See the SS UK Economy glide o'er the ocean - but wait, where's the iceberg?

WHAT'S HAPPENING IN THE UK ECONOMY?

The UK as an International Competitor

• The UK is a developed country with a high standard of living.
• It cannot compete with less developed countries on low wages and costs.
• It has a medium-sized home market, and is therefore highly dependent for its prosperity on external trading and investment.
• Its future success and prosperity will substantially depend on its ability to foster high knowledge/high added value industries.

What does Britain need to do?

• Invest in high added-value knowledge-based and high technology industries. Major on research, invention, innovation, design and development.
• Exploit the experience of global trading and strong historical positions of the UK in finance, science, technology and creative industries.
• Generate high productivity to underpin competitiveness. Create high margins for reinvestment to compete with the most productive nations.
• Create a critical mass of modern industries that will act as a platform for growth.

How are we doing?

• Good recent economic growth, macro-economic stability, high employment.
• But, very high dependence on consumer debt and spending, financial services and a booming housing market. Also very dependent on inward investment and foreign expertise, as many indigenous technology and knowledge industries have failed or been sold abroad.
• Employment growth mainly in public sector and low-ish paid/part-time service industry work. Significant decline in skilled science and technology employment.
• Strong in finance, mainly through foreign-owned investment banks and financial services companies based in London. The whole economy is becoming highly dependent on the financial sector.
• Strong in media and creative industries.
• Marked decline in high technology industries. Massive sale of UK-owned high-tech and other companies to foreign buyers, thus moving the location of strategic decision-making abroad.
• Dependent for indigenous investment in R&D on a very small and diminishing group of large aerospace and pharmaceutical companies.
• Otherwise extremely poor investment performance, near the bottom of the league in nearly all science and high-tech industries.
• Low productivity by comparison with leading developed nations - gap not closing with leaders.
• High and growing Balance of Payments deficits, caused by catastrophic decline in technology and manufacturing industries. Decline in technology and manufacturing twice as great as growth in services exports.

How are we doing - British industrial statistics, UK plc
Decline, full description

Unbalanced economy, in hock to an increasingly arrogant and corrupted financial sector.

The UK economy has become dangerously dependent on the finance industries and the super-rich. London is now the main focus for hot money of all kinds, ranging from hedge funds to private equity. Currently little of this activity is regulated on behalf of the community.
This means that the City is attractive to any individuals or organisations that wish to avoid regulatory scrutiny. Amongst the ranks of these are financial speculators and companies from a range of countries with less than savoury business cultures.
London has also just been categorised as a tax haven by the International Monetary Fund. This is because super-rich individuals can avoid paying tax on their earnings if they are placed outside Britain, despite the fact that they are domiciled here. This privilege is enjoyed by UK and non-UK citizens domiciled in Britain.
This is an abhorrent practise, not just because these people enjoy living in a democratically stable country without making a normal contribution to its well-being, but also because it portrays a value of one law for the rich and another for the rest. And in many cases, the sources of the wealth of foreign tax avoiders are ethically dubious or unknown. The fact that UK citizens can earn their wealth from the UK economy and offshore the proceeds to avoid tax is nothing short of a disgrace.
Several Christian charities have rightly started to campaign against these practises.
The problem with an economy that is increasingly in hock to the financial sector is that the government and regulatory authorities will lose any vestige of influence over it. The industry and super-rich individuals simply have to threaten to leave and politicians will surrender, because they have been bought off and there are no alternatives.
This state of affairs is profoundly undermining of a healthy democracy.

Degradation of Social and Ethical Values.

Anthony Sampson sums up the profound changes in British public life as follows:
"Most people of great wealth in Britain today show a remarkable lack of interest in using their money to improve the life of others.
Above all, they feel much less need than their predecessors to account for their wealth, whether to society, to governments or to God. Their attitudes and values are not seriously challenged by politicians, by academics, or by the media, who have become more dependent on them
The respect now shown for wealth and money-making, rather than for professional conduct and moral values, has been the most fundamental change in Britain over four decades".
Absolutely spot on, and it starts at the top of the political and economic trees.
Webs of Influence; senior politicians and the finance industry
Tony Blair's behaviour towards the City represents a cringing appeasement of the rich and powerful

What factors lie behind these scenarios?

• They are not caused by:

  • A poor indigenous workforce. The problem seems to lie with management and lack of investment. The quality and productivity performance of Japanese and other foreign-owned companies in Britain far outstrips that of indigenously owned and managed enterprises. Nissan's Sunderland car plant is the most productive in Europe, exporting vehicles to Japan. There are no large UK-owned and managed automobile companies left.
  • A lack of good basic science research. UK universities still turn out more academic papers and good research than most.
  • A hostile environment for business. The respected US-based Index of Economic Freedom ranks the UK joint 5^th most attractive economy in the world out of 161 examined. Only Hong Kong and Singapore are rated as markedly superior.
  • A poor education system. The OECD/PISA ratings rank the UK as 7^th in literacy, 8^th in mathematical understanding and 4^th in scientific understanding out of 31 developed countries. In all cases the US, Germany and France come much lower. Of the larger countries, only Japan was better by small margins in mathematical and scientific understanding.
  • A lack of money that could be invested. UK companies spend more on mergers and acquisitions than any other and the size of the private equity market is huge.

• They are caused by:

  • UK companies failing to invest at the level of competitors. Almost without exception, European companies retain far more of their profits for investment than UK counterparts. Instead of investing, UK companies pay far more in dividends to shareholders.
  • The UK investment industry's marked aversion to long-term investment where returns are not guaranteed. This includes most technology-based industries. Japan accounts for 47% of global investment in electronics and engineering R&D, the UK for 1%. The cost of funds in Japan is 1%. In Britain it is 5.3%.
  • UK investors and managers spending vast quantities on Mergers and Acquisitions, rather than long-term internal investment. 'Buy, not create', is the order of the day. The majority of mergers and acquisitions destroy longer term value. Unlike the US S&P 500, very few FTSE 100 companies have attained the Index by organic growth or technological innovation.
  • Low productivity, leading to poor performance. Research has shown productivity to be a function of high investment and skilled, highly disciplined management. We have seen evidence of a lack of investment. There is also considerable evidence that overall British management is relatively poor, with an excessive emphasis on financial rather than rounded management skills.
  • Politicians in the two major parties who have been increasingly overawed by wealth, big business and the financial sector, who stand aside despite the increasingly arrogant and damaging behaviours of small super-wealthy elites and the damage they are causing to the public interest.

The net result is a vicious circle of poor productivity, poor performance, over-distribution to investors, gross inequality and inadequate internal investment - leading to a spiral of decline in advanced industries.
UK plc
FTSE 100

Behind it all is:

• An overblown property market
• Debt-financed consumer spending
• The speculative activities of the City
• ......And a culture of 'have it all -have it now' that pervades government, finance and industry and has spread via all of these agencies into the populace at large. The net result is excessive consumption and rampant short-termism which is sacrificing the longer term on the altar of instant gratification.

Contrast the above with Gordon Brown's colourful rhetoric:

"Nations will rise and fall depending on their willingness to reform, liberalise and meet and master the high-tech high-value-added competition. And Britain now has to do what every successful industrial nation must to become world leader in education, science and creativity".

"All of this shows that we in Britain now have the chance, if we make the right long-term decisions, to achieve what we have not achieved since the first days of the Industrial revolution - to become the best location for scientific R&D and world leaders in the new enterprises of the future".
Gordon Brown's Vision, Decline section

What do you think?

• Gordon Brown is living in a fantasy world, unwilling to face the brutal facts?
• We are putting the fundamentals in place for a second industrial revolution, based on highly competitive knowledge, science and technology industries?