Just over a decade after the 2008 financial crisis, the UK faces a new economic crisis – this time emanating not from de-regulated financial institutions, but the severe economic consequences of the COVID-19 pandemic. We stand on the precipice with an already fragile economy facing an economic contraction on a scale not seen since the 1929 depression.
Following the 2008 financial crash, the then-Chancellor of the Exchequer, George Osbourne, stated that it was time to “tighten our belts” and embark on economic austerity to reduce the country’s debt burden. This economic principle dominated politics for over a decade. The basic argument behind austerity is simple: a country with its books balanced and spending under control will keep inflation low, become more competitive, and attract foreign investment. However, austerity has resulted not in recovery but increased poverty, erosion of public services, and a considerably higher debt-GDP ratio.
The same chancellor who pushed for austerity in 2008 made a statement regarding the future of today’s economy, claiming that “more austerity” would be needed post-COVID. However, luckily, he is no longer chancellor, and at least for the moment Prime Minister Boris Johnson appears to be comfortable with the idea of investing in the country. In a June statement, Johnson told Times Radio, “I think this is the moment for a Rooseveltian approach to the U.K.” This suggests he is open to leaving austerity in the past.
Johnson’s long-term commitment to his newfound support for Roosevelt should be taken with a large pinch of salt. Nonetheless, it leaves the country pondering a critical question: What will the money be spent on? The answer to this question could provide the country with the opportunity for real change, a potential for a bi-partisan agreement on building a brighter, more inclusive, and environmentally friendly United Kingdom: A Green New Deal.
The Green New Deal is a 14-page resolution that was born in the United States but has since been discussed all across the world. It revolves around two big issues: inequality and the climate crisis. The resolution aims to address these issues through huge state-led investment: raising living standards, generating thousands of jobs whilst de-carbonizing the economy, and protecting the environment for future generations.
The Deal follows the logic that the only way we can overcome inequality and the climate crisis is via massive state-led investment into green energy, divestment from fossil fuel sectors, and by increasing the power held by workers in comparison to those at the top echelons of corporations. A genuine change in the structure of the economy and the labour market along with a shift in the energy that drives the economic machine.
It should be said that this will not be a straightforward process. People will lose jobs; entire economic sectors will be wiped out and the structure of society will change. The government would have to become proactive in re-training workers for the new jobs and in protecting those who are made vulnerable by the changing labour market.
In the past, this idea faced serious opposition. It has been kept out of any serious policy debates for the best part of a decade, with major political institutions, central banks, and leading politicians strongly in favour of fiscal conservatism due to the fear of the ballooning debt burdens that have plagued most major developed economies as a result of the 2008 bailouts. This conservatism has resulted, generally, in a simple response to the Green New Deal: we cannot afford it.
However, the “we cannot afford it” response has lost credibility in recent months. Huge government programs were initiated all across the world – including the UK ¬– to keep economies afloat and families fed. The Conservative Party, once notorious for its anti-deficit attitude, embarked on a huge spending program, essentially participating in a global shift in mainstream economic principles: a return to mass-government led investment. David McWilliams, a professor of economics at the Trinity College Dublin Business School, says it is unlikely this investment will be short-lived. “We are not going back to where we were, to business as usual,” he said. “The state has come back, and this episode will not be forgotten by the electorate.”
Still, the public must ready itself for the debate that will inevitably follow this crisis. The voices calling for austerity will find their footing once more. However, we must not repeat our mistakes, much like Roosevelt did in the U.S.A. after the Great Depression. An ambitious plan to rebuild the U.K. must be prepared and put into action as soon as possible.
From the chaos of the 1929 Depression, the New Deal was born, and “The Golden Age of Capitalism” ensued. Out of the 2008 crisis, a ‘lost decade’ was bought upon much of the world. The United Kingdom must put itself on the correct side of history as the dust settles on the COVID-19 crisis, taking a brave step forwards and beginning its transition towards a green economy. If our leaders try to turn back to the dangerous ideas from the past, they must be kept in check by a public that believes in progress, not regression.