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We are currently in the middle of a very unusual economic cycle, one driven by a global pandemic. Businesses, individuals and governments are asking themselves: what kind of recovery can we

expect? Can history offer any guide? Economic cycles have been with us for thousands of years. But they take many shapes and forms. Before the Industrial Revolution, fluctuations in the

economy were driven by famine, disease and war. However, in the 18th, 19th and early 20th centuries — in the UK and other economies — trade, investment and financial panics became more

important drivers of the economic cycle. In the post-Second World War period, government policies began to play a more significant role in driving the economic cycle. This occurred in a

number of phases. The first phase was the long post-war expansion, which started in the US, Europe, Japan and associated economies in the late 1940s and continued until 1973. This expansion

phase was supported by increases in public spending, and government policies, which were committed to supporting full employment. Post-war reconstruction, pent-up demand for consumer goods,

like cars and washing machines, and a period of relative political stability also played a part in supporting and sustaining this prolonged period of growth. However, this long expansion

ended with a big burst of inflation, aggravated by shocks in oil and commodity prices. There were two major recessions in quick succession — in the mid-1970s and early 1980s — and sharp

rises in the oil price played a big part in both episodes. This period of high inflation and economic turbulence was the second phase of the post-war economic era. But as economic conditions

began to settle down in the 1980s, a new economic paradigm was established, led by the UK and US and eventually adopted throughout the world. This was the third economic phase, one

characterised by the opening up of economies to market forces. It was a time of competition, privatisation and deregulation. Many of the government’s policies that drove these changes were

justified — why should governments own airlines, energy companies, telecom providers and a whole assortment of other businesses? But the pendulum of economic policy is always in danger of

swinging too far from one extreme to another. The combination of deregulation and the opening up of global markets to China, India, Russia, Eastern Europe and many other developing economies

created a significant global boom in the 1990s and much of the 2000s. But after the boom, came the bust. The financial excesses in the early to mid-2000s sowed the seeds of the financial

crisis which unfolded from 2007 until 2009. After the bust came the hangover, as the financial sector was reined in. Economic growth in the UK and other Western economies has not returned to

the pre-Financial Crisis rates. In the UK, for example, economic growth averaged around 3.5 per cent in the recoveries after the slumps of the mid-70s and early-80s. After the early 1990s

recession it averaged 2.8 per cent, a rate of growth that lasted until 2008. By contrast, the average rate of economic growth in the UK in the decade after the Financial Crisis was just 1.8

per cent. The main villain of the piece has been slow productivity growth. There are a range of views about the reasons for sluggish productivity since the Financial Crisis but it seems

unlikely it is a short-term phenomenon. It has affected all major Western economic and Japan and seems to reflect two main influences. The first is the gradual shift to a more

services-oriented economy. William Baumol, who died only a few years ago, had the great insight that that services activities — which rely on personal service and face-to face delivery —

have much less potential for productivity growth than manufacturing. At the peak of the UK’s postwar growth cycle, in the 1960s, around a third of output and employment was devoted to

manufacturing. The proportions are now less than 10 per cent. The second concerns technology. After the Second World War, the civilian application of many wartime technologies helped sustain

a prolonged period of relative economic and political stability. After the turmoil of the 1970s and the early 1980s, a new wave of very different technologies were developed. The drivers

this time were different from the 50s and 60s — information technology, financial liberalisation and globalisation. It would be optimistic to think we are now on the threshold of the third

post-war growth wave. In the current climate it is difficult to see where it might be coming from, though investment in green technologies and the low carbon economy offer some

opportunities. But there are many other negative influences on longer-term economic growth and productivity, including the rising protectionist threat from trade conflicts, especially

between China and the EU. We should add into the mix the fact that productivity will take a further hit from all the measures that are being put in place to ensure social distancing and to

ensure the future economy is “Covid-secure” for the future. In the second half of the year and in 2021, economies across the world will bounce back from the restrictions put in place to

address the pandemic crisis. But looking further out into the 2020s, the most likely scenario is that the period of disappointing economic growth we saw in the 2010s will reassert itself in

the UK and other major western economies. Hopes for a new “golden age” of economic growth must be put on hold for now.