This post follows on from the first blog entry relating to strategic analysis of the UK political environment. The recent UK general election is a major event that requires careful consideration for most British organisations, and it may have wider implications beyond the UK. Unusually, business played a prominent role in the campaign as the Conservative party used a selection of CEOs to back their policy of initiating public expenditure cuts in 2010 and opposing the planned rise in National Insurance which was characterised as a ‘tax on jobs’.
None of the parties won a mandate to govern, but in the unlikely coalition that has been formed between the Conservatives and Liberal Democrats, these Tory economic proposals are already being implemented. Apparently, the policy has found favour with the financial markets, but whether this judgement is being made for the performance of the overall economy based on an evidence-based strategic analysis or for narrower reasons of self-interest is not entirely clear.
It is too early to tell what the result of this policy approach will be, but many economists have warned that cutting public expenditure and raising taxes too soon in the cycle of economic recovery risks creating a ‘double dip’ recession. Unfortunately, the track record of George Osborne, the new UK Finance Minister is not good in this area. He consistently made bad calls during the unfolding economic downturn. However, the presence of Vince Cable in the Cabinet may help here. As the Liberal Democrat economic shadow he tended to make much better calls, and there is some experience to draw on in the guise of former Chancellor Kenneth Clarke.
Previous Conservative administrations caused significant damage to the industrial infrastructure through ideological pursuit of the flawed economic doctrine of Monetarism. The key strategic analysis factor over the coming weeks will be whether economic policy decisions are pragmatic or dogmatic. If the latter, we should prepare for another downturn in the next 12 months.
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