The uk in the red
I saw a cartoon in The Independent yesterday which implied that The Tory/Lib Dem coalition are using scare tactics to introduce spending cuts. I’ve also heard the Labour cabinet condemning all the cuts but giving no guide as to how the deficit (and the debt) which New Labour ran up should be brought under control. For those not steeped in financial jargon the debt is how much we owe and the deficit is the shortfall in our annual spending. So by running a deficit we increase the national debt. The talk by the new coalition government so far has concentrated on getting the deficit under control but bare in mind that Gordon Brown ran a deficit even during the boom years as the UK was spending more than the government gained in taxes!
Depressingly but, perhaps predictably, all we hear from everyone who has been asked to make cuts is justification for why their particular budget should not be cut. There was an education official on the radio recently “explaining” that the national debt is not like a credit card and that we can simply roll over the debt. Easy! We’re in debt, no problem, borrow more. It is this daft logic that has lead to the UK national debt of nearly 70% of GDP in 2009.
During the 18th and 19th centuries the United Kingdom became wealthy through empire and the industrial revolution and used that wealth to provide comfy lives for the British elite. Note that the majority of the British people had lives worse than many of those in India or elsewhere in the Empire mainly because of the cold British climate and the appalling working conditions during the industrial revolution. The British elite, however, did very well.
During the two world wars the European powers smashed each other to bits and America and the USSR stepped in as world leaders. The U.S. had ensured that the UK paid for aid during the war but the Marshall Plan got the UK and Western Europe back on their feat. The UK then hung on to it’s place in the world for a while. Our industry and trained workforce gave us “comparative advantage” compared to “developing countries” and so the UK and other European countries remained fairly wealthy and fairly secure. Sure Japan, Taiwan and others developed their own industry but most of the world remained pre-industrial.
Post World War 2 a Labour government came to power and, dazzled by the apparent success of Socialism in the USSR, started looking after the working class. For the first time ordinary people gained access to clean water, health care and pensions.
We developed a world view roughly as follows: The West leads the world, developing technology and operating industry, the far east copies the West and and performs some production and the “third world” supplies the raw materials but remains poor and dependent on aid.
But the UK was complacent., we became convinced that all our wealth was a natural state of affairs and that it could all be paid for by creative accounting. While we were naval gazing the Soviet Union collapsed, open markets became the vogue, China joined the World Trade Organisation and the rest of the world adopted capitalism and found that they were pretty good at it. Not only were they good at it they were unencumbered by a mature democracy or legislation to protect workers.
Global leadership, industry and power is now shifting from the democratic Western nations to nations who are either dictatorships or corrupt token democracies. As a quick preamble to my next bit of ranting I should explain, for the uninitiated, that the a common measure of a countries wealth is Gross Domestic Product (GDP). This is a measure of the total value of goods and services produced by a country. Because countries vary in populations another common measure is to divide GDP by the population and derive a figure known as GDP per capita. This gives a measure of how much each person, on average, produces.
Time for some figures.
UK GDP is sixth in the world, just above Brazil at 8 and India at 11 and below China at 3.
UK GDP per capita is 22nd just after Italy at 21 and Iceland at 19.
National debt is at 68% of GDP, higher than Ghana at 67.5% or Uganda at 19.3%
The UK’s budget deficit (how much more we spend than we earn) is at 14.2% of GDP, above Sierra Leone at 12.35% and Vietnam at 9.3%
And yet
The UK’s defence budget is 2.5% of GDP, that’s more than above China at 2% and Germany at 1.3%.
The UK’s Education spending is the same as South Africa and Mexico at 5.3% of GDP. That’s above Bhutan at 5.2% but below Fiji at 5.6% and Bolivia at 6.3% and Yemen at 9.5%!
It’s also worth considering that other countries do not have debt, they have surplus! They have saved money and built up substantial wealth in Sovereign Wealth Funds. For example:
United Arab Emirates 627 $Billion
Norway 443 $Billion
China 288.8 $Billion
The UK still has some cards up it sleeve. In 2008 we were the sixth biggest manufacturer after Italy but Russia was at 7 and Brazil at 8.
In recent history the UK has relied on North Sea oil to top up our income. I cannot find any figures on what percentage of our GDP is made up from Oil and Gas but I recall reading that the tax take on Oil and Gas was the largest contributor to the British exchequer followed by Finance. I believe that was before the financial crisis.
But north sea oil is predicted to run out within eight years.
All this is not to say that the United Kingdom is doomed, just that the world is changing and we can’t rely on the UK remaining wealthy by default. British policies today dictate the future of this country and if we continue to run up a debt our nation will decline. It not rocket science. There are younger and fitter countries in the world.
Just today I heard a British politician talking about maintaining British leadership. Our political elite have not yet caught up with the 21st century. Why should Brazil, Taiwan or China be interested in being lead by a mid size debtor nation on the other side of the world?
No nation or empire lasts for ever. Nations and Empires rise and fall. The British Empire has fallen and one day the UK will fall and I suggest that, if we are not careful, people will look back and see that the obvious start was the 21st century due to complacency, vested interests and the inability of a people to make tough decisions..
We are no longer one of the few great industrialised powers in a world populated by uneducated and illiterate farmers. The UK is now just one of many educated and industrialised countries. It is true that we have a more mature system of law and democracy but undemocratic and corrupt governments around the world see this as an encumbrance and not as something to emulate.
We are in massive debt, the oil money is running out. New Labour’s policies of spend and hope have failed. I support the current government’s prescription of large scale cuts but this should be supplemented by informed strategic planning.
We should also reconsider our commitment to allowing foreign entities to buy British assets and industry. Sovereign Wealth Funds referred to above often buy industry and assets from the developed world and this is acceptable if everyone plays by the same rules. However some of the largest of these funds are owned by nations who play by very few rules. Specifically we should be wary of allowing SWFs of single party dictatorships or corrupt regimes owning large stakes in the UK.
Globalisation is all very well while the foreign money is pouring in and funding industry and jobs but once these foreign owners have their feet under the table they often find that it is more efficient to centralise production and transfer the industry abroad. This would be fair enough were it possible for British companies to buy up industry in China, Germany or Japan in the same way but other countries are not as open as the UK.
Last Sunday night there was a TV program enthusing about one industry in the UK which remains cutting edge and world leading. This was British Aerospace and it’s production of Rolls Royce Trent aircraft engines in Derby.
The company was very impressive. What is less impressive are rumours that in order to gain access to the larger and more lucrative U.S. military business British Aerospace is trying to morph into a United States company. Once this is achieved how long will it be able to justify dispersing it’s business over two continents?
Britain declines while her elite connives
Tags: British Empire, budget deficit, defence budget, demise of Great Britain, democracy, finance industry, funding the military, Germany, Gordon Brown, Great Power, had out chips, hyper-commercialisation, lump of labour fallacy, Military spending, North Sea oil, path to power, pension, professional politicians, war in Afghanistan, World Power
Who do we call?
Military spending has emerged in the media with Gordon Brown TALKING BOLLOCKS claiming he didn’t withhold funds from the military in the run up to the war in Afghanistan. With a massive budget deficit and the widely acknowledged need for drastic cuts both parties are tip toeing around the defence budget trying to pretend it will not be touched. The government have already delayed two aircraft carriers; will they now decommission Trident?
I sometimes wonder if we are witnessing the final demise of Great Britain as a “World Power”. Theoretically the UK won the second world war, coming through with it’s empire intact. On paper Britain was still a Great Power. In reality we were up to our necks in debt to the U.S. and the people of the Empire were understandably in no mood to tolerate a continuation of British rule. The empire dissolved.
In the 1960s North Sea oil was discovered and helped support our inefficient industry for a while. But consider this: While Britain took economic advantage of North Sea oil and it’s economy prospered Germany and France did not do so bad either yet they did not have oil. North Sea Oil is due to run out in the next few years and where will that leave the British economy? In 2008 around 46% of British tax came from finance. The finance industry has now collapsed so where does that leave the British economy? I stress again that Germany has maintained a broadly comparable economy without North Sea oil, without a bloated finance sector and without hyper-commercialisation.
I suggest that with a massive budget deficit, with an un-winable war in Afghanistan to pay for, with very little industrial capability to offer the wold, Great Britain is about to have the rug pulled out from beneath it. We’ve had out chips!
Labour supporters used to say that increasing levels of global competition was merely a race to the bottom. The Tories scoffed that, on the contrary, competition would bring the standards enjoyed by the West to the rest of the world. Tell me, how is your pension doing? Has your company closed it’s non-contributory pension yet? If not, when was the last time the subject was raised. And how’s your job? Do you still have a permanent 9 to 5 job? Do you still get double time on Sundays? I suggest that you don’t. I suggest that many readers will now be part time and even be required to work at weekends at standard rate.
The one thing that the UK does have that developing nations do not have to the same extent is an established and solid democracy and the rule of law. Yet even this is under attack with new laws preventing photography of the police and a ruling party made of visionless power hungary “managers”.
Just this week Gordon Brown defended the link between MPs and their constituencies when debating the electoral system yet the New Labour cabinet is packed full of professional politicians who merely used work for the constituency as a convenient path to power. These men without vision, these people who believe in nothing, these arch manipulators have merely studied politics and the media, worked as assistants to incumbents cabinet members and then been parachuted into Labour safe seats. Check out the wikipedia entries for David Milliband and Douglas Alexander to name just two. The British elite have fined tuned a way of bypassing democracy and they should hang their heads in shame.
So, to summarise:
And finally, it’s raining again!
Oh, maybe it isn’t that bad. The British people aren’t badly educated and the “lump of labour fallacy” means that a growing Chinese middle class will want all the commercialised palaver that we possess. The British do understand democracy and we can work hard when we have to. Arguably, we are best when we’re up against it. Hopefully, in a couple of months, we will throw out this groups of bastards who have taken control of Downing Street and we can make a fresh start.
Ask me again when the weather warms up.