A Fabian Conference, just before the crash

Reminding me of my blog, a few days ago, noting that there are still problems over the 2008 economic collapse, it is useful to go through the flyer for the 2007 Fabian Society Annual Conference. Somehow there was plenty of stuff which has net been recycled to the bin, and every so often I had an instinct that ephemera might well be useful many years on.

Please remember that back in January 2007 (almost exactly eight years ago), Gordon Brown had been ousted out of Tony Blair, from his premiership. On the front cover of the leaflet, we has an image of blue sky, green fields, and trees in the distance, just like in the current poster, proudly advertised by David Cameron for the Tories, much mocked by his opponents. The main difference would seem to be that in 2007, there was no road going though the greenery, while in 2015, there was a road running through the middle.

Well, I guess all politicians copy roughly the same ideas.

Going through the text, rather than the images, the Fabians note that, in the next decade,

"In 2007, Britain will have a new Prime Minister. But how should the political and policy agenda change?" Join us to kick-start the new political year. Over 40 leading speakers and more than 700 delegates will b4egin the next decade debates that Britain needs. We will ask how progressives can set the political agenda, and debate what fresh approaches to inequality, education, the environment, democracy and foreign policy should be involved."

It is all completely laughable, especially what was going to happen next. Looking through this, I feel mightily relieved that I had got away from the Labour party many years previously.

There was one massive gap in the Fabian analysis, in that there was no mention of the economy. Absolutely nothing. No one seemed to bother about the thought that the British economy was becoming seriously unstable. It is of course possible that some of the delegates, and maybe even the occasional politician, might have had the inkling that the economy was on the tip of the upswing, and from then on, it was all going to go into decline. Even the Conservatives, at this stage, did not grasp the problems until after the crash, and so after early 2008, they needed to cobble up a few ideas to try to give an unsatisfactory interpretation of what was going on.

Looking at the main policy for discussion at the annual Fabian Conference, we had, in the morning, "Philosophy after Blair" (yawn!), "Battleground 2009" (but of of course Labour was in such a mess, that they needed to delay for another year, until there was going to be some sort of reprieve), "Left outside" (possibly vaguely interesting), "The media and Progressive Politics" (meaning what?) and Divided by Difference". In the afternoon, Life Chances, Environment, Education, Democracy, and The World After Bush.

But where was the economy, stupid?

There are some in the Labour party who have not been stupid:

Some material to go through, both for myself and for readers.

http://www.theguardian.com/politics/2008/aug/30/alistairdarling.economy

This year's Fabian New Year's Conference will be held next week. I shall not be interested myself.

I need to remind myself though that while I will almost certainly vote for Labour in May, I have no great expectation that Labour will handle things well.

The usual excuse these days is that no-one could possibly have foreseen what was about to happen, just before the crash. It seems much more the case that Labour deliberately ignored all the warning signs.

Can't see that the Conservatives have been doing well, or will be able to do well if they get in after May this year.

Grim reminders of 2007 and beyond

There is still a big problem for electability for Labour, and it cannot be swept away. However badly the Conservatives have done in handling the economy, the fact remains that millions upon millions of voters still remember the horrendous crash in the economy when Gordon Bown was Prime Minister. People still remember that it was Gordon Brown previously claimed that he had ended boom and bust in the economy.

Probably Labour did the best that they could, when trying to deal with the crisis, once it had already happened, but the question is how well Labour, and indeed the Treasury, or the Bank of England, had foreseen the problems in advance.

It has taken several years to try to open up the lid of what was going on.

http://www.theguardian.com/business/2015/jan/07/revealed-bank-england-disarray-financial-crisis

I am in no way in a position of knowing in detail what was going on in the Bank of England, or indeed in the Treasury. What I am more directly concerned with was what was going on with the politicians, and in particular how knowledgeable people in New Labour about the macroeconomics of Britain.

It does not need all that much insight of economic history, and you can achieve much in reading books in a good academic library, to know that:

• There are booms and busts, fast growths and deep recessions, over the years
• Every time there is a bust, it comes about as a big surprise
• Every time there appears to be any period of strong and seemingly stable growth, things bounce back, with a deep crash.

To add to this, and after the time when I was plodding away at the libraries, we can add that every time there had been a deep recession, followed by long and serious growth, there was going to be plenty of people high up to be able to say with confidence that the economic problem had finally be solved. If people do think like that, the likely result is that the resulting problem would be unnecessarily severe, not least because people in charge will never have not bothered to set up any sense of cautiousness.

In my naive days of studying in the eighties, I had over-optimistically believed that people will have learnt from the 1970s and 1980s, and would have worked out ways of sorted out some of the worst problems of cutting out the ups and downs of the economy. It turned out precisely the opposite. The optimistic upswings through much of the eighties (after the early 1980s slump) and the 1990s and 2000s (it goes on and on, a "long boom") meant that, in particular, in the British context, things would do no wrong. Meanwhile, across the Channel, there was plenty more extreme optimism that Europe was secure, with might growth and unending prosperity, as long as the Euro was going to be set up. And so long as there were long and complicated rules to set up the Euro, to make sure that the Euro was going to remain to be prosperous, always passed on the assumption that there was never going to be a recession. The usual problem arises. If you assume that there was never going to be a recession, when the recession arises, it is going to and up disastrously worse.

Ed Balls, the main intellectual architect of New Labour's economic theory, has understandably gone much more cautious, but possibly excessively so. If the byword is "austerity", then we can never get us out of austerity. The problem though is that we are unlikely to return to the earlier long boom, from the War to the mid 1960s, as in the western world (in Europe at least), it is infeasible to assume that there is ever going to be 3+% growth without difficulty, indefinitely. Other countries, other parts of the world, people with lower incomes, will gradually catch up. It will be a very, very long time before China or India, or of course many others, will finally catch up with the west, and for as long as this process will take place, it is difficult to imagine western economies will become more prosperous. A gloomy prospect, I have to admit, but perhaps not so bad in Asia.

The problem is that while we may well be in the process of a zero-growth economy, and while at a pinch this may be tolerable, the way things are set up under the Conservatives, there is a strong intention that there will be growth among the more prosperous, while the rest of us will be struggling with the diminishing number of crumbs.

Few of us will believe George Osborne's predictions that after a brief spell of austerity, there will be a bright future in Britain.

Closer to date; 1990s and beyond

Just for clarification, especially as my earlier analysis was written over a quarter of a century ago, and there have been two deep recessions since then.

Technically, on my own definitions, there has been no slump since the early 1980s. It is not a question of whether a particular recession is the deepest recession of all times.

Rather, it is more a question of what is happening in a string of recessions.

It was becoming increasingly clear that since around 1983 or thereabouts, the economy could not deteriorate all that much further, but that there was bound to be an upswing, indeed a very strong upswing. The typical pattern during the slump would be a double downswing, of around four years, in which there was a deep initial extreme depression, and then, instead of a normal recovery of about two years, the next two years was a mixed pattern, with elements of growth, certainly, but also elements of decline, as shown by continued increases in unemployment.

Once the secondary recession had petered out, this was a time of possible sudden growth rates.

In terms of grand economic theory, I did not think that either Marxian economics or Schumpeter had the picture fully sorted things out. One strand of late 20^th century theory was that recessions were inevitable, and would become deeper and deeper until the capitalist system was going to be in collapse, there was going to be a revolution, and there was going to be a world socialist system. Was it though totally clear that there were going to be no prospects for revival after around 1980? It seemed unlikely, whether or not there was going to be a supposed Thatcherite or Reagonite capitalist revolution.

Another approach, that of Schumpeter, suggested that yes, the economy was inevitably going to collapse every so often, but that it was going to recover, but only through a burst of innovation. There was no indication that the economy would recover on its own accord.

I was looking closely at changes in growth rates in the economy, and the ups and downs of employment, and unemployment, and I checked through many of the arguments of the start of the upswing, and things did not add up. The trough of the recession, in the 1930s, in Britain and in other major economies, would be around 1932, economic growth had speeded up quickly in the next couple of years, and yet the spurt in industrial innovation, and the numbers of new patents, came a couple of years later. It was the return of growth, and then the upsurge of innovation, rather than a case of innovation starting the recovery.

A critical distinction.

Then, somewhere in Russia, at some stage in the 1920s and 1930s, Kondratiev suggested what seemed to me to be a much more subtle approach. There was no dogmatic approach to his work, no indication of three Kitchens to a Juglar, six Juglars to a Kondratiev (the types of business cycle that Schumpeter placed nuch of his analysis on), but rather, things go up and down, economic backgrounds may be totally different (nowadays we can say that there was deflation in the 1930s, and inflation in the 1980s), but the pattern varies each time. The one consistent pattern was that there tends to be great recessions around each 50 years.

Kondratiev stuck to his theoretical arguments, a dangerous approach when Stalin was in power, and he argued consistently that the western economy was in process of recovery through the 1930s, once the recession of the early eighties was going to pass through the system.

It is relatively easy now to chase material on the Internet, and look through biological material; much easier new than to to search material for the various university libraries in England. Kondratiev is now a much less shadowy a person than when trying to read things up in the 1980s. He was certainly a much more recognised a figure than I had supposed, setting up a respected research institute. More stuff to look at, on a much later blog.

In the meantime, what I had in the 1970s was plenty of fragmentary material prior to the Great War, more detailed statistical material, even if still fragmentary early on, and of course more material than anyone can catch up with, later on. The fifty year long cycle was a good starting point of analysis, although it was a pure coincidence that the start of the big slumps started in 1929 and 1979.

From a British point of view. It was abundantly clear that there were deep recessions from 1918 to 1929. Quite possibly it would have been far less clear in the USA, with the Wall Street Crash being an extreme jolt. I have to admit I have looked only at the British recessions between 1918 and 1929, and from the other side of the Atlantic, there would easily have been different points of v9iew to analyse.

Therefore I could not claim that I had a perfectly precise interpretation.

Even so, various recessions between 1918 and 1929, extraordinarily sharp recessions between 1929 and 1933, only one brief but sharp recession in 1937 and 1938, then of course the enormous disruption of the Second World War, then long steady growth in the post-war economy, in the west at least. Then, somehow (it's complicated), the post-war consensus started to fall apart, with full employment disappearing, and inflation, even in the advanced economies, becoming an enormous problem. Then there was another slump, and I could see that it was a genuine slump, in that there was going to be a post-slump recovery.

That was about as far as I could get through in my analysis, since I had completed my thesis only in 1989. There were however indications that after 1987, there were signs of overheating (the financial crash of 1987, and, hardly unexpected, a short, sharp crash in the early 1990s). Extrapolating, and I saw no reason not to extrapolate, there would be every reason to believe that the economy was going to grow well and steadily – until problems were about to set in!

A theory of economic recession

Let's get straight into the start of the Introduction to my doctoral thesis. I started working on this at the end of 1979, and I found it all much more complicated than ever I could have anticipated, not least because I wanted to go deep back into earlier times, to gain some context of what was happening during modern times, like what was happening month by month in the 1980s.

Please remember that what I am writing was based on writing of a quarter of a century ago, and that the start of my analysis started more than a third of a century ago.

I have abridged the earlier edition, not to try to add new things, nor to eliminate embarrassing mistakes, but rather to cut out extranious comments, and to avoid things being complicated by long footnotes, and references to other writers, some of which were useful, but some note. Anyone who has been in contact with the academic system will know many of the problem.

The current version is based on my earlier site,

Shakthinking https://sites.google.com/site/shakthinking/home/the-economic-georhraphy-of-recession-in-the-uk-the-early-1980s-and-historical-perspectives,

Also, I am deciding now to use different typefaces, without using lots of covering. I am using Verdana (as here) when writing new stuff, 2014 and beyond), while using Comic when writing up my earlier work (see below).

So here goes!  

The Economic Geography of Recession in the UK: the early 1980s and Historical Perspectives 
(Originally published 1989)  

1(a) Recession in the UK - the economic long cycle

The primary aim of the research has been to gain a detailed understanding of the economic geography and historical structure of slump. It is not possible, however, to understand the slump by examining only the slump. There are some intervening questions to be considered.

For the slump itself, the central questions are:

(a) Why do slumps occur?

(b) How does the economic geography of the slump of the early 1980s differ from the economic geography of preceding non-slump periods?

and

(c) How does the economic geography of the slump of the early 1980s differ from the geography of earlier slumps, most particularly the slump of the early 1930s?

Each of these questions is itself highly complex.

The work "slump" is used in a technical sense to mean the last and most severe recession in a series of unusually severe economic recessions. Following the slump, which is distinguished from other recessions by being both unusually long and exceptionally severe, it is generally to be found that there will be a prolonged period of fast and relatively smooth economic growth.

The slump is thus a pivotal phase in economic history. Before the slump, there is a long period, lasting perhaps ten to fifteen years, of generally depressed economic conditions, while after the slump there is a much more expansive period, lasting perhaps thirty years or thereabouts. If one calls the depressed pre-slump and slump phases the "downswing", and the post-slump period the "upswing", then one has identified the two arms of the so-called 50 year "long cycle".

The existence of this long cycle has been a matter of intermittent controversy for a long time, with proponents of the long cycle theory tending to suggest that empirical regularities in economic time series of the last 150 years are significant, and opponents of the long cycle theory tending to suggest that any such seeming regularities are spurious, given the small number of alleged cycles under consideration.

The argument is based mainly on identifying the internal structure of the long cycle, rather than chasing after empirical regularities. It is argued that there is a systematic succession of phases of economic growth, in which a slump is followed by a period of vigorous economic recovery, which in turn is followed by a prolonged period of steady economic growth, which itself fades away into a period of slower economic growth, with recessions tending to become successively more severe, with a slump representing the culminating phase of this series of recessions. The question of the existence or otherwise of the 50 year long cycle depends, it is suggested, on whether this succession of phases, this internal structure, can accurately be identified in the historical record over a prolonged period, rather than on whether certain major economic time series may be shown to incorporate a statistically significant 50 years periodicity.

It is perhaps to be expected that any theory of the long cycle developed in such unusual years as 1981 and 1982 would tend to emphasise the importance of the slump, but this emphasis still seems fully appropriate despite the passage of a few years of post-slump recovery. A theory of the long cycle is equally a theory of slump, and vice versa. Without a theory of the long cycle, it would be difficult to indicate why slumps should occur at certain times, generally following a long phase of economic depression, and not at other times.

The theory of the long cycle provides a useful framework for the analysis of regional patterns of employment change, and of unemployment, in the United Kingdom in the 20^th century.

Chapter 4 presents an analysis of employment change in the turbulent inter-war years, during which time unemployment was generally high. It is shown that regional differences in the rate of employment change were extremely sharp in the downswing and slump phases, prior to 1932. There was fairly steady employment growth in Southern England, briefly checked by the slump, but there were occasional sharp falls in employment elsewhere, particularly in coal mining and textiles. These dynamic contrasts were to become far more muted after the slump, when industrial decline was halted and there was widespread expansion of employment across all regions. While there was substantial employment growth in all regions after 1932, this growth was not nearly sufficient to absorb all the unemployment in the depressed regions.

Chapters 5 and 6 cover the the post-war "long boom" from the late 1940s to the mid-1960s, and also the patterns of accumulation of unemployment between 1966 and 1979. Much use is made of detail year to year patterns of employment change in the period from 1966 to 1978. Chapter 5 asks what happened after the vigorous post-slump recovery, while chapter 6 concentrates on the events before 1979. Industrial employment grew steadily, though with cyclical fluctuations, between 1945 and 1966, but declined substantially after 1966. Perhaps the single most startling statistic of the post-1966 “years of affluence” was that industrial employment (including mining, quarrying, and construction) had declined from 12,000,000 to 7,000,000 in the fourteen years since 1966, with much of this decline taking place outside the slump.

Much use has been made of the detailed results of the 1978 and 1981 Censuses of Employment to examine detailed geographical patterns of employment change through some highly critical years. In every chapter of this thesis the material incorporated into the final version is considerably less than the total information collected. In no case is this more true than in the two chapters on the slump. Much of the early research work was essentially based on keeping up with events as they happened during the slump, with a continuing examination of spatial patterns of industrial job loss (as reported in the Financial Times and elsewhere) and changes in unemployment.

(c) Colin Crouch 2014

I will try to clarify a few extra points tomorrow.

Gordon Brown's recession was technically not a slump. Things could get worse!

In all fairness though, in my commentary a quarter of a century ago, I was not even thinking that we would be thinking in terms of a massive slump sometime around 2010, give or take a few years.

From a personal point of view, I was remember suffering a stroke at the very end of 2004, barely able to speak or read, and I was assuming that I would die before too long. One of my clearest patterns of thought was something like, "Is this it? And was I wrong in believing that the economy was going to collapse?" Or even, had Gordon Brown got everything right? Had I got it all wrong, this would have been a depressing time to die.

Fortunately, for my self-belief, I could see that between 2007 and 2008, after the crash, I could see that I was not totally wrong.

My own view, as analysed in the 1980s, was that after a long period of economic upswing, of apparently steady growth, we do not suddenly go into a deep crash, a sudden accident, and then recover, no problems.

It is much more a case that the economy starts to get overstretched, as in the mid 1960s, the recession gets slightly stronger than the upswing the weaknesses do not get eliminated, the next recession cannot be fully compensated by the following recovery, and so on, and we tend to get stronger and stronger downswings, until there is a "slump", and the depressive sequence is so over-extended that once there is any sort of upswing, there is so much investment and innovation that the upswing suddenly tends to be of great strength. Many of the weaknesses have gone, but the strengths will survive.

The downswing takes a long time, 1966-1983 (17 years), or 1914 to 1933 (19 years), and the upswing lasts for twice as long.

The only way that made sense to me was that the crash of 2007/8 and its aftermath was only the start of a long deep downswing, and not the end result. We later saw the euro-zone crisis, and just at the moment we are having another economic crisis in Russia. The final slump and recovery might well be in or from China, then even the fastest growing economies could easily go into reverse.

2007 was the start of the downswing, and not the downswing itself. In 2014, and continuing through 2015, British output per capita is still no higher than in 2007, and at some stage there will be some sort of recession. Is the buoyant hosing market, for example, quite as strong in the next few years as in the past few years?

Despite the gloom of the last few years, and discussion of the "global recession", there is still plenty of opportunity for world growth. It is just that it is not happening in the "advanced economies" of Europe or north America. Other countries, notably in Asia, are catching up, in terms of living standards.

(Later: my own definition, from the 1980s, of what is technically meant as a "slump")

Recent posts:

Christmas five years ago

notes-chessthinking.blogspot.com

What about the Greens?

notes-chessthinking.blogspot.com

Deep recessions around 2010 were foreseen?

colincrouch.blogspot.com 

Deep recessions around 2010 were foreseen?

Time to set up a new blog, primarily on what I wrote almost a century ago, in my doctoral work.

This is what I wrote in 1989, as part of my conclusion, after, I have to admit, around a thousand words. I did not have enough time to write something much shorter.

I wrote (Crouch, The Economic Geography of recession in the UK: the early 1980s and historical perspectives, University of Durham 1989) that (pp324-325, v3):

"It may well be that the economic record of the next twenty or so years will not stimulate much research into the contemporary long

cycle. The likelihood, suggested by long cycle theory itself, is that the economy will be on a continuous upswing with only relatively mild recessions, so that long cycle theory, an important and distinctive tool for analysing the complex trends and counter-trends of the 1960s, 1970s and 1980s, may well add relatively little to the analysis of the 1990s or 2000s. However, two points, bearing in mind the lessons of the 1960s, should be borne in mind. Firstly, the presence and continuance of upswing is a fundamental part of the dynamics of the capitalist economy, and is largely independent of policy, so that the presence of a long boom does not necessarily imply that the economic policies being followed are correct; the relevance of this in the context of the late 1980s is obvious. Secondly, once any substantial departure from the long boom takes place, as happened in the late 1960s, there is a great danger that recessionary forces will accumulate, leading to a long cycle downswing and eventually to slump. Policy makers around the year 2010 would do well to heed these points in order to avoid a rerun of the 1970s."

Remembeor of course that "the next twenty years or so" covers the period from the late seventies through to what is now, in effect, the current day. I was always a believer that if you can try to do something to analyse modern history, you should always be able to make a good stab about the future.

I will explain much more closely, at a later stage, what I meant by talking about the "long cycle". Next blog maybe? Or soon after.

In terms of modern (post 1997) economics, did Brown, Balls or Osborne hed the dangers of going into deepenin recession? I think not.