Professor of Economics Mariana Mazzucato asks whether the UK budget is a Greek tragedy in the making...
The UK budget has as one of its core aims to cut government spending so that the UK does not become the next Greek tragedy. If the Greek crisis was purely due to ‘too much’ irresponsible spending, then the cuts announced today would in fact help to avoid London becoming Athens. If instead the Greek crisis, like many other crises, is due to more systematic economic problems in countries’ (and companies’), abilities to foster long run growth, then the current budget might in fact speed up the tragic process in the UK.
The Greek crisis, and the more general 2007-2009 financial crisis, has reminded economists that most financial crisis have their roots in economic crises, not only in terms of their effects but also their causes. What got Greece into its current troubles is not just speculative financial markets - which yes are worsening its woes - but years of rising debt accompanied by corruption, low productivity, and too much spending on consumption rather than investment for the future (Greece has very low spending on R&D, venture capital, productivity enhancing technologies).
Only investments in long run growth (accompanied by cuts where the waste resides) will allow Greece to achieve future growth, allowing it to exit the current mess for good.
The same story goes for the UK. Hence the risk caused by June’s budget, with its cuts in many areas which are fundamental for achieving future growth, such as education, government funded research and retraining.
The cuts may cut off the lifeline of the very sources that promote growth. In fact, contemporary US competitiveness - which UK business leaders and policy analysts often aspire to - is a result of a very active State in funding Universities, major innovations such as the internet, and labs such as the National Institute of Health (which is responsible for funding and researching 75 per cent of all new molecular entities that found their way into international pharmacies).
So, it is not enough to promote green business through tax incentives. The Government must invest in these innovations (which private companies have revealed themselves to be too risk averse for) and must make sure that any green investments are profitable, such as the German and Italian system where the national energy agencies agree to buy at market price any solar or wind energy that is produced by individuals or companies. It must invest in Universities (as, not surprisingly, argued by business leaders in last week’s letter to the Daily Telegraph).
Only through these investments will the UK prepare itself to survive the next bubble or crisis.; rather than create budgets that create the foundations for the next crisis.
Professor Mariana Mazzucato is professor of economics at The Open University, Economics Director of the ESRC Centre for Social and Economic Research on Innovation in Genomics (Innogen) and co-ordinator of FINNOV, a 1.5 million euro 3 year project funded by the European Commission to explore financial dynamics and innovation to 2012.
