the most disingenuous part of Cameron's speech was his insistence, with the tolerant tone of a badgered parent, that "there is no magic money tree". By implication, anyone calling for a growth strategy based on investment is an unworldly child in fiscal matters. This would be more impressive if his government didn't rely on the Bank of England to print money – so-called "quantitative easing" – to counteract the negative effects of austerity. And if £375bn hasn't been enough so far, another £25bn will probably be pumped into the banks this May.
All of this might seem inept. In fact, it is a strategic gamble. Cameron's overriding objective is to force his structural adjustment programme on the UK. As he said, presumably trying to rally his business allies, he doesn't expect to improve British "competitiveness" without a fight. But he understands well that in the short-run it will hurt, and that risks the whole agenda imploding. That is what Cameron's "magic money tree" is for – it soothes the symptoms of austerity enough, for now, to ease its passage.