Whether you follow opinion polls, experts, the media, or soothsayers, a few common themes have emerged regarding the economy in 2018 and beyond.
These are Brexit, the rise of the robots and a continued obsession with bitcoin and cryptocurrencies. Here’s a primer on how to better understand these three stories that will dominate the news.
Someone claimed to have asked their iPhone: “Siri, what’s a good metaphor for Brexit?” Siri replied with the news story of someone trying to kill a spider with a blowtorch, and burning his house down. It nicely captures Britain’s approach to the EU.
Few would deny there are problems with the EU; some of which may be as annoying as having an unwanted spider in one’s house. But there are different ways of approaching these issues, some of which may prove more drastic and costly than others. While moving the European Parliament between Brussels and Strasbourg may be a costly waste of resources, and the euro project never made economic sense, it is quite another thing for a country to voluntarily give up access to its key export markets – as was recently made clear by the founder of Cobra beer, Lord Bilimoria.
Even if the UK negotiates a favourable trade deal in 2018, what the impact will be on UK industry is unknown and unknowable. Hence the importance of developing an effective industrial strategy, to maximise the chance of UK industry being able to continue to sell to Europe, even if faced with tariff and other restrictions. It’s important for industries to compete on the basis of high quality and innovation. Such industrial success will also be key for finding new markets, which may prove vital if European ones are blocked.
The industrial strategy looks good as far as it goes, in identifying potential growth areas, and setting out the sort of investments which will be required to stay at the forefront of new product and process developments. But it’s hard to get too excited when a number of its predecessors sunk without trace.
A big reason is that for over a century British industry has been locked in a trap of “short-termism”, with managers focusing on the next quarter’s share price and dividend payout, for fear that if these dip their company may be prey to takeover. And behind this industrial weakness lies the dominance of finance and the City of London, which has always been more interested in global deal-making than domestic investment.
The unveiling of the latest industrial strategy left many asking who is responsible for monitoring its performance and ensuring its success? It is unlikely to succeed unless such a commitment is made – along with delivering long-term industrial investment; greater corporate diversity; a revolution in Britain’s education, training, and skills base; the creation and implementation of regional policy; tackling inequality of income, wealth, and opportunity; boosting Research and Development and innovation; and ensuring environmental sustainability.
2. Robots and jobs
While the industrial strategy has focused on new technology sectors such as robotics, these have also been depicted as threatening to wipe out swathes of jobs over the next ten years. That may be, but we need to recall that the same was said by the Luddites 200 years ago – and many times since.
There are two crucial aspects to why technology will not render us all jobless. First, although new technology replaces some jobs, it creates others. And given that technological innovation usually helps promote economic growth, the outcome has generally been more jobs rather than fewer.
Second, if the number of jobs – or rather, the total amount of employment – were to decline, this should be a good thing, as the work could be shared out. This would give more time for leisure, with less intensive, stressful work. That has long been the promise, though rarely the reality.
To reduce employment (either the number of jobs, or the amount each of us had to do, if a reduced amount of employment enabled greater leisure time for all) means increasing the amount produced per person (or per person hour). In other words, higher productivity. This is not occurring in Britain. Indeed, over the past ten years the UK has witnessed the exact opposite, with the rate of productivity growth declining rather than increasing. So, don’t plan for your three-day week just yet.
Bitcoin, blockchain and bubbles
Much of the above – stagnant productivity growth, the need for an industrial strategy, even the vote for Brexit – might be laid at the door of the 2007-08 global financial crisis and the subsequent global recession in 2009 – the first time the world’s output and income had fallen since the 1930s.
Another thing to be wary of into 2018 is the fact that the danger of a repeat performance of this crash remains. International governments prevented the global recession slipping into a 1930s-style global depression by boosting government spending. But as soon as the immediate danger had passed the UK government – and several others – reverted to type, imposing austerity policies that held back the already fragile recovery.
So, another shock to the global system could create a further financial crisis and recession. Last time the trigger was home-loan defaults; what might trigger the next one? Defaults on the growing car-loan debts? International conflict and even war? Or perhaps the bursting of the bitcoin bubble?
Blockchain technology will be used increasingly for a range of activities – from the accreditation of global online learning to the creation of cryptocurrencies such as bitcoin, which are basically IOUs in digital form.
So the answer to the question whether the bitcoin bubble will burst, or whether bitcoin becomes mainstream, is “both”. Cryptocurrencies will replace some of what current banking and monetary systems do. But the extent may be limited by concerns over their use for illegal activities, their heavy resource use in an era when we need to be making less use of energy, and their susceptibility to speculative bubbles and crashes, which always carries the threat of more general crises and recessions.
Jonathan Michie, Professor of Innovation & Knowledge Exchange, University of Oxford
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