Third World Britain

Dan Atkinson writes:

Relegation, every football manager’s nightmare, now looms on a national scale. Countries, like football teams, can slide down the leagues, and for Britain the pending demotion is traumatic – from the ranks of the first world to those of the third.

Britain is an undeveloping economy, a submerging rather than emerging market. Not only will 2014 mark 100 years since the start of the First World War, it will also be a century since we were last an undisputed economic leader and superpower.

In 1914, Britain would have been Manchester City in the league table of economic nations; today it is like Aston Villa, battling against relegation.

The signs are that this fight will be lost – and not simply because of the depressed state of our economy. More worrying are the indications that Britain is ceasing to be a developed economy and is now on course to swap places with one of the emerging economic giants.

Take our balance-of-payments problem. Britain last ran a current-account surplus in 1983. Since then, it has been in deficit. Worse, it has been borrowing money from countries such as China in order to buy goods made in, yes, China.

Then there is the steady sale of our commercial assets to foreigners. Overseas investors possess nearly £200 billion more of British assets than our investors own overseas.

Britain’s labour market is a mess – another sign of a relegation candidate. Many native workers, considered too unproductive and poorly trained to be of use, are paid beer money in the form of benefits to keep them quiet, while better qualified foreigners are recruited instead.

At the latest count, four million of Britain’s 29 million workers  were foreign-born. Two million Britons are registered as long-term sick, and 2.63 million are unemployed, using the broadest definition.

There is a permanent rumble of discontent from the customers of both State and private organisations. Public servants demand additional upfront payments, in cash or kind, before they will perform their tasks (police overtime, GP contracts).

A pseudo-competitive private sector in gas, water, railways and electricity conspires against the public, as companies conjure up ever-more inventive reasons to increase charges.

As with many countries in the developing world, there is chronic uncertainty about the authority of the State. In Britain, a separatist party is in control of a resources-rich  region (Scotland), while the potential constitutional flashpoints are many and various: Westminster versus Brussels; Ministers versus the still-new Supreme Court . . .

Finally, there is the search, at least among the political and media classes, for charismatic national leadership. Tony Blair and David Cameron have been fitted for this role, while Gordon Brown and Ming Campbell have been excoriated.

It has taken us 100 years to reach this sorry condition. Relative decline, against the United States in particular, may have been inescapable, but our pending relegation was never inevitable. There have been, perhaps, five major turning points.

The first was the decision after the First World War to rejoin the gold standard and expand our territorial empire. This terrible mistake weakened the economy, burdening Britain with costs it could not bear.

The second came after the Second World War and was the defence of an unrealistic pound/dollar exchange rate as we sought to play the part of a major power with unaffordable military commitments around the world. It was, in a different form, the same post-war mistake as before.

The third came from the abandonment of manufacturing industry in the Eighties and the squandering of North Sea oil. These are linked; while proceeds from the North Sea paid for millions to be unemployed, the effect of oil exports on the pound made sales of manufactured goods uncompetitive.

The fourth was the absurd over-reliance on finance and the City from 1986 to 2007. Not only did this unbalance the economy, leaving swathes of the national hinterland to rot, but it also helped build an enormous debt mountain under whose shadow we are now living.

The fifth mistake was the response to the 2007 crisis. For all the talk of ‘tough’ decisions, ours has been a ‘Barbra Streisand’ policy, seeking to get back to ‘the way we were’. The real objective has been to maintain the pre-2007 order: cheap credit,  free markets (for finance and big business), red tape (for small business), large-scale official interference in private lives and a vast apparatus of State officialdom.

Let no one say demotion is impossible. Had the Group of  Seven leading economies existed  in 1945, Argentina would have  been a member. But after decades of mismanagement, inflation and debt defaults, it no longer figures in anyone’s idea of the big league.

Yet Britain is in a state of denial, our leaders convinced that the economy is a winning side. The alternative is to accept that we are starting from scratch. Developing countries need a development model, and undeveloping countries such as Britain do too.

Two approaches are on offer. We could try to emulate the so-called Swedish model, with a social-industrial-government partnership and extensive public welfare, or we could aim to be an Atlantic Hong Kong, with minimum State interference, low taxes and only basic welfare services.

We must choose. It is our long-term refusal to do so that has led to our current predicament. 

Going South: Why Britain Will Have A Third World Economy by 2014, by Larry Elliott and Dan Atkinson, is published by Macmillan on June 14 priced £14.99.