UK: broke, broken, brokenest

The worst thing about the most recent unemployment figures is that they are going to get worse.  Much worse.

In the three months to November 2011, unemployment across the UK rose by 118,000 to 2.69 million and the respected Item Club is now predicting that unemployment will peak in 2013 at the talismanic 3 million.

The other economic runes are not good – growth is flatlining with forecasters like the Item Club revising their estimates for both the UK and Scotland downwards.  And all of it predicated on a steady international ship – more Eurozone drama or international economic dips and we will be in crisis.  If you want a cheery read, I’d avoid the Scottish Item Club’s latest projections for 2012.  We’re heading for a “lost generation” in terms of youth unemployment and a “lost decade” of economic growth.

Few forecasters mention collective wealth.  How much money does the UK make and have?  The best measure (or at least, the most obvious one) is Gross Domestic Product or GDP.  And one analysis brought home just how perilous the UK’s situation is.  Basically the UK is broke and its economy is broken.

John Ross, a visiting Professor at the Jiao Tong University in Shanghai, modelled growth and decline in a range of countries’ GDP by converting everyone’s currency into dollars, on the basis that it is one of the most common international purchasing measures and doing so, allows meaningful comparison.

And he found that “no other economy in the world has shrunk even remotely as much as the UK“.  Our economy has shrunk more than all those basket case countries like Ireland, Spain and Italy.  Indeed, the decline in the UK’s GDP is greater than the whole of the Eurozone taken together.  We have 562 BILLION dollars LESS value in our economy, amounting to an eyewatering 20% decline.  As the Professor also helpfully points out, “the UK’s decline was more than two and a half times that of the entire Eurozone. The UK accounted for a somewhat astonishing 77 per cent of the EU’s decline.”

Two issues appear to have combined to create this dazzlingly depressing situation.  Low economic performance – lower even than the Eurozone countries – and the declining value of the pound against the dollar.  You could argue that this latter fact distorts the modelling process but few would argue that it is unacceptable to apply the currency of choice in times of flight to an examination of a range of counries’ economic performance.  It does indeed allow for comparison.

Perhaps what is most remarkable about this little exercise is the fact that it has been unable to factor in the impact of the Conservative-Liberal Democrat government’s austerity measures.  For the GDP figures analysed are for 2007 – 2010.

This analysis is in fact a damning indictment of Labour’s stewardship of the UK economy in the last years of its government.  It was indeed Labour what did it.  Professor Ross does not really acknowledge this fact in his article, though he does point out that as there was “no substantial growth in dollar terms” in the UK economy in 2011, there is unlikely to be a turnaround in our fortunes.  If anything, given what we know about the UK’s output and economic performance during 2011 – technical recession as the Item Club put it for the last quarters – our GDP value could diminish still further.  Something to look forward to then.

In political terms, it is Labour who broke Britain and it is the Tories and Liberal Democrats who are determined to make us the brokenest (yes, made up word I know but it’s a good one).  And while it might make political sense for Labour in Opposition – though I confess I am failing to see it – to adopt the austerity policies of the UK Government, it clearly doesn’t make any economic sense.

Using my very limited economic understanding, which largely comprises of common sense, the financial crisis and economic contraction that resulted from it probably caused the start of the decline in GDP.  But the Labour UK Government had run out of ideas and steam and therefore had nothing to offer by way of a fix.  Now, the austerity measures, high inflation, lack of consumer spending power, continued lower export demand (despite the lower value of the pound) being peddled by the Tory-Lib Dem Government are combining to reinforce and indeed, accelerate further decline.

And with no one having a scooby how to shift our economic house of sand onto firmer foundations, nothing is being done to fix the deep-seated issues.  Neither symptoms nor causes are being effectively tackled and both Conservatives and Labour have signalled this to be their approach for some time to come.

It is this maelstrom of poorly performing economic indicators that also causes the money men to continue to look askance at the pound.  And without any interventionist attempts to address any of these factors in our economy, the value of GDP is likely to continue to contract in international terms.  Kinda puts all that jingoistic waving of the triple A credit rating into a more meaningful, wider perspective.

It would be interesting if some pointy-heid somewhere could model Scotland’s GDP performance over the same period using the same measure.  Just to compare.  The picture won’t be pretty but will it be as bad as the UK’s as a whole or have we managed to punch above our weight?

But in some respects, it doesn’t matter.  Because the big economic and fiscal levers are controlled by the UK Government, our performance is largely determined by decisions made in London.  No matter how hard the Scottish Government tries with its Plan MacB and investment for growth strategy, it is fiddling around the margins and can only really, try to ameliorate the worst effects of decisions made elsewhere.

This kind of analysis and modelling is important in the months ahead.  We need to add it into the mix, if only to mitigate against the impact of the partisans.  Naturally, the pro and anti-independenistas will be utilising statistics and data to suit their own ends.

Yet, it doesn’t take Sherlock Holmes to deduce that this is clearly the kind of analysis that is more helpful to the pro rather than the anti arguments.  Better off together?  Scotland too wee, too poor?  Scotland can’t afford to stand alone?  Hmm.





11 thoughts on “UK: broke, broken, brokenest

  1. As discussed on twitter previously, using GNI per-capita (which is arguably a better measure as it strips out the accountancy dodges that inflate Irish and Icelandic GDP) gives a rather different picture with Ireland and Iceland falling further and still falling where as the UK was recovering over the same time period.

    Why are you doing Britain down? 😉

    • Maybe because it’s kind of true. Debt Britannia the biggest growth industry of the UK economy is debt increase and has been for decades.

    • Not quite strictly true Aidan – and as Prof Ross points out in his piece, both the GDP and GNI stuff is only to 2010. Much slower growth second half of noughties, huge dip post 2008, slight recovery until 2010.

      And Ireland and Iceland don’t have any accountancy dodges left….

      • Weeeeeeel, UK GNI 1999-2008 is largely on trend without a huge amount of variation. UK peak to trough up to 2010 is ($37,490-$35,640) $1850, Icelandic dip is ($35,210 – $28,720) $6490. The Irish dip is $6410, not even Spain or Greece ($1720) lost that much GNI, even in relative rather absolute terms.

        Irish GDP per capita ($39,491.56) remains substantially higher than its GNI ($32,520) as does Icelands ($36,729 vs $28,720). The UK 2010 GNI is $36,590 vs GDP of $35,059 (the drop is essentially due to exchange rate fluctuations).

        Further, even if Scotland had been independent, what evidence is there that there would have been significantly different industrial policy towards financial services?

        There was a widespread (and incorrect) political consensus from everybody except the Greens and some of the Lib Dems that Edinburgh and London should be left to do what they want until it all went horribly wrong.

        As far as the mainsteam advocates of independence go, I’ll leave it at their complaints about “gold standard regulation” impeding the special “probity of Scottish banks” and the desire to join the “arc of prosperity” with Ireland and Iceland.

        The Conservatives are wrong when they say “we’re all in this together” about the effects of the financial crisis, but as far as them, Labour and the SNP are concerned they’re correct about collective culpability for getting there.

        (all figures are in purchasing power US dollars from google public data)

  2. Steve Keen the Australian economist has modelled the economies of the US and Aus and given the info would be able to model and show the economic model for Scotland in an easy to see fashion and also show the effects of altering any number of variables

    there is a lot of info on his site with videos and I have already pointed the SNP at them whether they have looked or not is another matter.

  3. If unemployment peaks in 2013 at + 3 million the Tory led government will be at its weakest and most unpopular. If Labour remain in the doldrums, as it probably will, people will still regard the party as being largely responsible for the UK’s dire economic position. Add in deep public service cuts and poor private sector performance then you could be dealing with a perfect economic, social, political and constitutional storm. It would appear that a 2013 date for a rederendum on Scottish independence with a simple Yes/No choice on offer could well result in a definitive Yes vote.

  4. If we’re to win the referendum, we need people to understand that it is not a case of “should we place all our chips on independence, or should we just walk out of the casino?” Rather, the question is “do we place all our chips on the union or on independence?” Voting “no” will not be a “safe” option, it will not be the “do nothing” choice; if we don’t vote for independence, then we’ll be voting to place ourselves at the mercy of a government that clearly has no idea what it is doing, and doesn’t give a fig what happens to us.

    As a result, people need to understand that there are risks to staying in the union. Until now, the onus has been on nationalists to explain why people should “risk” voting for independence; but the debate needs to be about defining the risks of both options, and weighing them up against each other. Ideally, people will vote as if neither option is the status quo, and plump for the option that they would choose if both were brand new choices. The referendum has to be day one of the new history of Scotland, and people need to choose the best way for that to begin.

    Anyway, I got a bit side-tracked there, but I’m quite excited that first we’ve had James Maxwell’s piece in the New Statesman highlighting that there are risks to staying in the UK, asking if it’s a gamble worth taking, and now you’ve presented us with evidence that it is indeed a massive gamble, on a par with lending your life savings to a man who says “you’ll get your money back tenfold” after he’s just lost 100 games of poker on the trot.

    We need out.

    • I think that is a very good way of pitching the debate – and an honest way too. There are pros and cons to both options, voters deserve to be allowed to weigh all of them up.

      • There are no cons to independence Kate, how could you suggest such a thing? 😛

        I just hope people understand that whatever the result, our relationship with the rest of the UK is going to fundamentally change. If we vote to remain in the union, then we’re giving the UK government carte blanche to do whatever it wants, safe in the knowledge that there’s not going to be another referendum for at least another decade. The Barnett formula will be scrapped so that the bloc grant becomes substantially disconnected from the reality of our contribution to the economy; there will be no impetus to devolve any more power (and nothing to stop a transferral back of various already-devolved powers either); and basically if there are any sops given to Scotland at the moment to try and appease us, they will be reigned in.

        In particular, Labour and the Lib Dems need to be forced to detail what further devolution they would look to implement if we remain in the union. It’s no good just saying “devolution is a separate issue, we’ll deal with increased powers after the referendum”. People need to know for sure that these two parties are committed to increasing devolution, and by how much. If they don’t, then asking people to vote no on that basis is completely irresponsible. Of course, it’s difficult to believe a politician’s promise these days, particularly a Lib Dem “pledge”, so I’m not sure how they’d go about doing that.

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