Stephen King: Forget the sterile debates, we are all facing a future of austerity and sacrifice

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Andrew Feinberg

White House Correspondent

After three leadership debates, we may have a better idea of who is likely to win (or, more accurately, who is likely to lose) on 6 May. But what happens thereafter remains a mystery.

It's a mystery not so much because the leaders have offered little candour on where the public spending axe will fall. The great British public surely knows by now that the victor in next Thursday's general election will have to give us many spoonfuls of unpleasant medicine to make sure the budgetary figures add up, whether in the form of public-sector pay freezes, job cuts or tax increases (of which higher VAT is surely one of the more obvious candidates).

Instead, it's a mystery because none of our would-be leaders has confronted the really big issues that will affect UK society in the years ahead. We have a society which is aging, which will become increasingly short of workers yet is becoming ever more hostile to immigration. We have a society where the gap between rich and poor has widened persistently in recent years. And we have a society where the economy is no longer performing with the apparent vigour of old. Yet, throughout the three debates, these issues have been addressed only tangentially.

It's easy enough to talk about fairness, for example, but how should fairness be delivered in a world where competitive pressures are intensifying day by day? And staging a sterile debate about the timing of spending cuts is all very well but nothing of substance has been said about the appropriate size of public spending within the British economy over the long term.

In reality, British society is increasingly at the mercy of events elsewhere in the world. We no longer believe our politicians with their extravagant promises because ultimately so much that influences life in Britain is beyond their control. It's this loss of control which, perhaps, has made these debates more about personality than about substance, and therefore devoid of any real meaning.

There's little than can be done about stopping a society from ageing. But faced with an ageing society, it might be sensible to have a debate about immigration. With more British people in retirement and fewer in work, it will be increasingly difficult for British living standards to rise. How should we deal with this inverted population pyramid?

One possibility is to ask people to do more paid work, longer hours, later retirement, for example. Another is to export our savings to parts of the world with more youthful populations. But as Germany's savers have found out that isn't always easy: they ended up investing in US mortgage backed securities and Greek government debt and getting their fingers burnt in the process.

A third is to allow more, not less, immigration, as long as the immigrants are of working age. None of our leaders has dared suggest that this might be part of a solution for, rather than a cause of, our collective ills. Yet the evidence from America's history since the 1960s is that immigration is a very useful way of defusing the problems associated with the ageing of the baby-boomer generation.

As for dealing with the gap between rich and poor, this is hardly straightforward. The widening gap owes a lot to the forces of globalisation. The integration of labour markets has increasingly led to manufacturing jobs shifting East, driving down wages in the West. The massive expansion of capital markets has led both to heightened instability and created large rewards for some of those involved in the financial industry. Until recently, the British economy managed to mask the gap between winners and losers stemming globalisation through easy access to credit but that will not be so easy in the future.

While politicians and the public may fret over this outcome, it's important to understand the global forces at work. Either we accept globalisation, warts and all, or we withdraw. Protectionism is, sadly, a growing threat, yet our would-be leaders have said little about how it should be confronted. They have paid only lip-service to the emergence on the world economic stage of the new economic superpowers – China, India and Brazil, most obviously – and have failed to explain how Britain will cope in a world where US dominance is in slow decline.

Faced with years of austerity as a result of earlier fiscal excess, it's easy to see how the public will look to blame "evil forces" coming from elsewhere in the world. Britain's proud traditions of tolerance, openness and liberalism will sorely tested in the years ahead.

And our would-be leaders have chosen not to debate the most obvious economic policy issue stemming from the financial and economic crisis, namely whether the present macro-economic framework is fit for purpose. Inflation targeting is deeply ingrained in the Westminster psyche yet it has hardly been an exhilarating success. Admittedly, inflation itself has been mostly well-behaved, but the overall economy has been very badly behaved indeed.

The blind pursuit of price stability left policymakers far too sanguine about the nation's economic prospects. It would have been better had policymakers asked why prices were so stable. Seduced by their own economic abilities, they forgot that much of the apparent stability stemmed from the impact of globalisation on manufactured goods prices. Monetary policy was left too loose, fiscal policy too slack and the economy too vulnerable. It was all too easy to argue that there would be no more boom and bust.

There's been plenty of talk about bashing bankers, making sure that banks put money aside for a rainy day and about protecting the UK economy from the hot money flows which can disrupt the best intentions of our policymakers. But underneath all of this is the assumption that our monetary framework still functions effectively. Yet I'm no longer sure this conclusion still holds. Attempting to keep inflation within a very tight band may have led to inappropriate levels for both short-term interest rates and the exchange rate which, in turn, helped magnify the inherent weaknesses of the UK economy.

Our would-be leaders need to demonstrate their understanding of how Britain is being buffeted by global forces and how, if at all, those forces can be marshalled to benefit society. So far, we have been subjected only to a deafening silence. Politicians can make all sorts of promises, but they also need to know the limitations of their powers. In the coming months, the winner of this week's election will be pulled in two different directions. The losers from austerity will surely protest. And global investors will exercise their own judgement on whether the new government is able to deliver a set of coherent and credible financial reforms. It will be a difficult balancing act.

Sadly, I'm not sure any of the parties has the mandate to deliver the "blood, sweat, toil and tears" that ultimately may be required.

Stephen King's book, 'Losing Control: The Emerging Threats to Western Prosperity', is published by Yale University Press tomorrow