Fairness in a recession

Recessions differ: some are in and out, some are long trough, and some change the basis of the market altogether, fundamentally reshaping corporate and national competitive positioning.  This recession looks like one of the latter.  What might those fundamental changes be?

In our era the lifecycle of a product, idea or fashion has shortened dramatically, driven by technology, communication, and the gods of consumerism.  Excessive consumption could well be a casualty of this recession, never to return, as people recognise that possessions provide neither happiness nor meaning.  Or the recession could lead to a clearing away of the corporate dinosaurs, as the ability to respond to short cycle time competition – the ability of a set of people to form and reform around shifing opportunities – comes to the fore.  Most likely, the recession will result in both of these outcomes.

All recessions hit the poorest hardest.  And, if this recession does result in the paradigm shift I describe, there will be a double whammy on those at the bottom of the pile.  There will be a smaller economy overall, which means less cash for the welfare state; and there will be an even greater premium on “middle class” attributes: interpersonal networks, high level flexible skills, and personal enterprise.  The middle classes should not be too sanguine about this scenario, however.  These are the conditions that incubate significant social unrest, potentially fatally undermining the society that ignores them.

So what can we do now to mitigate against the effects of the recession and to prepare for the challenges of this post recession environment?

Here’s an extraordinary thing: the size of our public sector.  Comprising more than 40% of gross national product, and a similar proportion of total jobs – and playing an even more significant role in the most deprived neighbourhoods – the UK’s public sector is enormous.  It is unsustainable at that level: after all, its cash has to come, in the end, from private sector profits, those very profits which are being hit by the recession.  Given that the public sector exists for two reasons – national success and fairness – it is also curious that it should be so ineffective in addressing either objective.

Take major infrastructure projects; large scale housing growth, for instance.  Governments have traditionally spent real cash supporting housing, aiming to address the mismatch between demand (population growth) and supply (obsolete or poor quality stock).  Their model essentially “gap funds” the profit oriented developer, requiring that a large scale new housing development, for instance, contains a proportion of social or affordable housing in exchange for grant, or land, or both.  In a buoyant economy, awash with easily available credit, the developer was king and the model worked.  The public sector’s cash had some, but limited, leverage over the shape of the programme.


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