A Budget For Growth — But Not Yet Bold Enough

If Chancellor George Osborne wants economic recovery, he must stop the government stifling the “animal spirits” of entrepreneurs

Economy Features UK Politics

Budgets matter for two reasons. There is the stuff that gets the media attention. This category usually involves a bit of taking from rich Peter — the owner of a private jet in this case — to give to poorer Paul — the driver of a more humble, petrol-consuming car. Or from a maligned banker to a low-paid taxpayer. That is the stuff of politics — redistributing money earned by other people. It is the meat on which Labour governments fed for over a decade, and in which George Osborne indulges himself when the desire to be fair — phrased as “We are all in this together” — becomes a necessary political move to soften a change in policy that adversely affects some group accustomed to ever-rising benefits.


Bullish mood: George Osborne, Chancellor of the Exchequer, at the Bombay Stock Exchange (AP Photo) 

The second reason budgets matter is that they tell you what a government is really all about. This one is about growth. Only anti-growth environmentalists and those seeking the Holy Grail of “happiness” deny that the future wellbeing of Britain’s citizens depends on the ability of the government to devise plans to stimulate or allow economic growth. But Britain cannot grow itself out of its fiscal difficulties. The deficit is too big, too deep-rooted to be overwhelmed by a growth spurt, much less the growth the Chancellor accepts is most likely to characterise Britain in  this parliament. Growth is important, but it is only one part of a programme that must also include putting the nation’s fiscal house in order by instituting those now-famous “cuts”, the ones the Chancellor says he has already docketed and of which he would rather speak no more. Spending reductions there must be, in part to bring the deficit under control, in greater part to reduce the relative size of the state and leave more breathing room for the private sector and individual entrepreneurship. The Chancellor knows all of this, and knows, too, that supply-side reforms involve short-run revenue losses in pursuit of longer-term gains; with the nation’s ledgers in sorry shape, balancing the need for revenue now against the desire for more at a later date is no simple matter.

At first glance, economic growth should be within the government’s grasp. Britain is home to the world’s fifth or sixth largest economy; its professional services sector — law, finance, accountancy — has global reach; its universities attract the best and brightest students and lecturers from around the world; its rule of law protects investment and intellectual property; its democracy is vibrant, channelling demands for policy changes into the polling places rather than the streets, at least most of the time. 

But at second glance these virtues are in danger — and from the very government that is eager to accelerate economic growth. 

Its professional services sector is under siege from ministers who quite reasonably remain annoyed by its contribution to the financial crisis and its subsequent unwillingness to share the pain it created. But the sector’s critics seem unaware of the consequences of their repeated expressions of that annoyance. Britain’s universities are victims of an incoherent funding regime and a destructive immigration policy that is the result of a truce between the coalition parties; its rule of law is repeatedly subverted by an overweening bureaucracy (or bureaucracies, if you count Brussels) that specialises in ex post ad hockery; and its democracy is being tested to determine whether government becomes a permanent feature of political life and an ongoing excuse for abandoning campaign commitments in order to retain coalition cohesion.

These are the self-inflicted wounds that must be healed if an overarching growth strategy is to be developed and implemented. That strategy must, first, cope with the legacy left by a profligate government, in the process redrawing the boundary line between the public and private sectors, permanently reducing the public sector to an affordable level and one that does not squeeze out the private sector. 

Then, government must do no harm — or more precisely, stop doing harm. It is stifling what the great John Maynard Keynes called the “animal spirits” of British entrepreneurs and businessmen, the drive and risk-taking of which Britain’s businessmen and workers are capable. 

Finally, it must recognise that the history of interventionist government is the history of the gap between intentions and successful implementation. Put differently, it must recognise that there are times when less is more, when the temptation to respond to a clamour for immediate results must be stifled lest the long-term performance of the economy suffer, when the itch to “do something” must be ignored rather than scratched.  

The government inherited an unsustainable budget deficit. If there was any doubt about that before Greece focused policymakers on the speed with which a nation could become unable to borrow at affordable interest rates, that doubt is now gone. The question is not whether to get the fiscal house in order, but how to do it, and at what speed. And not only to satisfy international investors, who at the moment see Britain and its huge deficit as no more threatening than Germany with its reputation for fiscal probity, but also to set a predictable macroeconomic framework that reduces the uncertainty that is such a deterrent to the willingness of entrepreneurs small and large to invest in businesses and jobs.

The government has decided that the way forward is deficit reduction, quickly. Theoretically, it is to cut £3 of spending for every £1 to be raised by taxes, and get the deficit down to comfortably sustainable levels by the end of this parliament. It is the timing rather than the goal that is the source of controversy. Too fast, says the shadow Chancellor, Ed Balls. The pace of deficit reduction, already (he argues) a major source of slowing growth and rising unemployment, will produce a recession, exacerbating rather than reducing the deficit. He might be right; he certainly is not certainly wrong, and the latest economic data, showing the economy is slowing, seem to be coming in on his side of the argument. But then again neither is the Chancellor wrong to defend the course he has chosen by pointing out the dire consequences for the deficit of the rise in borrowing costs that would certainly follow in the absence of a credible deficit-reduction plan — his. Both approaches stand on equally firm ground, at least theoretically and at least in the short run. 

But the nod goes to the Chancellor, for two reasons. First, in the long run, the period dismissed by Ed Balls’s hero John Maynard Keynes as irrelevant because by then we are all dead, demands that manipulation and deficit spending have not produced the predicted results.

  • Franklin Delano Roosevelt’s spending splurge during the Great Depression gave voters hope that Herbert Hoover’s approach could not, and might therefore have saved capitalism from replacement by other “isms” then on offer. But in the end it took a war to bring full employment;
  • President Barack Obama’s stimulus package has not made a serious dent in unemployment, and even he is giving thought to reining in spending, or says he is;
  • And the previous government’s reckless spending and eye-watering deficits have not left in their train a fully employed, prosperous nation.

Second, even if Keynes had it right in his day, that was then and this is now, as the ever-practical economist, only one foot in academe, the other in the real world, would undoubtedly recognise. We live in an era in which the bond vigilantes have ridden against Greece and Ireland, and are saddled up for an assault on Iberia. They are watching Britain for signs that it is unable to bring its deficit under control, and, if such signs appear, will drive up its borrowing costs. Such an increase in interest rates would sharply raise the government’s borrowing costs, make business investment more costly and devastate already hard-pressed consumers by sending the cost of their mortgages skyward. In short, Ed Balls is asking Britain to take a greater risk than is George Osborne, especially since Labour’s reputation makes its vague promises to cut spending some day less than bankable. If Balls is wrong, and a more leisurely approach to deficit reduction upsets markets, it will be a long while indeed before Britain regains its standing in international bond markets, and it will remain lumbered with an unaffordable public sector and government spending that consumes 50 per cent of its GDP. If Osborne is wrong, and the economy weakens unduly, he has ample room to cut taxes and ramp up spending, assuming he suddenly discovers the Plan B that he now denies exists. So prudence dictates giving the nod to the Chancellor.

Proposals for pro-growth policies come in many shapes and sizes —growth led by government industrial policy, or growth led by the private sector operating in markets with only a soupçon of regulation; free trade to encourage exports, or a dash of protectionism to preserve “good British jobs”; loose monetary policy to oil the wheels of commerce, or tight monetary policy to keep inflation under control; Keynesian demand stimulation, or supply-side reforms. The list goes on. Papers urging one or several of these approaches proliferate, most of them doomed to gather dust as real-live politicians wrestle with the realities of life in Britain.

To make matters more difficult, everyone with a special policy field argues that solving the problems in his or her area must be an integral part of a growth strategy. And so they must, some day. A better educated, healthier workforce will be more productive. So will one that benefits from the application of an effective anti-drug and anti-drunkenness policy, if such exist. The economy will be more efficient (less loss due to crime) if the government figures out how to rehabilitate criminals before turning them loose. It is even arguable, at least by those with little knowledge of history or of cost/benefit analysis, that high-speed rail lines will result in a more efficient location of industry and people.   

But try to roll too much into a pro-growth strategy and nothing will get done — if Britain can’t grow until it sorts out its education and health systems, if the managers of economic policy can’t move until the ministers dealing with health, education, crime and other areas have their say, if private investment must compete with public spending on infrastructure, you will have what Tony Blair always thought he wanted —joined-up government — a system that  proved to be, well, sub-optimal. 

In the current circumstances, start with two ideas (one would be better, but the deficit cannot be ignored): bring sense to the public ledgers, and encourage economic growth. This, Osborne has done — almost. He still wants to spend on some pet schemes — some improvements in transport infrastructure here, fill a pot hole there, pick winners among the green investments that the markets will not fund. These are diversions from a laser-like focus on the key ingredient of a growth strategy: deficit reduction achieved within a stable or at least a predictable macroeconomic environment. The good news is that so far the government has refused to be blown off course by the current run of unhappy statistics — rising unemployment and inflation, declining growth forecasts and falling retail sales, anecdotal evidence that “the cuts” or new taxes are hurting, really hurting the most disadvantaged and the middle and entrepreneurial classes. Predictability means an entrepreneur — the source of the “animal spirits” that drive the economy — can look at the future and know just where he stands: spending will fall, taxes will rise, and until the voters feel they must call Ed Balls to ride to their rescue, that is the way it will be. 

Score one for the certainty produced by George Osborne’s stubborn faith that he has got it right, and for David Cameron’s willingness to abandon promises, some would say principles, to ensure that the coalition government remains in place. This provides the prospect of the policy certainty that is so important to investors.

The second key to sustainable growth is the rule of law. In a sense, this is a subset of the need for certainty, for the rule of law means that an entrepreneur will not wake up one morning, his company taken over by the government, to be followed by his arrest and the sort of trial for which Vladimir Putin’s Russia has become notorious. It means, too, that he will not find his intellectual property stolen, copied and peddled at low prices in competition with the products of the inventor; that he will not find some bureaucrat interpreting a vague law in an unforeseeable way.

Britain is not Russia or China. But its bankers do wake up in the morning wondering what they will be allowed to pay their staffs, what capital they will be required to have in the business, just how unpleasant the next ministerial outburst will be, when and where the regulatory axe will fall. Its employers do wake up every morning with a new set of made-in-Brussels rules to live by, gold-plated by an eager domestic bureaucracy that sees an opportunity for meddling, or some home-made restrictions on their right to hire, fire, build and remodel. 

For although Parliament believes — or says it believes — it is supreme, in fact it is increasingly subordinate to Brussels and its anti-growth absurdities, and to a British bureaucracy to which badly or artfully written legislation cedes enormous powers that make a mockery of the idea that Britain is a nation in which the rule of law creates the certainty needed to maximise investment and economic growth. 

And the bureaucracy likes it that way, something of which the Chancellor of the Exchequer seems blissfully unaware. While he claims “Britain is open for business”, his officials want to be certain that it is up to them who is allowed through that door. No matter what the law, or the Chancellor, says, they will determine on an ad hoc basis just how animalistic entrepreneurs’ spirits will be allowed to become. 

Businessmen, especially those with few resources with which to fight the bureaucracy, adore the rule of law because it provides certainty, the very thing that the bureaucracy fears reduces its ability to make, rather than merely implement policy. 

Treasury officials, in line with the rhetoric of their boss, are intent on blurring the line between tax evasion (illegal) and tax avoidance (legal). There is no question that some avoidance schemes offend one’s sense of equity, something available only to the rich and their well-paid advisors. And the Chancellor’s proposal to collect £1 billion per year by eliminating the routes to avoidance seems unexceptionable. But make no mistake, this is different from raising money by catching crooks. This is money gotten by raising taxes. Gordon Brown always seemed to feel that the nation’s income was the government’s for the taking, and that it was generous of him to return half of it to the people who earned it. Osborne feels that those who legally avoid taxes are somehow helping themselves to his money, and he plans to put a stop to it. As well he should. But don’t fool yourself: this is a tax increase on high earners. HM Revenue & Customs lists ten avoidance “schemes” that “people should be wary of”, and claims that “there are always new schemes being concocted.” Any businessman knows what that means: the Chancellor will get the schemes he has noticed eliminated, but his army of collectors will reserve the right to decide whether an entrepreneur can keep what the law seems to say he can, and if he doesn’t like this government of men, not laws, he can hire expensive lawyers and accountants to contest the tax collector’s ex post view of things. What the Chancellor did not say was that, with the £1 billion of tax heretofore avoided now safely in the Treasury’s coffers, the hunt for new avoidance schemes will come to a halt for the balance of Parliament. Certainty matters, uncertainty reduces business investment and the number of the mobile rich who choose to call Britain home. 

There is worse, at least from the point of view of small entrepreneurs. Tax simplification is not a project to be pursued at a slow pace. Big businesses have the staffs to cope with the taxman. Not for the chairman of the board of a CBI member any concern if the taxman cometh — his army of lawyers and accountants will deal with it while he goes about the business of advising the government how to make the economy grow, even if he cannot do that for his own company. That’s why so little was heard from the businessmen with ready access to the government when HM Revenue & Customs announced it would send inspectors into 50,000 small businesses every year as part of a policy to get tough on these struggling entrepreneurs, and to make sure that these small businesses are keeping proper records. Each of these “odious visits and examination[s] of the tax-gatherer”, to borrow from Adam Smith, is expected to last four hours, and taken together will impose an unconscionable cost on those businesses. But it is a good investment for the owners of these firms, say the bureaucrats at HM Revenue & Customs, since the inspections will produce better record-keeping, which will enhance profitability and “ensure survival and success”. It seems not to have occurred to these bureaucratic bean-counters that small businessmen know better the information they need to “ensure survival and success” than someone who has never taken the risk of starting a business. Or the contribution that such inspections, all 50,000 of them every year, make to the notion that starting a small business is going to be difficult, the uncertainties higher than they need to be, because a government that can’t frame a law to distinguish illegal evasion from legal avoidance decides to leave it to the tax collector to decide which small businessman to pounce on, and which to allow to survive a four-hour inspection unscathed. It will be interesting to see if the Chancellor is able and willing to rein in his minions before they do serious damage to the small business sector on which he is counting so heavily to propel the economy.

If an entrepreneur does survive this intrusion into his business affairs, he then will soon have to decide whether he can take a prospective customer to a pleasant, perhaps even sumptuous dinner. Just as businessmen were planning a last round of drinks and dinners with clients and customers at Christmas time, the government announced a new Bribery Act that will make any businessman liable to become a guest of Her Majesty for an extended period if he takes a customer to dinner, the cost of which is not a “sensible and proportionate expenditure on hospitality”. That, says Richard Alderman, head of the Serious Fraud Office, is “a model of clarity”. Or certainly a model of the degree of clarity that any regulator cares to provide, lest he bind himself to predictable rules. Best wait for more guidance, say business lawyers, the sort whose fees no fledgling entrepreneur can bear. Better still, hope that the government’s rethink consigns this bill to the scrap heap of history. 

Greater uncertainty is another way of saying greater risk, which is another way of saying a higher cost of capital, one of the greatest of all growth deterrents. The pity of it all is that by providing certainty the government can lower the cost of capital; increase investment, especially by small businesses; create jobs and otherwise give the economy a boost without spending a single farthing — and it is blowing it. Businesses dislike taxes, but set a firm, understandable tax rate, and they will get on with their business. Businesses dislike regulation, but enact even difficult rules with a clearly defined “OK” and “not OK”, and they will adapt and get on with their business. But introduce uncertainty, and they pause before approving a capital expenditure as they try to figure out just what the return might be, or what the tax rate might be, or whether the authorities will some day decide that the venture violated some regulation or, worse still, some badly-written law. 

It is bad enough that the government has decided that the parlous fiscal condition in which the country finds itself requires an increase in the top marginal tax rate to 50 per cent, enacted not to gain new revenue but to reassure everyone that we are all in this together. Or that the Chancellor has moved from promising eventual repeal of this tax to wanting to study just how much revenue it produces or more precisely, how much revenue Treasury experts will estimate it produces. That thrust at the rich is compounded by such gestures as the tax on private jets (justified, but nevertheless a tax increase and a symbol of the government’s attitudes toward wealthy entrepreneurs, in this case self-evidently the world’s most mobile).

 Most high earners will complain about high taxes but adjust, some in grudging acceptance of the theory that pain at the top makes pain lower down the income ladder more acceptable. Some, most notably leading hedge funds, have mounted their bikes and headed for more benign if socially boring tax jurisdictions, and others will follow. But an even more important although less visible consequence of that higher marginal rate is the effect it will have on businesses that do not leave, but take their next round of expansion elsewhere. To cite only one example, the higher marginal tax reduces the attractiveness of London to younger workers in New York’s financial services sector who are offered a transfer. 

Then there is the background noise, the tone set by the government. The announcement that Britain is open for business is difficult to square with some of the noise coming out of government offices. George Osborne says that he learned on a recent visit to America that the anti-business background noise coming from the Obama administration had had a real effect on boardroom attitudes. Indeed, even the President now concedes that some of his crowd-pleasing anti-business rhetoric contributed to businesses’ decision to sit on $2 trillion in cash rather than to commit it to expansion and job creation.

Nevertheless, the (anti-)business secretary, Vince Cable, calls bankers “spivs and speculators” and then expects them to make more loans to small businesses and mortgage-seekers, loans that are riskier than most and, should some go wrong, would bring the wrath of Cable down on the bankers’ heads. The Prime Minister and the Chancellor vacillate between praising the City’s contribution to the British economy, and demanding that the compensation of these contributors-to-prosperity be restrained. If, as the governor of the Bank of England believes, bonus constraints are essential to the future soundness of the banking system, then do limit them: clearly, finally, and certainly. No more speeches necessary. Remove the uncertainty created by daily escalation of hostilities, and let the bankers get on with lending — and to creditworthy borrowers, rather than to those targeted by the government as victims of lender hostility. If there is a concerted refusal to lend to creditworthy small business borrowers, introduce more competition into the banking system as part of a long-term growth strategy. Restructure the major banks if that is what Sir John Vickers’s Independent Commission on Banking recommends, instead of relying on ad hoc deals with the banking industry, deals that are likely to result in risky lending in order to reach government targets

Finally, we have regulations. Not for the CEO of a large firm any concern about regulations and red tape: his staff can manage any problems, which have the pleasing ancillary effect of serving as a barrier to the entry of new competitors who have neither the resources nor the inclination to cope with the stream of regulations that remains in full flow.

The government, as ministers keep reassuring us, is asking agencies to repeal one old regulation in order to get one new one approved. Nice try, but that does nothing to relieve the uncertainty that drives small businessmen mad: lurking out there in the imaginings of some regulator is a new cost to impose on business. You can bet that any regulator worth the admiration of his peers will gladly trade in an irrelevant old rule for a costly new one. And you can bet that testing the cost of a regulation against its benefits is a no-win game for deregulators. If deregulation is to happen, ministers will have to be forced into a daily ritual: the repeal of one regulation introduced by the previous government every day — and no (as in not any) new regulations that are not signed off personally by the Prime Minister, who has said he is up for the task, but has yet to get a grip on his ministers’ and their officials’ production of new regulations.

It is true, of course, that any functioning market system needs rules if it is to function efficiently, as the recent financial meltdown proved. And it needs the government to act as referee, especially to prevent powerful incumbent firms from strangling threatening newcomers at birth. But in present-day Britain, after the recent upheaval in the financial sector and the rules it has spawned, the danger of too much regulation far exceeds the risk of not enough. The voices calling for more regulation of business are out — shouting the few calling for less. So the risk of too much exceeds the risk of too little. Which suggests that nothing short of a regulatory moratorium will get the regulators to cap their pens. Yes, it would be better if the government could make the programme to test the costs of new regulations against their benefits work, but neither its predecessor, which probably had no taste for that chore in the first place, nor the existing lot can manage that.

Unfortunately, the stabilisation of the macroeconomic environment and removal of uncertainty created by the Treasury’s ability to make the rules up as it goes along, and to ratchet up enforcement when it is feeling poorer than it would like to be are only part of a growth strategy.

Another part is removing the Treasury from its key role in economic policy-making, and confining it to implementing clearly articulated policies. With Treasury in the lead, policy-making is decidedly anti-growth, no matter the wishes of the incumbent Chancellor. For the mandarins at the Treasury, growth is a bother, which explains their eagerness to manage decline before Margaret Thatcher took control of policy-making and set Britain on a new path to growth. Growth means new companies, headed by, you know, arrivistes who are inclined to push the envelope on tax avoidance, whom the mandarins have never met and therefore cannot comfortably ring up to get this or that done, whose entire existence depends on their ability to undermine the incumbent firms that make up such organisations as the CBI, with which the Treasury comfortably negotiates when there is a fuss about some tax issue or other. 

There is worse. No dynamic accounting for the Treasury. Lower a tax, and they see only short-term revenue losses; raise a tax, and they see gains. Never mind the long-term effect of tax policy, the impact of tax increases on the willingness of fledgling entrepreneurs to take risks and, in the case of working people, to put in that extra overtime. Or the possibility that tax cuts — not all, but some — might just produce long-term gains that offset short-term revenue losses.  

If Britain is to grow, control over policy must be shifted to the Prime Minister’s office. Not that he is necessarily cleverer than the Treasury bureaucracy. Rather, it is that he has a greater incentive to pursue a pro-growth policy, since his ability to retain his job very much depends on it.

That reform in hand, the Prime Minister can follow the suggestion of Business Secretary Vince Cable and exempt some categories of small business from regulations for a period of years. But like other such reforms, this is a confession that existing regulations stifle growth, and a warning to small businesses that if they grow they will face new regulations, and even if they don’t, a few years down the road the regulators will be visiting. Sauce for the new business goose surely makes a wonderful sauce for the old business gander. Any reform worth making should be available to all businesses, new and old, big and small. Why spend money on exempting some chosen few from growth-stifling policies when the better course is to eliminate the policies themselves?

That is very different from what the Chancellor or the Business Secretary seem to have in mind. Despite studies that suggest creating enterprise zones may not be cost-effective, the Chancellor plans to do just that, effectively implementing a sort of industrial-policy-light. 

First, twenty-one zones with wonderful growth potential will be selected. Former members of the Soviet planning agencies being too advanced in years to dust off and apply their old formulae, and their present-day counterparts in Cuba unlikely to find British weather attractive, some of the zones will be chosen by the Chancellor, some by ministers on the basis of submissions by councils and business leaders, and one by the mayor of London based on his long experience in discovering optimal locations for business. Think of it: all those submissions to review; all those bureaucrats who have chosen risk-averse careers doing the choosing. Then the chosen will benefit from tax breaks, super-fast broadband and, in the Chancellor’s words, “less regulation”. But if such benefits are to be made available to new small enterprises, why not to existing small enterprises too? After all, discriminating against existing firms can have a negative effect on their growth and on their ability to create jobs. In short, why not dispense with all of the bureaucratic selection process and remove some of the burdens on all small businesses? Unfortunately, governments always prefer announcements of job-creating schemes to removing the general impediments to growth that require the exceptions they so proudly trumpet. If small businesses (be really radical and think all businesses, old and new alike) were given relief from systems of taxation and regulation that are better suited to large enterprises (if even to them), the government just might foster an entrepreneurial class of self-reliant risk-takers, who look to themselves rather than the government for their material well being and, even, their happiness.

This is a difficult idea for men and women who have spent their lives trying to gain political power, in order, they believe, to do good. It is no easy thing for them to follow Ronald Reagan’s interdiction, “Don’t just do something, stand there.” Witness the government’s decision to aid the invisible hand that has created “Silicon Roundabout”, a congregation of small high-tech start-ups in a decidedly unfashionable part of London. All was going well, but not well enough to suit the government, so it persuaded the big beasts of the technology industries to help these entrepreneurs along. After all, ministers had broken bread and shared wine with the big beasts, and never met the start-up entrepreneurs, so the former must be more reliable. Never mind that this might divert entrepreneurial energy from the really new stuff that would challenge the big beasts. 

There is more, such as stopping the flood of new, costly workplace rules by somehow wriggling out from under the control of Brussels’ bureaucrats, as the Prime Minister is attempting to do, an effort unlikely to be any more successful than his effort to persuade the Eurocracy not to increase its budget. But you get the idea. The government is intervening in the energy industry to encourage clearly uneconomic power sources and create a huge burden for ordinary consumers and energy-intensive industries; no matter how worthy the goals, they conflict with a growth policy. It is preventing talented individuals from entering the UK to teach, learn and work; no matter how important limiting immigration might be, keeping talent out can’t contribute to growth. It is directing resources to high-speed rail, a project, even if worthy in the long run, that diverts energy and capital from growth-now projects.

In short, the government is torn between its free-market instincts and its dirigiste belief that the prescription for growth can be found in a minister’s — or Chancellor’s — red box. If it would keep its eye on this one big thing — growth — and stop tinkering around the edges, more often than not in a harmful way, the natural talents and advantages of this country could take it where it needs to go. The release of those talents requires the Prime Minister and the Chancellor to do more than take some of the laudable steps they have taken. They must, first, reverse the anti-growth policies that have crept in under the guise of some worthy cause or other; and second, supplement their thus-far admirable macroeconomic policies with microeconomic policies that unleash the nation’s entrepreneurial talents rather than just those of its wannabe economic planners. They need policies that turn over the decision to allocate the nation’s resources to entrepreneurs who will pay the price of failure, or reap the benefits of success, that reduce the importance of risk-averse bureaucrats and Treasury mandarins expert in the shortest of short-term calculation, and of politicians unfamiliar with the gut-wrenching world of risk-taking.

Still, all is not lost. The Chancellor understands the need to get the supply side of the economy in shape. He has shifted the focus of economic policy from redistributing a fixed pie to growing the pie. He says he has moved from rescue to reform, and now plans to move from reform to recovery, and indeed has taken a few baby steps along that path. Perhaps we should be thankful that he has the direction of his journey right, and not worry so much that his pace is too slow. Politics is, I am told, the art of the possible.