After a decade of continuous growth, the UK economy is facing a recession of exceptional severity. The International Monetary Fund (IMF) forecasts a 2.8 per cent contraction in UK Gross Domestic Product over 2009, and fears that the world economy could shrink for the first time since the 1930s. In Scotland, the economy is projected to experience its worst recession since 1980, shrinking by 0.4 per cent in 2009, before growing again by 1.5 per cent in 2010. At the heart of this recession is the collapse of the financial services industry, with bank failures and nationalisations on a scale not seen for decades. New, tighter regulations on financial institutions are being imposed worldwide in response. But these finance and business service industries were central to the UK's relative prosperity, fuelling economic growth and providing hundreds of thousands of jobs. From 2000 to 2007, financial services added 15 per cent to annual GDP growth. But finance will not save us in the future. The challenge facing the UK economy is now to find the new sources of growth that will drive prosperity over the coming years. The knock-on effects of the global financial crisis are hitting Britain's non-financial businesses hard. Reduced business lending and lower spending is hitting British industry, sparking a chain reaction of distress, with industries from car manufacturers to shoe-makers seeking government help. The Scottish Government has identified long-term challenges to Scotland's economy and society. These include boosting Scotland's growth, productivity, population and participation, and in delivering on the desired characteristics of growth - solidarity, cohesion and sustainability.Sitting idly by in the face of the worst recession of modern times is not an option. But bailing out industries piecemeal is no better. A coordinated approach is clearly preferable. The trouble, however, is that ‘industrial policy' carries with it a heavy history. It is redolent of failed attempts to boost post-war British manufacturing, a process of ‘picking winners' that rarely came good. NESTA argues that there is a better option.
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|Published - 16 Mar 2009
Bibliographical note© 2009 NESTA
- Economic downturn