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Boom? What boom?

February 1, 2010

The oft-quoted phrase is that the economic party is over and we’re now left nursing the hangover. But, on closer inspection, it doesn’t appear to have been much of a party at all. Researchers at Manchester University have today presented a pretty stark portrait of the boom. They show that the booming finance sector provided big tax revenues but almost no new jobs. Instead, the tax revenues from finance helped bankroll an expansion of the public sector. In the north-east, for instance, 79 per cent of new jobs were created in the state sector. This compares with 41 per cent in London and the south-east. Of course, demand for services is likely to be higher in poorer areas – and so this rise is likely to be related to local need. But it does also suggest that we need to think carefully about the unintended consequences of expanding the state in relation to the private sector. The state – as Lord Mandelson emphasised today – can be a vital source of demand during a recession. But it can also crowd out private initiative by making workers less willing to plump for the typically poorer pay and conditions of the private sector. This makes it harder for new businesses to get off the ground – especially in the current environment.

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