Issues like inflation, cost of living, and deteriorating supply chains are pretty general; that of the lack of manpower, up to a certain point; others, such as massive public debt due to pandemic aid, not so much (almost zero for the frugal Scandinavians and the Dutch, barely perceptible for the gigantic US economy, severe for southern Europe); In the British case, to all of them we must add others exclusively made in Britain, such as the devaluation of the currency, the decrease in imports and exports with the European Union, the increase in tariffs, bureaucracy and trade regulations, the rise in the tax burden, the decline in both domestic and foreign investment, extremely low productivity, the lower growth prospects of the G-7, the virtual freezing of wages for a decade and a half, health and public services on the verge of collapse, an economy excessively dependent on the financial sector, a massive housing bubble…
Global instability, the war in one of the world’s breadbaskets (Ukraine), the partial embargo on Russian oil and gas, and the closure of Chinese cities are very important factors. But the ghost of the 1970s and 1980s, when the United Kingdom was known as the sick man of Europe, has also reappeared because of the lack of direction of a populist government that at the same time borrows huge amounts of money, gives the pound sterling machine at the Mint and raises the tax burden to the highest levels in seventy years, a bomb.
And also because of the unspeakable, Brexit, which for the ministers of the Johnson Administration and conservative deputies is a religion, a pagan god to whom no evil can be attributed because it was voted democratically by the British and to do so would be a mortal sin. A commandment that, surprisingly, is also accepted by the English opposition parties (Labour and Liberal Democrats, the Scottish SNP is something else), fearful of offending potential voters if they criticize it, starting with the timorous Labor leader Keir Starmer. It is a taboo subject. No one is even considering a return to the single market or monetary union in the medium term, as if it were a sacrilege. And that the figures speak for themselves: after a brutal initial drop of 40% in exports to the EU at the end of the transition period, the decline has stabilized at 11% compared to 2018.
In the horrible 1970s, the so-called winters of discontent, inflation soared, energy was in short supply, the three-day work week was imposed, and a pound crisis required a humiliating bailout by the International Monetary Fund (IMF). Conservative Edward Heath lost his hand with the then all-powerful unions, there were no workers to pick up rubbish or bury the dead, and Labor Jim Callaghan ended up repudiating the tenets of Keynesian economics. And all of this eventually opened the doors wide for Thatcher.
The circumstances are not exactly the same now (inflation hasn’t gotten that high yet, the unions have had their wings clipped, the unemployment rate is a paltry 5.5%…), but there are enough similarities to that the British have the creeps, although only the oldest of the place lived (and remember) those depressing times. The reasons for concern are undeniable, and not only have to do with conjunctural elements (pandemic, Ukraine…) but also with the structural problems of an unbalanced and unproductive economy. Even before the financial crisis of 2008, GDP per capita was only 75% of that of the United States, and now the gap is even greater.
That Britain’s productivity is 28% lower than America’s could be generously seen as somewhat normal. But the country is also 18% less productive than France, that is to say, a worker from Manchester produces in five days what one from Lille or Nantes does in just four. Add to that inflation (currently 8%, forecast to exceed 10% in the winter), which is like a lit match in a parched forest. With wages stagnant between 2008 and 2018, the increases of the last three years will be eaten in the blink of an eye, which will lead the workers and their union representatives to demand new increases, which in turn will affect in prices and the cost of living, a very dangerous loop.
Special mention deserves the real estate bubble, with housing prices three times higher than those of Barcelona, ??at the level of New York or Los Angeles, and the virtual impossibility for young people to buy a flat. But such an unbalanced and unproductive economy depends on foreign investment to sustain itself. And to attract capital from abroad, the value of housing cannot fall, and the State has to maintain it, albeit artificially. Otherwise, the entire house of cards would collapse.
“The British economic model is not based on production but on consumption, but there are too many people who cannot consume without resorting to credit,” says Nick Timothy, who was an adviser to former Prime Minister Theresa May. The percentage of manufacturing in relation to total production was 27% in 1970, 17.4% in 1990, and today it is only 10%. With the factories relocated to Asia, it is a problem typical of all Western economies, but none more so than the British, excessively dependent on services and the City (whose hegemony as a financial center threatens Brexit).
“It’s not like everything is a total disaster,” Timothy explains. We have a leading financial sector in the world, a brilliant creative sector and some elite factories, which create high-paying jobs. But they are few and poorly distributed regionally, concentrated in London. A service economy has too much job insecurity, with a large trade deficit (75,000 million euros last year). It would be necessary to export more, reduce public debt, invest in infrastructure and radically change the model to a more balanced and productive one, which would also mean reforming the educational system, environmental, energy and immigration policies”.
But the Johnson Government is floundering and adopting contradictory policies, now of austerity and Thatcherite orthodoxy, now of public spending and fiscal pressure. And meanwhile the pound has already devalued 10% against the dollar, the supposed advantages of Brexit are nowhere to be seen (quite the contrary), the bureaucracy and regulations are more overwhelming than when the country was in the EU, inflation is emerging as the highest in Europe, dependence on the State is greater than ever, and the growth forecast for the next two years is meager. All together, a recipe for disaster.
