For those graduating this year hoping that the economy and the job market will improve, the Easter vacation must have been a massive disappointment. Last month, the Office of National Statistics reported in its Labour Force survey that UK unemployment started to rise again. Cyprus’ €17 billion bailout, agreed on 26 March, has intensified the Eurozone crisis, with depositors once again fleeing with their savings from the European periphery. And last week, disappointing growth figures from China led to commodity and stock prices crashing all around the world.   

Falling world-wide business confidence and the deepening crisis in Europe won’t help Britain recover from the last recession any faster than the anaemic growth rate it has enjoyed to date. George Osborne, in “Plan A”, gambled on a “V” shaped recession, with a short period of contraction, followed a quick recovery. This was Britain’s experience in the early 1990s, with the economy growing at an annual rate of over 4% at this point after the start of that recession as we are from the latest.

With more disappointing growth figures on the horizon, even George Osborne has been forced to admit in last month’s budget that Britain’s recovery from the recession will take longer much than he anticipated. GDP is not set to reach its pre-recession level until at least 2015. He now suggests the recession may be “U” shaped; but it is beginning to look like a wide “U”. And what happens if it is an “L” shape?

Japan has shown that this is a distinct possibility. Their “recession” of falling GDP intermingled with sub-trend growth began in 1990. It seemed to bottom out in 2003 but has now become even worse. It was caused by an asset price bubble leading to a credit crisis and bank failures, as is the case with Britain and Europe now.

Neither have Britain and the rest of Europe historically been immune from long term below-trend growth. This occurred after 1870 when cheap American corn first began to be imported on a huge scale into Europe. The ensuing slowdown lasted until the end of the century leading to what contemporaries called the ‘Great Depression’. British unemployment hit record levels in the 1880s and industrial growth stagnated for at least 30 years. If this parallel is repeated, the downturn is not only likely to be harsh in the short term, but to have long term effects. With no end to the Eurozone crisis in sight, it is again probable that Europe will suffer long term comparative economic decline against the rest of the world over the next decade.

However, the same parallels can show us how to embrace the recession by changing our society’s obsession with material wealth. Taking the example of Japan, attitudes to economic rights and wrongs changed in Japan during their period of zero growth. Profits were still welcomed, but excessive profits and remuneration were considered vaguely immoral. The same effect is already visible in Britain: last week Business Secretary, Vince Cable, unveiled more plans to curb excessive executive pay. 

Recessions also change attitudes towards education. After the recession hit Japan, higher education no longer was a guarantee of a good job as the numbers of unemployed graduates soared. Without graduate jobs on the horizon, more graduates were forces to take gap years or pursue further degrees. This effect can be felt in the UK already, with numbers taking masters’ courses in the UK reaching record levels. Even though much of this education will be pursued for intellectual satisfaction rather than as a means to a job, this will still lead to a significant investment in the UK’s pool of human capital. When the recovery does occur, this would then benefit the economy from increased innovation and creativity. 

A protracted downturn could also benefit the environment. Using their highly educated labour force, Japanese companies have concentrated on developing green technologies. This is an area in which Britain could excel too; it is already a European market leader in manufacturing tidal and wind power generators. But recessions have more direct environmental effects: less GDP means less pollution. Britain would have struggled to meet its 2010 goals to reduce carbon dioxide emissions under the Kyoto Protocol if it were not for the recession.

Furthermore, a slower growing economy will give politicians time to consider whether the pursuit of growth actually produces a better lifestyle for those who elect them or just one that is ever more frantic, acquisitive and aggressive. If this consideration should lead to the development of a society which can live a more sustainable lifestyle with products and food produced locally, less travel and more leisure time, perhaps it is possible that Britain could lead the world into a new environmental era as, once upon a time, it led it into the industrial one.