We both grew up in Merseyside during years that saw its population decline and the economy stagger from crisis to crisis. It was depressing, to say the least. Proud cities in the north-west, as well as in the north-wast, Midlands, south-west, and historic coastal towns from Blackpool to Brighton, were brought low by Conservative leaders who didn’t know, or didn’t care, how to help. And who, by and large, thought we were the problem not the solution.
As the eurozone crisis unfolds we can increasingly see the cost in human dignity of this financial crash. Youth unemployment has now topped 50 per cent in Spain and Greece, condemning young people to a half-life of fear, low aspiration and distress. A growing number of families are reliant upon food banks, with others even scavenging from bins. The moral case against exaggerated austerity is clear.
And, if that is not reason enough, austerity has been shown a false economy, a pyrrhic victory where the debt keeps growing as demand drops.
So what’s the solution?
The experiences of deprived areas in previous decades, areas such as Merseyside, South Yorkshire, or even east Germany, have shown the effectiveness of active and interventionist European initiatives in alleviating economic malaise.
A new European project to encourage jobs and growth is needed now to kickstart our ailing economies and to address the human tragedy unfolding across the continent.
Let’s look at what worked before. Evidence from Europe’s regional growth programme, Objective 1, shows that for every €1m invested in this round of funding, €1.3m was added to the targeted region’s GDP.
Now, George Osborne rejected a UK fiscal stimulus in his Mansion House speech on the shaky grounds that an injection would be wasted through increased imports. However, such a problem might well be removed by a European-scale programme. Of the €136bn invested by Objective 1 in struggling regions from 2000 to 2006, only nine per cent ‘leaked’ outside of the EU, with 24 per cent ‘leaking’ to other EU countries.
In other words, investment in Greece, Portugal, Spain and other troubled economies would therefore benefit the whole EU, helping growth here in the UK as markets for our goods and services are strengthened.
As we are both particularly aware, Merseyside benefitted greatly from the Objective 1 investment.
In a city where the dogmatic Conservative policies of the 1980s and 1990s had resulted in some communities suffering from an unemployment rate of over 40 per cent, and 28 per cent of school leavers receiving no qualifications, almost 40,000 jobs were directly created and 400,000 training places supported as part of the European programme. Objective 1 supported infrastructure ranging from Liverpool John Lennon Airport to the Wirral Waterfront Initiative which have proved to be of lasting benefit to communities and the local economy.
In Manchester, money awarded through European regional development funding and the European Social Fund helped to transform the city centre in the aftermath of the IRA bomb in 1996 and delivered key regeneration projects which safeguarded or created over 12,000 new jobs and assisted more than 2,000 people towards employment or self-employment.
Its success lies not only in the immediate boost investment provides for employment, but also in infrastructure that remains once economic conditions have returned to normality. European investments now to improve the infrastructure of countries like Spain, Greece, and Ireland would therefore provide both an immediate stimulus for growth and provide the tools for long-term sustainable expansion.
Like in the UK, austerity is not working in Europe; we cannot cut our way to growth, jobs, and prosperity. To ignore the harm being caused across the continent by collective austerity is not only morally callous but, moreover, economic illiteracy.
A new development programme is needed now to boost growth, provide jobs, and improve infrastructure, allowing governments to responsibly pay down their debts in growing economies without condemning their young to the hopelessness mass unemployment brings.
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Alison McGovern is MP for Wirral South and Kevin Peel is a member of Manchester city council
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Alison and Kevin are right to urge “a new development programme” to “boost growth, provide jobs, and improve infrastructure”.
The question is what should be in this plan and how would it be paid for? Progress cannot ignore the question of money since [a] we don’t want to increase UK borrowing or interest payments [b] every € or £ we say we need to borrow risks Labour votes and so risks Labour losing the election.
So ideally the plan needs to initiate growth cheaply and then use the fruits of new growth to accelerate growth.
How can government initiate growth on the cheap? This the most important question to which we must provide a convincing answer.
The neo-liberal answer is that government should do nothing. It should just remove all regulations: it should create the market chaos that got us into a mess in the first place.
The classic Keynesian answer is that you can’t do it on the cheap but that this doesn’t matter.
The answer from Progress should be, I suggest, to advocate enhanced government coordination activity aimed at reducing the risk profile of bank loans to different industrial and service sectors. Banks aren’t lending because they are risk averse – hence no growth. So, how can government reduce risk profiles of companies’ loan requests? First by ensuring networks are in place across sectors or sub-sectors. Second by ensuring those networks are working together with the aim of finding synergies between companies and of planning for shared hard or soft infrastructure for the sector. Third by underwriting bank loans [a] if those synergies have been found and [b] if that infrastructure has been planned and [c] if the loans are to pay to deliver the synergies and construct the infrastructure.
This may sound complicated. It isn’t. It’s just joined-up government encouraging each industrial and service sector to get joined up. The costs are tiny. The results are that network efficiencies enable economic growth and deliver a more transparent and democratic economy.