I’m pretty sure I wasn’t alone in feeling slightly queasy at the sight of Donald Trump’s re-election on 7 November. While uncomfortable, his victory isn’t all that surprising. His triumph over Kamala Harris was driven by personality, rhetoric, policy, but above all economics.
Trump’s re-election is not an isolated event. It’s part of a populist wave that’s continued to sweep across the globe for the better part of two decades, first triggered by the economic fallout from the global financial crisis and exacerbated by the pandemic.
In the developing world the resulting economic turmoil has led to rising food prices, political instability and mass migration. Meanwhile, in the developed world it’s led to increases in the cost of living, economic stagnation, and a strong disillusionment among many voters toward the political class. In the UK, these were key ingredients that led to the Brexit vote and that fuelled the rise of the Reform Party.
Guernsey hasn’t been immune to this trend. The chart below shows Guernsey’s average GDP growth every five years going back to 1970. In the late 1960s our island diversified away from an agrarian economy into other sectors, including light manufacturing. From the 1970s onwards we saw the nascent finance industry grow and develop until, in the latter half of the 1980s, the finance sector was turbocharged as the Big Bang in the City of London took hold. The island was hit hard by the recession in the early 1990s. From the mid-1990s through to 2008 overall the island enjoyed impressive growth. The financial crisis and the global downturn changed that. Like many developed economies, growth returned but not to the levels we’d enjoyed pre-2008. Reduced investment, sluggish productivity, an ageing population, soaring debt, rising inequality, the pandemic and its aftermath. The reasons are complex.
Go for growth
What is clear is that Guernsey needs a coherent programme for growth. As commentators have noted: increased growth will drive up the tax take for public sector investment and will limit the need to hike up taxes or impose GST.
Our economic fortunes for the foreseeable future at least lie with the finance industry. Unfortunately, our policymakers have prioritised growing the public sector at its expense. As the BBC recently pointed out, the government accounts for 18 per cent of our workforce relative to 17 per cent for the finance sector. This is unacceptable. It creates the perverse situation where the public sector is undermining the private sector in its bid for much needed talent.
Yet, despite its size, it’s unable to deliver basic services effectively. Speaking to residents and business leaders, the issue of connectivity is brought up time and again. Aurigny’s inadequate service and the ongoing turmoil with ferry tendering are damaging our reputation to prospective investors.
Economic stagnation and high costs of living are doing more to limit social mobility and suppress living standards in this island than any other factor
Guernsey needs a coherent roadmap to reduce the size of the state and the number of civil servants. But it also needs to be more prudent with its investments. As I set out in my previous article, the States’ track record for public sector investment is poor. The electronic patient records system, the PEH development, and the secondary school system overhaul are all either examples of budget overspends or of investments that have failed to deliver the returns promised to us.
Curbing wasteful spending and reducing the number of civil servants will free up investment to be spent in other areas.
Guernsey Finance, for example, led by Rupert Pleasant, performs an invaluable role in marketing the finance industry to overseas investors and attracting inward investment. Despite this, the States spends only a fraction of the amount Jersey invests in Jersey Finance. Given the importance of the finance industry and the relatively small investment required this is an area where investment should be encouraged.
Also, given continued innovation and the race to net zero, another opportunity Guernsey can gain greatly from are the opportunities of green finance and fintech.
Cost of Living
But the greatest need for public sector investment is in housing. Despite the US seeing 3 per cent growth last year, Trump’s victory shows us that economic growth alone counts for little if the quality of life of many of its citizens is poor. A key challenge facing our economy and many other developed economies is the cost of living.
In Guernsey, chief among the reasons pushing up the cost of living are spiralling rents, high house prices, and unaffordable mortgage payments. Home ownership is now an unrealistic ambition for future generations. High house prices and limited open market housing also make it harder for the finance sector and other industries to attract much needed talent, thereby making our economy less competitive and limiting growth.
We need an ambitious approach to housebuilding that also preserves our island’s natural beauty. Where possible, rigid zoning restrictions that have long stifled development should be relaxed. Instead, we should look to Japan or New Zealand’s flexible zoning model. By making restrictions nimbler, more land can be made available for residential construction.
As the Le Menage housing development shows, greater collaboration between the States and private developers can expedite the construction of new housing projects.
The States should encourage this kind of partnership arrangement with the private sector by streamlining the planning process and introducing financial incentives for developers. Some may criticise greater development, but when the States has fallen 80 per cent short of its own housing target in the last year, the status quo is not working.
Introducing Guernsey’s own version of the UK’s Right-to-Buy scheme, first introduced in the 1980s (and recently ditched by the Housing Secretary, Angela Rayner), would allow housing authority tenants to own their own homes. Ensuring homeownership is a realistic ambition for all is crucial to nurture and retain the next generation of aspirational talent here in the island.
Economic stagnation and high costs of living are doing more to limit social mobility and suppress living standards in this island than any other factor. These are the big picture issues that our policymakers need to focus on rather than passing uncosted budgets and prioritising the continued expansion of the public sector. Failure to do so may push some islanders in search of their own Donald Trump.