Is the UK really "finished"?
Published 22/01/2009 | 14:47
Unemployment at a decade-high of nearly 2 million with at least another million expected to lose their jobs over the coming year.
The public finances spiralling out of control, with debt already at 47.5 per cent of GDP, and that's before taking account of the Lloyds Banking Group recapitalisation and the latest, mammoth, banking bailout. Yes indeed. Yesterday's clutch of economic news makes grim reading. Regrettably, things are set to get a good deal grimmer before they get better. We are still heading into the economic storm with no way of knowing quite how vicious it will become or when we can hope to be pulling out the other side.
Maybe Jim Rogers, the American investment guru who made headlines yesterday by saying that sterling was "finished", is right. Britain is a busted flush with little if any hope of recovering past glories. Mr Rogers advises everyone to get out while they still can, and to head for the growth economies of the developing world.
Never mind that for the great bulk of the populations of these fast growing economies, life is still much more of a struggle than it is ever likely to be here. The difference is that they are heading up, while we are unambiguously going down.
Is Britain as "finished" as Mr Rogers suggests? Even the US, which is where the crisis began, seems better placed than Britain to weather the storm. The new President, Barack Obama, promises massive job-creative infrastructure spending in an effort to turn around the US economy. That's not possible on anything like the same scale in Britain, with its crowded spaces and Byzantine planning restrictions.
Some growth in "green-collar" employment seems likely over the next few years and it is still just about possible that the creative industries will continue to grow. The Government is also hoping for a big boost from broadband Britain.
Yet none of it can hope to compensate for the shrinkage of the financial services industry, which has been the powerhouse of UK growth for at least two decades. Meanwhile, the destruction of Britain's once mighty manufacturing base makes the country peculiarly ill-equipped to benefit from the greater international competitiveness brought about by the devaluation of the pound.
No wonder Mr Rogers is urging everyone to get their money out. It seems Britain has got nothing left going for it. Nor is it just that Britain became overly reliant on the financial services bubble. The oversized banking sector relative to the rest of the economy has made the country highly vulnerable to the withdrawal of foreign money.
In that sense, countries can be like overleveraged banks. Once confidence goes, everyone wants to get their money out and whole nations become subject to the same sort of run that has done for the banks. It has already happened to Iceland, whose economy though tiny compared to Britain became similarly reliant on growth in financial services.
With sterling in apparent free fall, is the same thing about to happen to Britain? Mr Rogers thinks so. The flow of deeply negative news right now seems to support his view. Fortunately, Britain still has a number of things going for it, the same things, as it happens, as once made the City so successful. Advantages of language and time-zone continue to make Britain a uniquely attractive place for international business.
And a flexible labour force together with a corporate and management culture which is open to opportunity, entrepreneurialism and innovation ought to allow the economy to adapt quickly to the radically changed environment. All the same, Britain has become like Mr Micawber, trusting and hoping something will turn up.
It always has done in the past. First it was North Sea oil that saved us from oblivion. Then financial services. What's it going to be next? The Governor of the Bank of England, Mervyn King, said in a speech this week that eventually things will get better. Unfortunately, he was unable to say when. The lags in economic policy are notoriously long and unpredictable, he said. In the meantime, a painful period of adjustment awaits. Either get used to it, or do as Mr Rogers suggests and go to China. For me, the choice is not a difficult one.
Freedom and democracy, for all their faults, are ultimately likely to deliver a rather greater degree of prosperity than the compulsion of the gun and the commanding hand of the state. We've just experienced a classic market bubble, perhaps the biggest ever and Britain has been at the heart of it. But eventually the system will reboot and begin anew.