UK: Smith on Economics - Look beyond the millennium bug.

UK: Smith on Economics - Look beyond the millennium bug. - We shouldn't fear the approach of the millennium, says David Smith. We ought to be showing the same gusto that the Victorians displayed at the fin de siecle.

Last Updated: 31 Aug 2010

We shouldn't fear the approach of the millennium, says David Smith. We ought to be showing the same gusto that the Victorians displayed at the fin de siecle.

The end of one century and the beginning of a new one can have strange economic effects. So too does the move from one millennium into the next.

Since it is highly unlikely that I shall be around to comment on the next change of century, let alone millennium, let me start making the most of this one. As we begin the final year of the 20th century, what lessons can we learn from the fin de siecle period of 100 years ago? There was a vigorous debate then about whether or not 1899 in fact marked the last year of the 19th century, with many favouring 1 January 1901 as the start of the 20th.

The economic mood was cautious. The Great Depression (not the one we are most familiar with), which lasted from 1873 to 1896, coincided with a perceived loss of economic leadership by Britain. America, with its more efficient methods of mass manufacture, was already starting to show the rest of the world a clean pair of heels. Germany's superior system of technical education was giving it a lead over Britain in a range of industrial sectors, notably engineering and chemicals.

Twentieth-century shifts

The turn of the century also coincided with the end of the Gladstonian framework of public finance, in which budget surplus and the running down of the National Debt were the norms. The Boer War marked the beginning of the 20th-century shift towards borrowing by governments and rising taxation. Political change was also in the air. The trade unions had been building up their power throughout the 1890s and, early in 1900, they founded the Labour Party.

It would be wrong, however, to cast too pessimistic a light on the turn-of-the-century mood. The British empire was still intact and represented a huge source of power and wealth. 'The Empire, stretching round the globe, has one heart, one head, one language, one policy,' said one newspaper.

Queen Victoria died early in 1901 - but for the moment, the Victorian age persisted. On Wall Street, optimism about a new age was building, with bankers describing the mood as akin to a 'prosperity panic'.

It was also a time of huge commercial promise. The new age of mass production, of modern technology available to all, was beckoning. Electric light in houses, telephones, typewriters, gramophones and cars were all becoming available. Mass consumption and rising prosperity offered an attractive future for companies and their employees. The City of London, which employed about 350,000 people even then, was the unchallenged financial capital of the world. The optimism was justified. In this, the first era of globalisation, free trade had run from 1850 and was to last until 1913, followed by nearly four decades of protectionism, which included that other Great Depression.

The end of the 19th century and the beginning of the 20th marked a shift into a new industrial era, built on trade and technological advance.

The data on millennial shifts is a little more uncertain. Fear that the end of the first millennium would mark the end of the world were widespread. England, under Ethelred the Unready, was under threat from Viking raiders, and attempts to pay them off with what were, at the time, enormous official bribes were ultimately unsuccessful. The Anglo-Saxon kingdom was in its death throes.

Genuine fears

So does history have anything useful to tell us about what it will be like this time? Millennial fear is certainly manifesting itself in a variety of ways. There is, of course, the millennium bug, or as technophiles prefer to call it, the Y2K problem. I would not want to diminish the potential dangers associated with this and I would, of course, want to encourage every business and every individual to take the necessary steps to ensure that their computer systems function properly after 31 December this year. But I have the feeling that if the Y2K problem had not been discovered, it would have been necessary to invent some other form of techno-fear to capture our uncertainty about the next millennium.

Millennial fear, in addition, has been compounded by genuine economic fear. Somehow it was not enough, in the current global economic uncertainty, for pundits to confine themselves to the question of whether there would be a world recession or not. What we have had, according to the more excited souls, is the beginning of the end of capitalism as we know it. 'Don't panic, Captain Mainwaring,' as Corporal Jones of Dad's Army used to put it, while doing just that.

Reasons to be cheerful

In fact, while it would have been nice to have seen in the year 2000 in a boom rather than a recession, there are plenty of reasons for optimism once the present downturn is over. The prospect is of a pronounced, technology-driven rise in living standards. Indeed, while much techno-fear has been generated by the YK2 problem, beyond it lies a future of booming electronic trade and the exploit-ation of rapid development in technological capability.

There are other reasons for optimism. The past quarter of a century has been dogged by inflation and economic volati-lity, in spite of which living standards have increased rapidly. But it now looks as though Britain will end the century with interest rates not much above the 3% level that late Victorians would have expected to pay. I would prefer to take my reference point as the 1950s and 1960s, when stability and low inflation resulted in strong growth and full employment.

Of course, not everything in the garden is rosy. If Europe's single currency fails, it could damagingly divide rather than unite the Continent. We have still to settle on an approach which recognises that ageing populations and falling retirement ages represent an unsustainable mix. Don't however, let us fear the new millennium. We should approach it with the same gusto the Victorians showed.

David Smith is economics editor of the Sunday Times.

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