How to fix the UK economy

 

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Will Hutton seems to have a clear idea of what needs to be done with Britain. He has written his own book (Britain after Brexit, This Time No Mistakes), and as if this wasn’t enough, in a review of two titles addressing the same problem (Great Britain? How we get our future back, by Torsten Bell, and Left Behind, A new economics for neglected places, by Paul Collier), he made several specific recommendations for getting the UK economy to grow. I’m no expert in analysing the problems of the UK economy, but it’s interesting to see what others recommend. And, in all modesty, perhaps I can add a personal angle to the conversation.

Should we worry about the UK declining?

The first assumption seemed to be that the UK needed fixing. I was struck on a holiday to rural Portugal how wealthy that country had been to create so many lovely buildings (up to around 1800, as far as I could see) and yet how poor it was when we visited (this must have been around 2010 – things have no doubt changed now). If a colonial empire was really so lucrative, was there any alternative to economic decline once the colonies became independent?

What does nationalism have to do with it?

I was struck by the way all commentators agonized about how to improve the UK economy. Does it matter? There has been much talk in government circles about encouraging pension savers to invest in UK companies, something that seems to have gone completely out of fashion. But why should anyone invest in UK shares if the performance of the UK economy is so dire, compared to the USA? I read somewhere a figure of just 4% of UK pensioni funds invest in UK stocks, and I was surprised – until I read that Canadian pension funds have an even lower proportion of investment in their own country.

But let’s see the specific recommendations first to bring British economy back to life. I’ve based it on Hutton’s review of the two books, which usefully summarizes the main arguments.

Will Hutton seems to have a clear idea of what needs to be done with Britain. He has written his own book (Britain after Brexit, This Time No Mistakes), and as if this wasn’t enough, in a review of two titles addressing the same problem (Great Britain? How we get our future back, by Torsten Bell, and Left Behind, A new economics for neglected places, by Paul Collier), he made several specific recommendations for getting the UK economy to grow. I’m no expert in analysing the problems of the UK economy, but it’s interesting to see what others recommend. And, in all modesty, perhaps I can add a personal angle to the conversation.

Should we worry about the UK declining?

The first assumption seemed to be that the UK needed fixing. I was struck on a holiday to rural Portugal how wealthy that country had been to create so many lovely buildings (up to around 1800, as far as I could see) and yet how poor it was when we visited (this must have been around 2010 – things have no doubt changed now). If a colonial empire was really so lucrative, was there any alternative to economic decline once the colonies became independent?

What does nationalism have to do with it?

I was struck by the way all commentators agonized about how to improve the UK economy. Does it matter? There has been much talk in government circles about encouraging pension savers to invest in UK companies, something that seems to have gone completely out of fashion. But why should anyone invest in UK shares if the performance of the UK economy is so dire, compared to the USA? I read somewhere a figure of just 4% of UK pensioni funds invest in UK stocks, and I was surprised – until I read that Canadian pension funds have an even lower proportion of investment in their own country.

But let’s see the specific recommendations first to bring British economy back to life. I’ve based it on Hutton’s review of the two books, which usefully summarizes the main arguments.

Will Hutton seems to have a clear idea of what needs to be done with Britain. He has written his own book (Britain after Brexit, This Time No Mistakes), and as if this wasn’t enough, in a review of two titles addressing the same problem (Great Britain? How we get our future back, by Torsten Bell, and Left Behind, A new economics for neglected places, by Paul Collier), he made several specific recommendations for getting the UK economy to grow. I’m no expert in analysing the problems of the UK economy, but it’s interesting to see what others recommend. And, in all modesty, perhaps I can add a personal angle to the conversation.

Should we worry about the UK declining?

The first assumption seemed to be that the UK needed fixing. I was struck on a holiday to rural Portugal how wealthy that country had been to create so many lovely buildings (up to around 1800, as far as I could see) and yet how poor it was when we visited (this must have been around 2010 – things have no doubt changed now). If a colonial empire was really so lucrative, was there any alternative to economic decline once the colonies became independent?

What does nationalism have to do with it?

I was struck by the way all commentators agonized about how to improve the UK economy. Does it matter? There has been much talk in government circles about encouraging pension savers to invest in UK companies, something that seems to have gone completely out of fashion. But why should anyone invest in UK shares if the performance of the UK economy is so dire, compared to the USA? I read somewhere a figure of just 4% of UK pensioni funds invest in UK stocks, and I was surprised – until I read that Canadian pension funds have an even lower proportion of investment in their own country.

But let’s see the specific recommendations first to bring British economy back to life. I’ve based it on Hutton’s review of the two books, which usefully summarizes the main arguments.

First, the government must lead as a “public investor … so that it supports private investment”. That is easier said than done. Successive governments have tried public-private partnerships, usually with disastrous results. The present government is showing itself unwilling to take responsibility, for example, with the water industry, leaving it in private hands.

“Economic dynamism is linked … to socially cohesive societies”(these are Hutton’s words, although he is paraphrasing Torsten Bell).

 It doesn’t look like that in the US, with huge variations in income but vast wealth creation for some.

We need a regional policy to redistribute wealth. Easier said than done; I was in Boston, Lincolnshire, and I’m not sure what expenditure could change things.

“Destructive privatization has run riot” – “we need to change the fiscal rules so the government can borrow for investment”. Agreed, but the current government is not placing big enough investment in place.

Raising taxes, including council tax reform, increased capital gains tax, taxing electric vehicles. Unfortunately, the new government has already demonstrated that relatively small changes are greeted with screams of woe from the wealthy.

British companies must invest more, and they must invest in longer-term projects, not just for results in the short term. Great idea, but impossible to regulate by government.

Share ownership in UK companies should include a critical mass of influential owners, who can sustain the long-term strategy of companies. My reading of any investment is that sensible investors are in the minority. The majority are looking for a quick win, without any relationship to actually building the economy.  

Pension funds should be consolidated, so they can make some more risky investments safely. I’m not sure I am convinced by this argument. Pensions are not risky investments, for the most part, even without being consolidated.

More generally, he write about “contributive justice”, the idea that citizens contribute to a common purpose. Now, at the level of a residents’ association, there is plenty of scope to provide this kind of beneficial activity. But how can I contribute to the success of the town where I live? It looks to me as though this has already been established by central government bypassing local authorities, by setting up bodes that are not directly accountable to the electorate, but which benefit from central allocation of funds – the local example is the Greater Cambridge Partnership.

Does it fall within contributive justice to invest in UK stocks? Should I express my patriotism by restricting myself to a lower pension? This hardly seems a sensible option, either for an individual, or for a pension provider.

All in all, the views of the analysts and critics don’t appear to be stress-tested against the real world, where if you make the slightest increase in fuel duty, you are confronted by mass demonstrations that bring the country to a halt. There is no justice in this, but there is mob rule that you cannot ignore. So my fear is that nothing much will happen with all the above, and in the meantime, the rich continue to find out way of staying rich and getting richer – without any redistribution of wealth.