How to weather the Brexit storm? Focus less on trade, more on investment.

This article was first published on the Prospect magazine website on 15th October 2017

“Strong and stable” seems of a world so far, far away. Yesterday’s Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour.

Yet while ministers appear obsessed by trade, net trade comprises only a small part of UK GDP. Surely, through the coming period of Brexit chaos, government priority must be to “take back control” and maintain and support the domestic economy. This means a commitment to support not only investment technically defined as “capital” but also public investment in the health, education, and training of the British people. In that way, Britain will have some chance of weathering the storm.

George Magnus highlighted the OBR’s acceptance that UK productivity growth is likely to stay much lower than previously assumed. This leads to the inevitable conclusion that—on present course—the ever-weaker economy will lead this government to continue to slash public revenues. Yet even this gloomy OBR data underestimates the dangers. For the OBR has not yet factored in the far greater damage that will flow from a chaotic, unplanned Brexit in less than 18 months.

At the core of government dissension is an unresolved dilemma—which ideological path to pursue? On the one hand, the fanatics within the Conservative Brexit camp support ultra-free markets and echo the deregulatory ideology of the US Republican Party. They press for a hard Brexit because for them, the future subjection of the UK—and of course our public services—to the economic interests of US capital is assumed to be beneficial, and therefore paramount. Hence the calls for the UK to join NAFTA. Yet at the same time, as polling by Lord Ashcroft and Legatum has shown, UK citizens are decidedly downbeat about the way markets work in the UK. They seek order, security and protection from the impact of self-adjusting market forces. Hence the government’s hasty action on energy prices.

“Investment in the UK has been between 14 – 18 per cent as a share of GDP—while for France the figure is between 22 and 24 per cent”

But underneath the short-term dangers lie the longer-term problems for the UK economy. The “puzzling” decline in productivity is strongly correlated with Britain’s low levels of public and private investment in the domestic economy. While the UK regularly has the highest levels of Foreign Direct Investment in Europe, overall UK investment has long been the lowest in the G7 (recently Italy’s fading economy has slipped even lower). While other developed economies have also seen a relative productivity slowdown since the financial crisis hit in 2007, the UK has the second worst record, next to Italy.


Investment in the UK has since 2007 been in the 14 – 18 per cent range as a share of GDP. In 2016, the figure was 17 per cent. France, by contrast, has annual investment of between 22 – 24 per cent of GDP, and Germany around 19 – 21 per cent. The UK in 2016 slumped to 116th place out of 141 countries in terms of capital investment as a percentage of GDP. In the EU, only Greece, Portugal, Lithuania and Cyprus were below us.

Low levels of investment by the “timid mouse” that is the private sector (to use Marianna Mazzucato’s characterisation) is directly a function of low levels of aggregate demand. Firms can’t see future customers coming through the door, and are made timid by volatile financial conditions and political uncertainty. Weak demand and financial instability are exacerbated by low levels of public investment.

At PRIME, we have long pointed out the many similarities between the UK and French economies. Both countries produce roughly the same GDP. The difference is the French economy has high productivity allied to high unemployment. The problem confronting both countries is the weakness of aggregate demand, made worse by Eurozone and UK austerity policies.

“If the government were now to double down on its post-2010 dogma it would be adding further contractionary forces into an already slowing economy”

UK unemployment has fallen to levels not seen for generations, and employment continues to climb above forecasts. But it is evident to all who will look that this increase in employment is mainly in “less productive” industries. In Britain, labour has been substituted for capital.

Which brings us back to Philip Hammond who proposes a further tightening of the austerity screw on public services next financial year. The “negative multiplier” (the contractionary effect of reductions in government expenditure) which already serves—as the IMF has shown—to reduce the likely level of GDP, will be made worse when Brexit chaos is factored in. This tightening was always utterly perverse, since in 2016/17 the current budget deficit (before investment) was under half of one percent of GDP. No sensible economist regards that as an issue to worry about. Indeed, the Conservative government of the early 1990s maintained current budget deficits that averaged over 3 per cent per year for six years.

Phillip Hammond argued in the Times on 11th October that the government is “planning for every outcome and we will find any necessary funding and will only spend it when it’s responsible to do so.” A government endowed with a central bank is never “short of money.”

But what is it for a government to be “responsible”? That is a political, not economic, judgment. We face (a) a slowdown in projected future GDP in any event, before and after Brexit, and (b) an ever-more possible chaotic under-planned Brexit in March 2019. If the government were now to double down on its post-2010 austerity dogma, with ever-deeper cuts in public service spending in the deluded quest for deficit reduction, it would be adding further contractionary forces into an already slowing or contracting economy.

That would be economic madness.

Money for Nothing...

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The production of money is ultimately the struggle for control over resources, wealth, people and our environment. But there is a surprising level of ignorance around how banks create money out of thin air and the benefits which flow from it. So on this programme we shine a much-needed light on who should get the privilege of creating our money. Host Ross Ashcroft is joined by the economist and author of the recent book The Production of Money, Ann Pettifor and founder of banking platform Seascader, Steven Round.

To watch, visit the programme’s site here:

Money and the Government: Everything You Need to Know But Were Afraid to Ask

What is money? That might seem like the kind of question a person asks herself late at night, staring at a handful of rumpled bills through bloodshot eyes. But as stoner queriesgo, this one is actually very important, for the answer depends to a great degree on what kind of money you’re asking about, and to whom you’ve posed the question. Some “money”—a very small percentage—is cash. The rest is imaginary (“fiat currency,” as it’s known), a vast network of contracts. The $25 birthday check from grandma is one kind of contract. The payment swiped off your credit card to buy shoes is another. When your bank enters the sequence of digits on a screen that affirm your small business loan has gone through, that’s two contracts—the first guaranteeing that the bank will supply you funds for the goods and services you need, the other guaranteeing that you’ll repay the loan at a later date, plus interest. Why is it important to know the difference between “money” and cash? Well, because according to Ann Pettifor, a London-based political economist famous for, among other things, being among the few to predict the 2008 financial crash, monetary theory is a feminist issue.

Pettifor’s new book, The Production of Money: How to Break the Power of Bankers, aims to elucidate the nature of money, the better to help women advocate for their needs. Money, credit, interest rates, bank regulations, the way things are accounted for in the public budget; all of these, Pettifor argues, have tangible effects on women’s lives, and the condition of society as a whole. And in order to make change, we’ve got to get passionate about topics that most of us have been conditioned to consider dry-as-dust. Here, Pettifor talks to Vogue about money matters—and why they matter for women, most of all.

Continue reading… ›

Weak political leadership got us into this Brexit mess, weak economic leadership will leave us in it

It will take Big Money to steer Britain through this rocky period. Instead, Chancellor Hammond has promised to continue slashing the very departmental expenditure essential to smooth the path. We must conclude that he does not wish to invest in a safe Brexit at all.

We live in perilous times. The demand by millions of people for protection from austerity and globalisation has fuelled support for extreme right-wing parties across the world. The possible election of a far-right party to the French presidency keeps many awake at night. The American President-elect rode the wave of popular insurrection and now poses threats not just to world trade and the global economy, but to global geopolitical security. Continue reading… ›

Can Carney do more to stabilise Brexit Britain? Bloomberg TV


Ann Pettifor spoke on a Bloomberg TV panel with Gerard Lyons, Ambassador Paquale Terracciano and host Francine Lacqua on The Pulse.  The U.K. services industry recorded a decent expansion in the first month after Brexit, all but scrubbing the chances of the U.K. economy contracting in the third quarter. The data make it more likely that that Bank of England’s Monetary Policy Committee will refrain fromeasing further this year, although policy makers will want to see the services PMI for September, released next week, before drawing any conclusions.

Watch the full discussion here.

Ann Pettifor on Radio NZ


Ann Pettifor recently travelled to New Zealand at the invitation of Professor Ian Shirley of The Policy Observatory  and Vice Chancellor Derek McCormack at Auckland University of Technology, and also Mike Smith of the New Zealand Fabian Society. She spent 10 days delivering public lectures on economics in Wellington and Auckland.

In one of her media interviews Ann spoke to the formidable and highly regarded Kathryn Ryan, host of Nine to Noon on Radio NZ about the current state of New Zealand’s bubbling economy and mainstream economics. Ann argued that increasingly we are transforming our economies into rent-seeking centres that rely on offshore and mobile finance. Listen to the full programme here.

In another interview Ann spoke to Paul Henry of the daily TV show Newshub about how central banks, including New Zealand’s Reserve Bank, are ‘sitting on their hands’ while their economies blow up asset bubbles that are unsustainable. Watch her give a ‘report card’ on the current global financial situation here.

Ann also addressed the Fabian society on the Green New Deal. Thanks to the Fabian Society the full video and presentation can be found here.

On her final day in Wellington, New Zealand’s capital city (‘the coolest little capital in the world’), Ann addressed a packed meeting at the New Zealand Treasury on the global implications of the production of money by commercial bankers.



Ann Pettifor on Share Radio discussing Phillip Hammond

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Ann Pettifor discussed how Phillip Hammond’s stint at the treasury will differ to Osbornes on Share Radio yesterday, with their regular economics commentator John Weeks.

Listen to the full show here. 

Ann Pettifor on Nationalism, Polanyi and the Double Movement

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On the 1st July Ann Pettifor spoke at the FT’s Festival of Finance. Ann gave a presentation on ‘The New Nationalism: the money story’ and discussed nationalism, and Polanyi’s Double Movement. She was joined by a panel made up of Frances Coppola, Tyler Cowen, and Srinivas Thiruvadanthai. The discussion was moderated by John Authers.

The full podcast is available on FT Alphaville. 

Statement from members of Labour’s Economic Advisory Commitee

In September 2015, we were pleased to accept the invitation to serve on an Economic Advisory Council (EAC).  We felt strongly that it represented an opportunity to develop a vision of a progressive economic policy for Britain that departed from the destructive austerity narrative. Our collective view is that the EAC, and its various policy review groups, has indeed had a positive influence on the development of Labour’s economic policy, and we hope it continues whatever the result of current divisions.

We have always seen this body as providing advice to the Labour party as a whole, and not as an endorsement of particular individuals within it. For example we all share the view that the EU referendum result is a major disaster for the UK, and we have felt unhappy that the Labour leadership has not campaigned more strongly to avoid this outcome. We believe it is now crucial to find a way to resolve the economic and political impasse with the EU in a way that brings the least damage possible to the UK economy and those of our neighbours. We will be honoured to advise the Labour Party in the future, should our advice be sought once the current situation is resolved.

Diane Elson

Mariana Mazzucato

Anastasia Nesvetailova

Ann Pettifor

Simon Wren-Lewis

Mervyn King and the economics profession

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I have been criticised by among others, Professor Simon Wren-Lewis, for the earlier blog criticising the economics profession. To bolster my case, am sharing here ex-governor of the Bank of England, Mervyn King’s, views on the profession. While his is an “on-the-one-hand-but-on-the-other” approach, nevertheless it is clear on the culpability of the profession. The quotation is from page 3 of his recent book, ‘The End of Alchemy‘ published by Little, Brown in 2016.

“Since the crisis, many have been tempted to play the game of deciding who was to blame for such a disastrous outcome. But blaming individuals is counter-productive – it leads you to think that if just a few, or indeed many, of those people were punished then we would never experience a crisis again. [Me: This is why I tend not to blame individual bankers, but the economics profession as a whole, even while evidencing my criticism with examples]. If only it were that simple. A generation of the brightest and best were lured into banking, and especially into trading, by the promise of immense financial rewards and by the intellectual challenge of the work that created such rich returns. They were badly misled. The crisis was a failure of a system and the ideas that underpinned it, not of individual policy-makers or bankers, incompetent and greedy though some of them undoubtedly were. . [My emphasis]. There was a general misunderstanding of how the world economy worked…….

If we don’t blame the actors, then why not the playwright? Economists have been cast by many as the villain. An abstract and increasingly mathematical discipline, economics is seen as having failed to predict the crisis. This is rather like blaming science for the occasional occurrence of a natural disaster. Yet we would blame scientists if incorrect theories made disasters more likely or created a perception that they could never occur, and one of the arguments of this book is that economics has encouraged ways of thinking that made crises more probable…..”

My only disagreement with this excerpt from ex-Governor King’s book is that financial crises since financial liberalisation in the late 1960s and early 1970s have not been ‘occasional’. They have been a direct consequence of financial liberalisation, encouraged and cheered on by the economics profession as a whole. .