The new face of recession

January 23, 1998

NO FINANCE minister can ever talk publicly of "the next recession". To do so is, at best, to admit that the government's policies cannot prevent it and, at worst, to invite the opposition to accuse the government of causing it.

But the business cycle, economic shocks like the financial meltdown in east Asia and a squeeze on the economy such as the advent of the single currency in continental Europe, all make it likely that the next recession will be with us in the next year or 18 months. If Gordon Brown is not planning his recession strategy, I will eat his next economic forecast.

There are basically two kinds of recession - the boring and the dramatic. Both are miserable.

Boring ones are the troughs in the business cycle. Less of most things goes on, but what does go on afterwards is pretty much like what went on before the recession. The 1989-1992 recession was like that. Like small fires in the prairie, boring recessions are a painful but necessary way to maintain the overall ecology of the markets.

Dramatic recessions enable big transformations in the economy. An obvious example was the 1980-1982 recession, in which I had my experience of being made redundant. That recession stripped out much outdated manufacturing and extraction, and lurched the economic habitat toward what became by the middle 1980s a quite new settlement based around financial, business and personal services, and more flexible, outsourced light manufacturing.

Schumpeterian economists have the bad manners and lack of sympathy for the victims to see these recessions as engines of innovation and progress. Certainly no recession - even the slump of the 1930s - has permanently reduced productive capacity overall, although each leaves behind thousands of people who cannot adapt to the new ecology.

It is almost impossible for governments to choose which kind of recession they would prefer, although one or two Thatcherites pretended in retrospect that Geoffrey Howe's 1981 pro-cyclical and "monetarist" budget reflected a decision to encourage a dramatic recession.

What are the odds that the recession around the corner will be boring or dramatic? My judgement is that it will probably be dramatic. Whereas at the end of the 1970s, blue-collar work looked overstaffed, today white-collar work is vulnerable. Law firms will no longer need clerks and pupils to search libraries, copy forms and wrap bundles in pink ribbon: all this will be done and delivered digitally. Face-to-face high street banking has only a few years to run. Much of the high street retail sector will succumb to more competitive electronic shopping. More "city" jobs in trading and broking will be replaced by smart software agents using neural nets and vast databases to learn from, with a smaller number of more highly skilled humans to override their judgement when the software agents behave like lemmings, as their predecessors nearly did in the 1987 crash. Many business services will go to the wall, "disintermediated" by new technologies. Even information services will find their economies of scale changing, with some dramatic consequences.

The people thrown out of work will be disproportionately in the south, among the youngest, most highly-educated, flexible and multi-skilled workers ever to suffer from a dramatic recession - quite unlike the older, less well-educated and more narrowly skilled who suffered in the wake of the 1980-1982 recession. It should not be necessary for taxpayers to have to shoulder the costs of long-term welfare for middle-aged unemployed on the scale they have done since the 1980s. This group ought to be one of the best-equipped cohorts of unemployed to respond positively to New Labour - new Democrat welfare policies based on a quick turnaround into work and lifelong learning.

Could the sudden prairie inferno be calmed by government action into a slower process of more manageable, humane and even controlled fires? And if it could, would doing that leave Britain better fitted for the new markets and skill ecology of the digital age? My deeply reluctant hunch, still remembering what I felt like on being made redundant in 1981 in the middle of a recession when everyone talked a deal of nonsense about "the end of work" and a future of only "jobless growth", is "no". Probably new kinds of jobs, skills, and work for many more of the adult population may be achievable, but we probably need to get the misery of the next dramatic recession out of the way first.

Perri 6 is director of policy and research at Demos, the independent think tank.

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