Tony Blair: the former PM for hire

Randeep Ramesh in The Guardian


Emails show oil firm questioned complex structure of Blair’s company, and reveal his closeness to Chinese leadership


 

Tony Blair meets China’s then vice-premier, now premier, Li Keqiang in Beijing in 2011. Photograph: Rex/Shutterstock



When Jonathan Powell, the gatekeeper to the corporate empire of Tony Blair, sat down to lunch with the former Saudi intelligence chief Prince Faisal Al Turki in June 2010 he could not have known how lucrative it would turn out to be for the former British prime minister.

As the high-profile mediator of the stuttering peace process in the Israeli-Palestinian conflict, Blair had to be careful not to mix business with pleasure. However, one of those lunching with Powell at the annual “global mediator’s retreat”, organised by the Norwegian Ministry of Foreign Affairs, was looking to make a deal.
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Bird and Fortune on Blair's socialism

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Nawaf Obaid, a security analyst who accompanied Prince Faisal, emailed Powell a week later, according to documents seen by the Guardian, with a suggestion to work with his brother Tarek’s company, PetroSaudi, which he “co-founded and co-owns with Prince Turki bin Abdullah, son of King Abdullah”.

“They have several projects that [they] are working [on] and I think it would [give] a very interesting perspective to see if we could establish a strategic partnership with former PM Tony Blair and yourself,” he wrote.

 

Tarek Obaid

Tarek Obaid was a former banker who styled himself as an adviser to members of the Saudi royal family and a director of a joint venture with Malaysia’s multibillion-dollar development fund, 1MDB. This fund had put $300m through PetroSaudi and as the latter’s chief executive, Obaid was on the lookout for deals.

On paper PetroSaudi looked impressive: its chief investment officer was a former Goldman Sachs banker, Patrick Mahony. The chief operating officer was listed as Rick Haythornthwaite, a City insider who was also chairman of Network Rail and MasterCard.

Blair’s team sold the former prime minister as someone who could help “unlock situations which might otherwise be blocked by political factors” in places such as China and Africa. PetroSaudi was interested in Beijing’s appetite for oil and how Blair’s firm could help.

The role assumed by Blair shows his influence in one of the most important areas of global economic cooperation this century: between the oil sands of the Middle East and hydrocarbon-hungry China.

While in office, Blair oversaw the handover of Hong Kong to China, but visited the latter just five times. His sixth visit in 2007 – when he earned £200,000 for a speech in the industrial city of Dongguan – marked a turning point in how he viewed the rising power.

Since then Blair has been back two dozen times and has built a reputation for befriending the rising stars of Chinese politics. In March 2010 he secured a meeting with Li Keqiang, now China’s premier.

PetroSaudi signed up Blair’s team to lobby Beijing in the summer of 2010 and internal PetroSaudi correspondence reveals there were questions raised about the apparently opaque nature of Blair’s businesses and the role he could play.

Tony Blair courted Chinese leaders for Saudi prince's oil firm



PetroSaudi executives warned in early September 2010 that they had “no contractual nexus with TB” and were anxious about “the lack of apparent employment or other involvement of TB in the corporate structure”.

To convince PetroSaudi that if it paid it would get Blair, his executives revealed for the first time how his complex web of companies worked. Blair’s businesses are split into two wings: Firerush, which was governed by the then City regulator the Financial Services Authority, and Windrush, which was not.

What bothered PetroSaudi was that it was paying roughly $55,000 to Firerush and about $10,000 to Windrush. Both firms trade as Tony Blair Associates (TBA).

From early on in their relationship PetroSaudi executives admitted they knew “very little” about Blair’s firms. In an email in August 2010, the company’s executives said they “would like to understand more about the structure and the relationship between Firerush, TB Associates and TB. In particular, the engagement letter mentions the provision of services by employees of Firerush which seems, like a number of concepts in the engagement letter, inappropriate given we are only looking to engage with TB.”

To allay concerns in November 2010, Varun Chandra, a former Lehman Brothers banker and director of TBA, told PetroSaudi that Blair was the “ultimate owner of all this and owns all the share capital” of all the companies. He told PetroSaudi it was not relevant which company got paid “given where the cash ultimately ends up”.
Chandra explained that Firerush executives handled the day-to-day conversations about “specific opportunities and making the arrangements to drive negotiations forward. Tony, procured by Windrush, is involved at higher level but on an ongoing basis, meeting with senior political leadership and business heads in order to discuss PetroSaudi at a strategic level and to speak highly of your management.”

PetroSaudi, he said, had already seen the benefit as “the man in charge of China’s economic policy is now supportive of working with PetroSaudi, and … he has spoken with CNPC [China National Petroleum Corporation] to ensure a proper working dialogue”.

By November 2010 TBA was hired and, according to the documents, Blair had found time to put PetroSaudi’s case to Lou Jiwei, the then chairman of the China Investment Corporation and now the nation’s finance minister.

 Lou Jiwei, centre, arrives for a G20 finance ministers’ and central bank governors’ meeting at the IMF on 15 April. Photograph: Mandel Ngan/AFP/Getty Images

Questions could be raised about why Blair was allowed to promote the interests of the son of the then ruler of Saudi Arabia in China while also working as the Middle East peace envoy for the Quartet – the US, UN, EU and Russia. Blair had also faced criticism for halting a Serious Fraud Office inquiry in 2006, while prime minister, into alleged corruption over a multibillion-pound arms deal with Saudi Arabia. He denies any conflict of interest.

PetroSaudi had made it clear it wanted to hire Blair. In an internal 2010 document entitled “story for Blair”, PetroSaudi sold itself as a “vehicle of the Saudi royal family” that could count on the “full support from the kingdom’s diplomatic corps” and was set up by Prince Turki bin Abdullah and Obaid, who hailed from a “prominent business family”.

PetroSaudi’s pitch in the document was that it claimed “many countries will get a company in but then bully it around once it is there and has sunk billions of dollars in the ground. This will not happen with [PetroSaudi] because these nations do not want to get on the wrong side of the Saudi royal family.”

But access to the legendary Blair contacts book does not come cheap. In July TBA’s then chief operating officer, Mark Labovitch, emailed Mahony to say he had “discussed your strategy and objectives with Tony and believe strongly that we can add value to PetroSaudi’s business development … We would propose a retainer fee of $100,000 per month.”

The documents reveal that even before Blair’s company was hired, he was already promoting the oil firm. In late July 2010 Blair was in Shanghai to celebrate the planting of 1m trees in north-west China to combat climate change. A few days later, Labovitch emailed the London-based oil firm to say: “Tony has just been in China and informally sounded out a number of people.”

Tarek Obaid and Blair did meet privately in early July 2010, and apparently discussed a working relationship. A month later Blair’s company was on a retainer fee of $65,000 and a “success fee equal to 2%” of any deal that TBA brought to the company – which PetroSaudi admitted could “potentially be a very large sum”.

In the following months a picture emerges of corporate bonhomie underwritten by spiky internal exchanges over the cost of hiring the former prime minister, his apparent obsession with privacy and a whirl of phone calls with global leaders.

By August 2010, according to documents, PetroSaudi raised concerns internally that TBA’s proposed contract was “more appropriate to an investment bank (eg they can record our phone calls)”. In an email, Mahony described the contract offered by Blair’s lieutenants as “a very aggressive first draft with almost total limitation of liability for TB”. He wrote: “I should note that the aggressive starting position of his engagement letter most probably is cynically reliant on counterparties taking a passive approach to secure his services.”

But at the end of the month Blair was in the Chinese capital for the signing of a partnership agreement between Peking University and his Faith Foundation, and managed to squeeze in some time with the Chinese oil giants CNPC and China National Offshore Oil Corporation, as well as China’s supreme economic council, the National Development and Reform Commission.

Tony Blair gives a speech at Peking University in Beijing in 2012. Photograph: China Daily/Reuters

“The latter effectively ‘blessed’ your engagement with Chinese companies, and the former were both very keen to meet you and work out how you might collaborate,” Blair’s then chief operating officer told PetroSaudi. “We clearly articulated the benefits of partnership with you to them, which they grasped immediately.”

In November, Blair was back in Beijing to give a speech for his Faith Foundation. He also had a meeting with China’s vice-premier, Wang Qishan, who Blair’s firm told PetroSaudi was “crucial – inter alia in order to highlight the wider benefits of a partnership with PetroSaudi in terms of putting Chinese companies in pole position for Saudi infrastructure tenders”. Wang is now a member of the Chinese Communist party’s politbureau, the country’s highest decision-making body.

Blair’s relationship with PetroSaudi appeared to give him access to the Saudi elite. In December 2010 an executive of PetroSaudi said the company could arrange a dinner for Blair with Prince Turki. Blair’s office say this never took place.

The next month Blair’s office emailed PetroSaudi because he was keen to meet the King of Saudi Arabia and Prince Bandar, the secretary general of the country’s national security council, before the February 2011 Quartet meeting to discuss Middle East peace after the Egyptian revolution.

Jeremy Hunt doesn’t understand junior doctors. He co-wrote a book on how to dismantle the NHS

Frankie Boyle in The Guardian


The health secretary’s name is so redolent of upper-class brutality he belongs in a Martin Amis book where working-class people are called Dave Rubbish

 

Jeremy Hunt: overtly ridiculous. Photograph: Mark Thomas/Rex Shutterstock




One of the worst things for doctors must be that, after seven years of study and then another decade of continuing professional exams, patients come in telling them they’re wrong after spending 20 minutes on Google. So imagine how doctors must feel about Jeremy Hunt, who hasn’t even had the decency to go on the internet.

Consider how desperate these doctors are: so desperate that they want to talk to Jeremy Hunt. Surely even Hunt’s wife would rather spend a sleepless 72 hours gazing into a cracked open ribcage than talk to him. Hunt won’t speak to the doctors, even though doctors are the people who know how hospitals work. Hunt’s only other job was founding Hotcourses magazine: his areas of expertise are how to bulletpoint a list and make dog grooming look like a viable career change.

Of course, the strikers are saying this is about safety, not pay, as expecting to be paid a decent wage for a difficult and highly skilled job is now considered selfish. Surely expecting someone to work for free while people all around them are dying of cancer is only appropriate for the early stages of The X Factor. Sadly, Tories don’t understand why someone would stay in a job for decency and love when their mother was never around long enough to find out what language the nanny spoke.

The fact that Hunt co-wrote a book about how to dismantle the NHS makes him feel like a broad stroke in a heavy-handed satire. Even the name Jeremy Hunt is so redolent of upper-class brutality that it feels like he belongs in one of those Martin Amis books where working-class people are called things like Dave Rubbish and Billy Darts (No shade, Martin – I’m just a joke writer: I envy real writers, their metaphors and similes taking off into the imagination sky like big birds or something). Indeed, Jeremy Hunt is so overtly ridiculous that he might be best thought of as a sort of rodeo clown, put there simply there to distract the enraged public.

I sympathise a little with Hunt – he was born into military aristocracy, a cousin of the Queen, went to Charterhouse, then Oxford, then into PR: trying to get him to understand the life of an overworked student nurse is like trying to get an Amazonian tree frog to understand the plot of Blade Runner. Hunt doesn’t understand the need to pay doctors – he’s part of a ruling class that doesn’t understand that the desire to cut someone open and rearrange their internal organs can come from a desire to help others, and not just because of insanity caused by hereditary syphilis.

The government believes that death rates are going up because doctors are lazy, rather than because we’ve started making disabled people work on building sites. Indeed, death rates in the NHS are going up, albeit largely among doctors. From the steel mines where child slaves gather surgical steel, all the way up to senior doctors working 36 hours on no sleep, the most healthy people in the NHS are actually the patients. This is before we get to plans for bursaries to be withdrawn from student nurses, so that we’re now essentially asking them to pay to work. Student nurses are essential; not only are they a vital part of staffing hospitals, they’re usually the only people there able to smile at a dying patient without screaming: “TAKE ME WITH YOU!”

The real reason more people die at weekends is that British people have to be really sick to stay in hospital at the weekend, as hospitals tend not to have a bar. We have a fairly low proportion of people who are doctors, don’t plan to invest in training any more, and are too racist to import them. So we’re shuffling around the doctors we do have to the weekend, when not a lot of people are admitted, from the week, when it’s busy. This is part of a conscious strategy to run the service down to a point where privatisation can be sold to the public as a way of improving things.

Naturally, things won’t actually be improved; they’ll be sold to something like Virgin Health. Virgin can’t get the toilets to work on a train from Glasgow to London, so it’s time we encouraged it to branch out into something less challenging like transplant surgery. With the rate the NHS is being privatised, it won’t be long before consultations will be done via Skype with a doctor in Bangalore. Thank God we’re raising a generation who are so comfortable getting naked online. “I’m afraid it looks like you’ve had a stroke. No, my mistake – you’re just buffering.”

When I was little, I was in hospital for a few days. The boy in the next bed was an officious little guy who took me on a tour of the ward. He’d sort of appointed himself as an auxiliary nurse and would help out around the place, tidying up the toys in the playroom, and giving all the nurses a very formal “Good Morning”, which always made me laugh. I got jelly and ice-cream one evening (I’d had my tonsils out) and they brought him some, too. Afterwards, he threw his spoon triumphantly into his plate and laughed till there were tears in his eyes. Then he tidied up and took our plates back to the trolley. What he meant by all this (we’d sit up at night talking and waiting for trains to go by in the distance) is that this was the first place he’d known any real kindness and he wished to return it. For most of us it will be the last place we know kindness. How sad that we have allowed it to fall into the hands of dreadful people who know no compassion at all, not even for themselves.

Jeremy Hunt is a hero for standing up to the BMA bullies

Leo McKinstry in The Telegraph

Today, junior doctors are staging the first ever all-out strike in the history of the NHS. Never can a stoppage have been less justified than this one. In their irresponsible greed and puerile militancy, the strikers are making a complete mockery of the Hippocratic Oath to do no harm. 

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With spectacular double standards, they claim that they oppose the new contract because it is “unsafe for patients”, yet their own selfish industrial action is putting the lives of vulnerable people at risk. They profess their devotion to the publicly funded NHS, then threaten to work in the private sector overseas if the Government refuses their pay demands.
Their sense of entitlement is repugnant. They enjoy salaries, pensions and job security far beyond the dreams of most professionals, while they have been offered an excellent new deal in return for the removal of outdated weekend practices. Yet, suffused with victimhood, they act like oppressed members of the proletariat.

They are only able to get away with this hypocrisy because of their exploitation of public sentimentality towards the NHS. The former Chancellor Nigel Lawson once famously said that the health service is “the nearest thing the English have to a religion.” By cynically posing as the keepers of the holy faith and presenting every attempt at reform as wicked heresy, they have been able to protect their privileges and ruthlessly advance their own interests.

But now they have met a stumbling block in the form of Health Secretary Jeremy Hunt. With his air of reasonableness and quiet, almost deferential manner, Hunt may seem an unlikely figure to challenge union blackmail. But his willingness to take on the reactionary bullies of the BMA shows that he has an inner steel similar to that displayed by Margaret Thatcher when she took on the unions in the 1980s.

In the process, Hunt has taken a tremendous amount of increasingly hysterical abuse. He has been vilified as the enemy of the NHS, a Right-wing extremist, a Nazi and a potential killer. But alongside these savage personal insults, there has also been the persistent complaint that he has somehow “mishandled” the dispute. It is a refrain that is heard not just from Labour politicians and Left-wing commentators, but even, privately, from some of his own MPs and fellow Ministers.

Yet the charge is absurd, for Hunt has shown remarkable patience in his negotiations with the unions. The term “mishandled” is really code for his refusal to surrender to the unions. Effectively, his critics are arguing that he should have caved in at the first sign of trouble from the BMA. That is how most of his predecessors have acted, always desperate to avoid confrontation. So the NHS remains hopelessly unreformed, a gigantic bureaucratic monolith operating more for the convenience of its staff than the real needs of its patients.

No one elected the BMA to decide how the NHS should be run. That should be the job of our democratic politicians. Hunt has a clear mandate from the Conservative victory in 2015 to introduce a proper 7-day-a-week health service, which can only be done through a new contract. If the NHS is to improve, the privileged, picket-line poseurs have to be defeated. Hunt should be praised, not demonised, for taking his heroic stand in this battle. Even if they dislike him now, the British public will ultimately benefit from his courage.

Pakistan Army Accounts - No Audit permitted

 

Accountability without exception Friday Night with Hamid Bashani Ep48 (in Urdu)




History of Pakistan's Foreign Policy - AApas ki Baat with Najam Sethi and Muneeb Farooq

Politician & Military in Pakistan Part II

TTIP is a very bad excuse to vote for Brexit

Nick Dearden in The Guardian

Barack Obama gave TTIP the hard sell, but leaving the EU would only make the controversial trade deal more likely – and possibly worse
 

‘In Berlin, 250,000 people took to the streets last October to protest about TTIP.’ Photograph: Axel Schmidt/Getty Images



Barack Obama’s key message to Europe’s leaders last week was “let’s speed up TTIP”. The US-EU trade deal, formally called the Transatlantic Trade and Investment Partnership, has been mired in controversy on both sides of the Atlantic. The “free trade” agenda has become poison in the US primaries, forcing even pro-trade Hillary Clinton to re-examine TTIP.

The next round of talks begin on Monday in New York and Obama is worried – unless serious progress is made in coming months, his trade legacy may be doomed. The problem for the US president is selling TTIP at the same time as trying to warn against the dangers of Brexit. This is a tough ask because TTIP has been a godsend for Brexit campaigners, who argue that the deal is a major reason to cut loose from Brussels.

It’s true that TTIP is a symbol of all that’s wrong with Europe: dreamed up by corporate lobbyists, TTIP is less about trade and more about giving big business sweeping new powers over our society. It is a blueprint for deregulation and privatisation. As such it makes a good case for Brexit.

Until you remember that the British government has done everything possible to push the most extreme version of TTIP, just as they’ve fought against pretty much every financial regulation, from bankers bonuses to a financial transaction tax. While Germany and France were concerned about TTIP’s corporate court system – which allows foreign business to sue governments for “unfair” laws like putting cigarettes in plain packets – the UK secretly wrote to the European commission president demanding he retain it.

At the heart of TTIP is a radical agenda of deregulation. The ambition is that everything from food standards to financial policies are “standardised” in the US and EU, with big business gaining new powers over the process. This could have been inspired by David Cameron’s own programme of stripping away laws that annoy big business, no matter how important they are for people and the environment.

Cameron’s policy means scrapping two laws for every one brought in and giving every regulatory body the duty to have regard to the desirability of “promoting economic growth”. That could include the equality and human rights commission and the health and safety executive. The TUC described Britain as “exporting their anti-worker position into Europe and it is spreading like a bad outbreak of gastric flu”.

Brexit wouldn’t necessarily stop TTIP anyway – that’s all down to the transition process. At the very least, Britain would need to adopt many of TTIP’s provisions in order to remain in the single market.

But it gets worse: every scenario for Brexit is premised on extreme free trade agreements coupled with looser regulation to make us more competitive. “Outcompeting” the EU through lower standards is the strategy. High-profile supporters of the Brexit campaign have repeatedly said that they believe the UK would be able to realise a more “ambitious” and faster free trade deal if we stood alone. There’s every reason to think that Brexit will turn the UK into a paradise for free market capitalism: a TTIP on steroids.

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What is TTIP and why should we be angry about it?
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Is there any hope? Yes – the movement to defeat TTIP received the support of well over 3 million Europeans in a little over a year. In Berlin, 250,000 people took to the streets last October. The deal was meant to be signed by now – but together, Europe’s people have seriously stalled things. Would it really be possible to stop such a move if we couldn’t link up with campaigners across Europe? If being in the EU has brought us TTIP, it has also brought us the means to stop it.

Europe also allows the potential to take on the corporate power which TTIP symbolises: the biggest threat to our sovereignty. Even in the best of circumstances, there is only so much a small nation state can do against the size and power of global big business. But through being in Europe we could stop tax avoidance, introduce a financial transactions tax, hold corporations legally responsible for their human rights abuses, enforce world-leading climate targets, develop new forms of public ownership of key resources. At least, we could if Britain stopped standing in the way.

Obama’s rationale for avoiding Brexit is quite different. The US establishment has always been interested in Britain’s role as a fifth column in Europe, undermining a social Europe on behalf of global (read US) corporations. Reclaiming our sovereignty means not playing this role, and instead working with those in Europe who want to build a different world. Another Europe is possible.

The things economists know. . . and don’t know about Brexit

Roger Bootle in The Telegraph

Last week we were treated to a fine exhibition of the economist’s art. I refer to the Treasury study of the economic impact of Brexit, which told us that in 15 years’ time, on a central view, the average British household would be worse off by £4,300 a year. This episode has prompted me to think about what it is that economists know – and what they don’t.

It is clear that economists’ prognostications have, at best, a mixed record. Not only can economists not reliably tell you what GDP is going to be in two or three years’ time but, as a group, they seem pretty bad at anticipating major developments.

Although some economists did foresee the financial crisis, as a whole they did not. Nor did most foresee the emergence of a zero inflation/deflation world.

Let me say, though, that of its type, last week’s Treasury document was a fine specimen. A large team of economists has been working on it for the best part of a year, and these are good, professional people who have not simply been doing what they were told by their political bosses. Nevertheless, that doesn’t mean that what they have produced is of serious value. 

The problem with much of economics is that what we can readily measure, even when it is tendentious, is often the minor part of the question. Yet there is a natural tendency to measure what is measurable and to leave to one side, or to downplay, the things that are not.
The Treasury study concentrated on the effects of a Brexit on UK trade and the consequences for GDP and investment on a static “other things equal” basis. It assumed that we would be unable to secure any more favourable trade agreements with non-EU countries.

Interestingly, it did not begin to quantify the possible economic gains from a policy of radical deregulation. The reason is apparently that it is not clear that we would repeal and rescind EU legislation and directives and, in any case, the UK is a relatively lightly-regulated economy. The implication is that there is next to nothing to be gained from deregulation.

This is, to put it mildly, a rather odd stance to take – certainly if you were trying to be fair across all sides of the debate. After all, those economists who think that there is much to be gained economically from leaving the EU tend to rest their case mainly on large potential gains from EU deregulation.

Moreover, umpteen businesses across the country bemoan the costs of regulation on their operations. It is not that their case has been disproved by last week’s study; it has simply been ignored. 

The study, in accordance with convention, took a static approach to how the EU might evolve. True, this excluded some of the potential benefits of remaining in the EU from the extension of the single market. But it also excluded some of the most important negative possibilities.

Once the UK referendum is out of the way, if we vote to stay in, it is likely that the EU will turn quite nasty towards us. This will not only be because the EU’s leaders will be cheesed off with us, although they most certainly will be.

More importantly, they will think that we have shot our bolt. In particular, we would probably find that, far from rejoicing in the City’s role as Europe’s financial centre, the EU would renew its attempts to undermine it.

Meanwhile, the EU would have to embark on truly momentous changes in order to make the eurozone work. Banking union, fiscal union and political union must be put in place for the euro to survive.

We don’t know what effects this cocktail of changes will have upon European politics and economic performance – and hence on us.

The overwhelming majority of the EU will be inside the euro, and what needs to be done to make the euro work would be the EU’s leading concern.

We do not know what things will be forced upon us by qualified majority voting. Moreover, with the referendum behind us, there is a good chance of a renewed push to get the UK into the euro. What have the calculations that produce the figure £4,300 a year got to say about this? The answer, of course, is precisely nothing.

And all this is before we take account of the dynamic effects and their political consequences. Perhaps after a Brexit our leaders would become enmeshed in rivalrous infighting and it would be impossible to put together an economic programme for national renewal.

But there is surely a good chance, as Michael Gove suggested last week, that by contrast EU departure would be the equivalent of a shot in the arm.

Nor did the study have anything to say about the congestion and social costs implied by uncontrolled immigration, which are at the heart of so many people’s concerns about the EU.

Although the future is beset with uncertainty, about this issue we do know some things. We know that over recent decades the EU has been a comparative economic failure.

We know that unless something really radical happens, it is set to fall sharply in relative economic performance over the decades to come. We know that the EU is set to embark on a course of integration from which we aim to stand aside. We know that inside the EU we do not have full control of our destiny.

We know that inside the EU but outside the eurozone we will be marginalised.

I cannot say what all this means in terms of pounds per annum for the UK average household in 15 years’ time. But I can recognise the difference between a situation of opportunity and a pig in a poke.

Stunted growth: the mystery of the UK’s productivity crisis

Duncan Weldon in The Guardian

Without it the future is bleak, but despite a bewildering array of theories for why this key economic driver has dropped there is no clear answer

 

Illustration: Robert G Fresson




Our economic future isn’t what it used to be. In March the Office for Budget Responsibility (OBR) revised down its growth estimates for each of the next five years. The chancellor was quick to blame a weakening world economy but the true driver lies closer to home. The problem isn’t a loud global economic crash but something much quieter: engine trouble. Productivity growth, the long-term motor of rising living standards, is slowing. The fact that this appears to be happening across the globe offers scant consolation.

What’s worse is that no one is entirely sure what is causing the problem or how to fix it. And it is coming at about the worst time imaginable: global demographics are changing, with the supply of new workers set to slow and the older share of the population rising. The future is of course inherently unknowable, but the reasons for longer-term pessimism on economic growth are starting to stack up.

Productivity – the amount of output produced for each hour worked – rose at a fairly steady annual rate of about 2.2% in the UK for decades before the recession. Since the crisis though, that annual growth rate has collapsed to under 0.5%. The OBR has decided to revise down its future assumption on productivity from that pre-crisis 2.2% to a lower 2%. That small revision was enough to give the chancellor a large fiscal headache in his latest budget, but it still assumes a big rebound in productivity growth from its current level. What if that rebound doesn’t come?

The near death of the British steel industry is a tragedy. But for all the political heat it has generated, its long-term consequences wouldn’t be as serious as the wider crisis. For while closing mills are highly visible, slipping productivity is not.

Looking at the global picture shows that while there are of course national nuances, the overall impression is grim and dates back to before the 2008 crash. Everywhere from the “dynamic” United States to “sclerotic” France, productivity growth has dropped considerably in recent years. The UK is an outlier with a bigger fall than many, but not by much.

Some of this could be explained by measurement issues. To use every economist’s favourite example, it is straightforward to measure the inputs, the outputs – and hence the productivity – of a widget factory, even if no one is really sure what a widget is. It is harder to do the same with an online widget brand manager. But the mismeasurement would have to be on an unprecedented scale to explain away the problem.

What we are left with is a bewildering array of theories as to what has driven the fall but no clear answer. We know the productivity slowdown is broad based and happening across most sectors of the economy. Lower corporate and public investment than in the past almost certainly explains some of the shortfall. Weaker labour bargaining power than in previous decades might also be playing a role. Low wages are allowing low-skill, low-productivity business models to expand and deincentivising corporate spending on new kit. Why spend on expensive labour-saving technology when labour itself is cheap?

But if you think you’ve found the full answer, you probably need to read more. There almost certainly isn’t a single explanation. It’s still perfectly possible to argue that productivity pessimism is overdone, that we are still suffering the lingering after-effects of the financial crisis that will eventually end. But with each passing year that becomes more difficult. A good strategy is to hope for the best but prepare for the worst. And the worst is pretty bad.

George Osborne at the Airbus factory in Filton, Bristol. Photograph: Andrew Matthews/PA

Productivity growth is more than just a financial concept, it’s a balm that can soothe class conflicts and take some of the sting out of distributional politics. If a worker’s output rises by 2% without an increase in their hours, then giving that worker a 2% pay rise is relatively straightforward. If their productivity is flat then a 2% pay rise results in either a fall in profits or a rise in prices. A world of lower productivity is a world of more intense fighting over the more meagre divisions of economic growth.

Productivity is one of two key factors determining the trend growth rate of an economy; the speed limit at which a country can expand without pushing up prices. The other is population. Falling birth rates across the advanced economies created a demographic “sweet spot” that lasted from the late 70s until fairly recently. Fewer children meant a rising share of the population was of working age. But fewer children in the past means fewer workers today and rising longevity means a rising share of the population who are retired. Across the west, the amount of workers for each retired person is heading in the wrong direction. Increasing the retirement age and more immigration are both theoretical fixes, but the scale of both required to fundamentally change the picture is almost certainly politically impossible.

Slowing population growth and weaker expected productivity growth have led the US Congressional Budget Office to revise down its estimate of US trend growth from north of 3% in the 1990s and 2000s to closer to 2%. In the UK, policymakers once thought trend growth was 2.75% and have now cut that to 2.2%. Without a productivity bounce that could fall to closer to 1-1.5% in the coming years.

UK's productivity plan is ‘vague collection of existing policies’


Japan is the usual cautionary tale of what happens when growth slows. A country that had a financial bust, made policy mistakes in the aftermath and then experienced an ageing society. But at least productivity growth didn’t collapse. Headline economic growth was weak and the government’s debt burden has soared, but real incomes and employment held up well. Japanese demographic transition at the same time as a productivity crunch is the worrying possibility facing the west.

So what are policymakers to do? They could accept lower growth and concentrate on distribution. Of course the politics of redistribution are much easier when resources are growing. Lower growth also means that the public and private debt piles built up across the west in anticipation of a brighter future would be much harder to deal with. The obvious answer is to increase public investment. This alone wouldn’t solve the productivity crisis but it could help, and certainly wouldn’t hurt. At a time when government borrowing costs are near historical lows this is about as close to a free lunch as economic policy ever gets.

Finding ways to boost corporate investment is trickier, as there isn’t much in the way of direct policy levers open to government. Reforming corporate governance to encourage more long-term decision-making could help. And while economists tend to assume that productivity growth leads to wage growth, there could be circumstances in which the relationship is inverted. The government’s new national living wage may act as a spur to improve productivity as businesses see their cost-base rise.

But if productivity remains low then difficult choices lie ahead. We’ll need either a substantially smaller state with less generous social security, or higher tax revenues as a share of the economy. That means raising the kind of taxes that bring in substantial sums – VAT, national insurance and income tax.

Neither a smaller state nor higher taxes are likely to prove popular. But governing in a lower-growth world was never going to be easy.