This is a useful response to the much repeated idea that all of the risk is with becoming in charge of your own affairs. The reality is that the real risks lies with staying within Broken Britain. It’s also interesting to reflect on Gerry Hassan’s recent lament that “there is the absence of forensic, systematic critiques of power and elites. We used to do this.” We still do.
This from the Reid Foundation…
There has been much analysis of the risks that would be faced by an independent Scottish economy. By way of balance, the Reid Foundation has published a report that examines the risks of the UK economy we actually have. The Mismanagement of Britain concludes that Britain has seen at least 40 years of declining competitiveness resulting from poor economic management and that we face a high likelihood of another financial crisis in the near future. It also demonstrates that the only reason Thatcher’s ‘economic miracle’ wasn’t an immediate economic disaster is because decline was disguised by a massive injection of income from North Sea oil.
The key findings of the report are as follows:
- Britain is in long-term competitive decline when compared to the rest of the world
- But it is also in long-term competitive decline when compared to other advanced economies
- It has also experienced particularly marked short-term fluctuations in its ccompetitiveness, which indicates not only that it is particularly exposed to external economic shocks, but also that there has been mismanagement of the UK economy
- For 40 years the UK national accounts have shown a fundamental weakness at the heart of the UK economy with an increasing deficit in the UK trading account in general goods and services
- This deficit was disguised throughout the 1980s by the use of North Sea oil and in the 1990s and 2000s through rapid expansion of ownership and trade of financial assets and liabilities
- The scale and rate of growth of the external assets and liabilities of the UK economy – which are now both of a magnitude equivalent to over 700% of UK GDP – are such thatit gives the UK economy the profile of a large bank, not a national economy
- And to give an example of just how exposed the UK economy is to credit risk, almost a quarter of the UK economy’s external assets consist of financial derivatives: these financial derivatives themselves are of a magnitude equivalent to 240 per cent of UK GDP
- In 2008 the non-financial sectors of the UK economy were used to prop up the financial sector, but the non-financial economy is so small compared to the financial sector, its capacity to do that is exhausted and it is unlikely the UK could again bail out the finance sector
- The finance sector makes profit through expansion of financial assets and liabilities (they have doubled every nine years) but indefinite expansion is impossible, making indefinite profitability of the current financial model also impossible
- There is no significant growth in other parts of the economy capable of replacing declining profit from the financial sector
- Since the UK economy remains so exposed to risk and external shock and since there has been no rebalancing of the economy since 2008, the UK is arguably in a significantly more dangerous position than it was in 2007
The fact that these phenomena are much more marked in the UK than any of its competitor nations suggests something specific has happened in Britain. The report shows that this can largely be put down to long-term mismanagement of the UK economy by successive governments:
- A ‘misguided pride’ in having a ‘strong’ currency led to three prolonged periods where currency value rose even as internal prices rose (the opposite should happen), seriously harming the UK’s export capacity
- Generally, Sterling has been managed as a ‘sub-optimal’ currency for economic growth, having instead been managed as an optimal currency for financial growth. This has had a particular impact on regional economies outside London
- A long-term decline in trade in goods and services disguised by oil and then financial speculation was ignored
- There was virtually no appreciation of the risks the financial sector posed to the overall economy or of how unstable the tax revenues of the financial sector might be
- The outcome was predictable – the decline in productive economic activity such as producing and trading goods and services along with an unsustainable rise in non-productive trade in financial instruments, resulting in a grossly unbalanced economy with a high exposure to risk and a low level of resilience to economic change.
Go here for the full report: http://reidfoundation.org/