Alf Young: They ‘get it’ but what will they do?

Understanding the economic crisis is one thing, but doing something meaningful about it is another

ED Miliband is fond of saying David Cameron “just doesn’t get it”. Doesn’t get the pain the squeezed middle is feeling amid reduced household incomes and growing job insecurity. Doesn’t get the simmering anger about bankers and their bonuses. Or the resentment over the ballooning gulf between rich and poor in post-boom Britain.

What the Prime Minister gets only too well is that Mr Miliband was on to something when he told the Labour conference in Liverpool last September we should all distinguish between producer capitalism and predatory capitalism, between those who train and invest, invent and sell, and those who make their fast and often-hyper-inflated bucks from asset stripping their prey, be it Southern Cross last year or Peacocks retail chain right now.

The Labour leader was roundly derided at the time in Tory circles and in the right-wing press. Here was Red Ed, finally revealed in all his clause 4, class-hatred glory. Now everyone is talking about a crisis of capitalism. But Mr Cameron himself had been saying something very similar to Mr Miliband, before he even entered Downing Street.

At the World Economic Forum in Davos in January 2009, a whole three years ago, the then-leader of the opposition made the case for a “capitalism with a conscience”. Old rules and orthodoxies would have to be abandoned, he ventured, because, thanks to the way the market system had evolved, “too often, the winners have taken it all”.

No surprise then that this week Cameron and Miliband – and Nick Clegg too – have been vying with each other to demonstrate who really gets this message, who has the insights, ideas and courage to save capitalism from its own worst excesses and get markets back to business, raising all boats, not just the glitziest floating gin palaces moored in sundry tax havens around the Med. First we had Mr Clegg’s vision of a “John Lewis economy”. Then the Prime Minister’s call for a more socially responsible and genuinely popular capitalism and a promise of a new bill (sometime in this parliament) to make it easier for people to start up co-ops and mutuals. Finally we had Mr Miliband with a fresh assault on rip-off Britain, covering everything from exorbitant rail fares and bank charges to rigged energy markets and low-cost airlines that are anything but when all the hidden charges kick in.

They all now get it. To this extent. Market capitalism as it has evolved in recent decades around the North Atlantic has stopped delivering what it promised. Instead of growth and rising prosperity for all, more and more people now fear their children and grandchildren will inherit a world of falling living standards and shrinking opportunities.

A period of post-crash austerity was supposed to be a painful pre-requisite for getting back, by now, to better times. But those better times keep receding over the next forecast horizon. Whatever the main UK party leaders say about how to improve how markets work, getting back to normal looks increasingly out-of-reach.

A leaked draft of the International Monetary Fund’s latest World Economic Outlook, due out next week, shows the entire eurozone shrinking by 0.5 per cent this year, instead of growing by 1.1 per cent, as the IMF was anticipating as recently as September. Italy and Spain will shrink even faster. Ireland, despite pass marks from the IMF and others for the way it has addressed its deficit, faces another recession this year. The UK economy, the IMF Outlook suggests, will grow this year, but by a miserable 0.6 per cent. The global economy will continue to grow, but more slowly than expected.

In the run-up to the 2012 Davos summit, IMF head Christine Lagarde has joined other custodians of the global economic order in urging national economies to use their austerity programmes to “promote rather than reduce prospects for growth”.

It sounds like a re-run of the advice from Standard & Poor’s, after the ratings agency downgraded France and eight other eurozone economies last Friday and then followed that up by lowering its credit rating on the EFSF, the zone’s stability fund, for good measure.

“We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating,” said S&P.

Quite so. Synchronised austerity will never become an Olympic sport. But it has the capacity, if it stays around for long enough, to poke a hole the size of every Olympics ever held in the chances of western economies ever getting back to pre-crash levels of growth.

This is the same S&P that, together with its rivals Fitch and Moody’s, went on dishing out AAA ratings to banks and other financial institutions in the run-up to the 2008 crash, long after it was remotely prudent to do so. The same ratings agencies that the UK coalition have conjured up, time after time, as the boogie men waiting to pounce if we don’t all swallow George Osborne’s nasty medicine. If David Cameron really is committed to a more responsible capitalism, how about a bit more leadership on the global stage over how the credit ratings system can be reformed?

There is a growing political gulf between “getting it” on the dimensions of this crisis and doing something meaningful and consistent about the underlying issues laid bare by it. Concerted action to get Fred Goodwin stripped of his knighthood is easy. It plays to the gallery. But what about some of the deeper complexities?

Take the onward march of globalisation. Yesterday it was revealed that a Chinese sovereign wealth fund has just taken a near-9 per cent stake in Thames Water, the UK’s largest water and sewerage utility. George Osborne, just back from China, called it “a vote of confidence in Britain as a place to invest”.

The previous day two of Mr Osborne’s government colleagues, Chris Grayling and Damien Green, took to the pages of the Daily Telegraph to complain about the number of people who have come to Britain in recent years and stayed and are now in receipt of benefits. There are 371,000 of them.

That generated a strident headline about 371,000 foreign scroungers living off the British welfare state. Drill down and you discover that the vast majority are claiming their benefits legally and that migrants are half as likely to be on benefits as the indigenous population. So what’s our line on globalisation to be? We want your cash, the more investments the better, but not your citizens. Two can play at that game.

One last thing. Now that Miliband, Cameron and Clegg have set about critiquing the state of capitalism in public, when is our First Minister going to tell us about the form of market capitalism he wants to foster in an independent Scotland? He’s told us he wants lower corporate taxes on businesses operating here. He’s been doing the rounds in China and the Gulf trying to drum up business there. And he’s said our doors are open for more people to come and work here. But these are glimpses. When is he going to paint the whole picture?