Why Britain’s plight is Brown’s fault too

In: Uncategorized

10 Nov 2008

The following is my latest comment from Fund Strategy.

Gordon Brown persists in presenting Britain as simply a victim of the global financial crisis. Such an approach conveniently absolves him of any responsibility for the mess. But it is becoming clear that Britain’s position is particularly precarious.

The idea of a uniform global crisis certainly does not square with the revised growth forecasts published by the International Monetary Fund last week. While Britain’s GDP is projected to fall 1.3% in 2009 that of China is expected to rise by 8.5%. Even Africa is expecting growth of 4.7%.

Perhaps it is unfair to compare Britain with emerging economies. But the average GDP fall for advanced economies is forecast to be 0.3% next year. Britain is likely to be the worst performer next year with the exception of disaster areas such as Zimbabwe.

Britain is particularly vulnerable thanks to its large financial sector and correspondingly small industrial sector. Industry as a share of GDP has fallen to about 23% compared with 43% in 1971. Much of Britain’s wealth comes from financial services, which are in turn heavily dependent on real economic production in other parts of the world. Britain is the consummate coupon clipper economy.

If there is an anomaly, it is not Britain’s current?position but its relatively buoyant growth since the 1990s. The City of London benefited from the growth of global capital flows and the general trend towards?increasing financial activity worldwide. As such activity has diminished, the British economy has been hard hit.

To an extent these are long-term trends that would have existed regardless of who was in office. But, in a desperate attempt to distance himself from Labour’s state socialist past, Brown has made frequent displays of public obsequiousness to the City.

It is not a question of blaming the City for Britain’s economic problems. On the contrary, the rising importance of financial markets is largely a symptom of the decline of the real economy. The challenge, which Brown has failed to meet, was to regenerate Britain’s productive base.

Britain’s economy is more like a geriatric than the dynamic “Cool Britannia” the government likes to portray. Brown should not bear all the blame, but he should certainly take a share of the responsibility.

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