Rediscovering Growth

There are two courses of action for former members of the Bank of England’s Monetary Policy Committee (MPC). One is to slip quietly back into whatever they were doing before, away from the public gaze. The other is to continue to engage in the debate, albeit from outside the Bank. Andrew Sentance has chosen the latter course, and a good thing it is too.

He will be known to many for his argument, which he first made when on the MPC, in favour of a measured tightening of monetary policy, which he has continued to promote since. This short book is not, however, an extended pitch for higher interest rates. It is, rather, a primer for how Western businesses, and Western economies, can avoid “the New Normal” becoming a recipe for secular stagnation.

Sentance has a light touch. He begins, amusingly, by relating how troubles have followed him around in his career, and that it was no surprise that the financial crisis emerged soon after his arrival on the MPC. But this is not a book that wallows in the crisis. The global economy did not stop growing after 2008 – though every Western economy had a sharp downturn from which it is still recovering – and blaming austerity for weak growth since is a misdiagnosis. This is, above all, a period of transition. 

The challenge for Western economies is to restructure and reform their public sectors, manage the transition towards normalization for monetary policy, leave no stone unturned in the search for supply-side reforms that will deliver a highly-skilled and productive workforce, and embark on a new phase of global trade liberalization, rather than slipping back into protectionism.

The challenge for Western businesses is to exploit the opportunities arising in the changing world economy, notably in Asia and the emerging markets, to seek business opportunities in energy and environmental challenges, to develop their comparative advantage in technology and, above all, to innovate. Some of this is motherhood and apple pie but it deserves restating.  

The thing I most like about this book is that it is not a counsel of despair.  The world, he says, is divided into natural optimists and natural pessimists. Too many economists fall too easily into the pessimistic camp. Sentance does not.  Western economies face big post-crisis challenges and they need to change and adapt but they are far from finished. As he puts it: “In the West, the future still lies in our own hands.  With the right economic policies, and a willingness of the business and financial world to adjust to a changed economic climate, growth can recover to a stronger and more sustained pattern than we are seeing in the current New Normal.”

Some of the ways this can be done are merely sketched out in this book and need further work. But its heart is in the right place. The global financial crisis did not mark the end of growth for Britain and other Western economies. The challenge is, as Sentance says, to rediscover it.