THE CHICKENS ARE COMING HOME TO ROOST

The British economy - a cautionary tale for all

For many years, through the book "Having Their Cake" and this website, we have been contending that a combination of investor ignorance, lack of care and short-termism, linked to governmental neglect and lax regulation in the financial markets has created an almost unique disadvantage for Britain.
The results have been the creation of a totally unbalanced economy, dependent on consumer spending, financial services and housing. Balancing elements; advanced technology, knowledge-based and manufacturing industry and visual arts, have mostly been allowed to wither as a result of underinvestment and wholesale purchase by foreign competitors. One result of this has been the flight of corporate research and intellectual capital from Britain, putting pressure on the university sector. Many science and technology departments closed in the late 20^th and early 21^st centuries.

A tragically wasted resource - North Sea oil

One other seldom mentioned factor has been the sheer waste of the bonanza of North Sea oil. Instead of setting some of the income generated aside for the national good - for investments in technology and pensions - successive governments have frittered it away in tax reductions and boom-bust policies, fuelling a twenty-year consumer boom and a property bubble, which sucked in imports, causing a structural balance of trade deficit.
Indications of these facts are becoming clear.
For example:

"In the midst of the worst global economic crisis since the Great Depression, estate agent Helge Landro is doing surprisingly well.
"I don't feel like there is an economic crisis going on at the moment", he says.
"We're very busy, viewings are packed with people, and when customers see a property they like, they make an offer straight away. The next few months look good too"

Landro works in Norway, a country that has avoided the worst of the economic crisis engulfing the rest of the world. The unemployment rate is 3.1%, house prices rose for the third consecutive month in June and consumer spending is buoyant - one sports and leisure retailer reported a 70% year-on-year sales increase in June as Norwegians prepared for their summer holidays.
....The Nordic nation has not been completely spared. It is in recession, with GDP dropping by 1% in the first quarter of 2009 and by 0.8% in the second quarter. To combat the downturn, the central bank has had to slash its key interest rate by 4.5% since October to a record low of 1.25 %.
But overall, the economic picture is far rosier than it is in Britain, which has suffered five quarters of contraction.

Last week, the news broke that Germany and France had emerged from recession in the second quarter, confounding expectations (whose?) that they would be slower to resume growth than Britain. (The same seems to be happening in Japan, China and the S.E. Asian economies, all of which recorded growth in recent months).
In Norway too, growth is expected to return soon and Norwegians companies' confidence is high.

One of the reasons for the sense of buoyancy is that Norway has a strong budget balance thanks to its revenues from oil and gas. It also has a huge sovereign wealth fund in which some of the receipts from the country's fossil-fuel exports are kept for the benefit of future generations. So when the government needed to boost the economy earlier this year, it had the means to do so without having to cut the public budgets or increase taxes, as Britain is set to do. "The fund has allowed Norway to have an expansionist fiscal policy", says Espen Moen, professor of economics at the Norwegian School of Management. "It can stimulate demand by spending without fear of higher taxes, because it is so big".

(Gladwys Fouche, Guardian newspaper).

It is of course too early to confirm the recoveries in Germany and the other nations. But all of them have strong exporting economies driven by technology industries and in the case of Norway a national oil company which is seen to be a part of society and not separate from it, as in Britain.

The British Disease

One is left with the persistent feeling that Britain in the next decades will continue to suffer from past gross economic mismanagement of both Conservative and New Labour governments. This has led to the creation of a totally unbalanced economy, dominated by a finance sector which is now beyond democratic influence, which has played its full part in the decline of science and technology industries. Dependence for national economic wellbeing on a sector that has proven itself to be lacking in ethical integrity and contains massive institutions that owe no fealty to Britain or the good of any society is a poisonous legacy of politicians' fascination with free-market dogma.
Even if the will was there, it will take probably half a century to re-build the decayed science and technology sector to the point where there was some balance in the economy and a government could resist the bullying and threats that constantly come from the banking industry.
One fact is certain: the regeneration of British industry will not happen without two crucial factors - stewardship by government through support of enterprise and technology and the creation of investment vehicles free from the influence of speculators.

If Norway can do both of these quite obviously sensible things, why not Britain?