What is a balanced economy?

The phrase ‘balanced economy’ has been thrown about a lot in the past year. It trips off the tongue easily and insinuates itself into the discourse on growth for countries like the UK. According the BBC it has become a mantra across Whitehall and in economic think tanks. David Cameron used it as the focus for his first major economic speech after the election. In the speech he fairly tied himself in knots - 

Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East.  This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.
We are determined that should change.  That doesn’t mean picking winners but it does mean supporting growing industries – aerospace, pharmaceuticals, high-value manufacturing, hi-tech engineering, low carbon technology. And all the knowledge-based businesses including the creative industries.

But what does a balanced economy mean? Are we looking for a 50/50 split between services and manufacturing? Do we want to have exports and imports in perfect balance?

No one really knows. 

Answering this question means answering some much harder questions on what growth really is, where it comes from and how nation states and companies large and small interact in the highly globalised world. 

The economic consensus that prevailed before the credit crisis has not been replaced by a new narrative. There is no clear model for how the economy is supposed to sustainably grow and that is the greatest weakness for policymakers at the moment. In some ways an overconcentration of belief in a watered down version of economics (free the market, get small government, the market will adjust etc etc) still remains. 

Unfortunately taking on these questions requires significant time, leadership and patience. None of these commodities is in great supply at the moment, so rebalancing looks like a phrase that will continue to be abused as it slips into Economist articles and speeches.

Until we're willing to have open and engaged debates on how we think about growth, the relationship between countries and companies, and the adjustment to the emergence of new economic powers we'll not be able to move this discussion forward. Here's hoping that there are some enlightened voices in Treasury and No 10 able to see the forest for the trees.

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