What decisions could the UK actually take to avoid managed decline?

[johncrossley]

You note that the German economy is larger and it's stock market is smaller. It's also worth noting that the German economy usually does better than ours in comparisons such as the IMF one published recently. Could it be that the German model of privately owned mittel-strand businesses does better for their wider economy than our fast buck City for our own !

The fortunes of the UK and German economies have varied a lot over the years. Around 1980, West Germany had about double the GDP per capita, but the UK overtook Germany in the early 00s. Obviously Germany has had to pay for the reconstruction of eastern Germany, which is still much poorer than the west. Now the UK and Germany have more or less the same GDP per capita. Of course, Germany is like a mini-Japan with an ageing population and very low birth rate but has had a fair bit of refugee immigration in the last few years which should help to an extent.

Of course, the US stock market is vastly bigger than any other and has enjoyed better growth since the 2008 recession than most of Europe. I don't think you can make a case either way whether a culture of stock market listing is good or not. The FTSE 250 was a very strong performer post 2008 and that covers the middle sized companies. Stock market listing is good for getting capital into businesses quickly.

 

[yorksrob]

The fortunes of the UK and German economies have varied a lot over the years. Around 1980, West Germany had about double the GDP per capita, but the UK overtook Germany in the early 00s. Obviously Germany has had to pay for the reconstruction of eastern Germany, which is still much poorer than the west. Now the UK and Germany have more or less the same GDP per capita. Of course, Germany is like a mini-Japan with an ageing population and very low birth rate but has had a fair bit of refugee immigration in the last few years which should help to an extent.

Of course, the US stock market is vastly bigger than any other and has enjoyed better growth since the 2008 recession than most of Europe. I don't think you can make a case either way whether a culture of stock market listing is good or not. The FTSE 250 was a very strong performer post 2008 and that covers the middle sized companies. Stock market listing is good for getting capital into businesses quickly.

Well, I'd rather companies generating wealth were listed on the stockmarket here, then most of the wealth would get back into the British economy one way or another. Trouble is, public companies are too easily snaffled up.

 

[Senex]

For example, the UK is a smaller economy than Germany but the German stock market is smaller as a lot of German companies are family/privately owned.

And the fact that a lot of the German companies are still family or privately owned — the Mittelstand — has surely been one of the factors that has kept strong and prosperous regional cities and towns in Germany and avoided the disastrous over-centralisation we had in Britain in the C20 and that France had from Napoleon onwards and in recent years has been working hard to leave behind (at least to some extent) while we still think the world is focused on Westminster.

 

[JamesT]

The fortunes of the UK and German economies have varied a lot over the years. Around 1980, West Germany had about double the GDP per capita, but the UK overtook Germany in the early 00s. Obviously Germany has had to pay for the reconstruction of eastern Germany, which is still much poorer than the west. Now the UK and Germany have more or less the same GDP per capita. Of course, Germany is like a mini-Japan with an ageing population and very low birth rate but has had a fair bit of refugee immigration in the last few years which should help to an extent.

Of course, the US stock market is vastly bigger than any other and has enjoyed better growth since the 2008 recession than most of Europe. I don't think you can make a case either way whether a culture of stock market listing is good or not. The FTSE 250 was a very strong performer post 2008 and that covers the middle sized companies. Stock market listing is good for getting capital into businesses quickly.

Looking at https://www.worldeconomics.com/Regions/G7/ over the last decade the UK has had better average growth than Germany. GDP per capita is about 13% lower in the UK, but if our trend for higher growth continues then we would presumably catch up eventually.

I would take the IMF's forecast with a bucket-full of salt. They're known for getting it wrong about the UK and then having to revise upwards when reality occurs. Another point to make is that the IMF was extremely vocal about the Truss/Kwarteng proposed tax cuts (which Hunt mostly cancelled). Part of their reasoning for the forecast poor growth is due to the tax rises we're implementing. So if tax cuts are bad, and tax rises are bad, what would the IMF think would aid growth in the economy?

 

[yorksrob]

Looking at https://www.worldeconomics.com/Regions/G7/ over the last decade the UK has had better average growth than Germany. GDP per capita is about 13% lower in the UK, but if our trend for higher growth continues then we would presumably catch up eventually.

I would take the IMF's forecast with a bucket-full of salt. They're known for getting it wrong about the UK and then having to revise upwards when reality occurs. Another point to make is that the IMF was extremely vocal about the Truss/Kwarteng proposed tax cuts (which Hunt mostly cancelled). Part of their reasoning for the forecast poor growth is due to the tax rises we're implementing. So if tax cuts are bad, and tax rises are bad, what would the IMF think would aid growth in the economy?

As has been mentioned on here, some well chosen public works (housing construction for example) would be a more direct way of inserting money into the economy than unfocussed tax cuts. Even tax cuts focused on lower earners would be more effective as they have less chance of spending it elsewhere.

 

[HSTEd]

Did all the various Governments in the 32 years since Mrs. Thatcher left office not have their own ability to make decisions? Was there some unrepealable law that said they had to follow Mrs. Thatcher's policies whether they wanted to or not, and therefore that they had no responsibility for their decisions?

I don't know, are members of a cult responsible for the indoctrination that makes them unable to conceive of a worldview other than that espoused by the leader?

Thatcher's will pervades every element of British society, especially amongst the political class and the demographics that de-facto control the election result, although that latter effect is slowly fading with time.

 

[DynamicSpirit]

I don't know, are members of a cult responsible for the indoctrination that makes them unable to conceive of a worldview other than that espoused by the leader?

Thatcher's will pervades every element of British society, especially amongst the political class and the demographics that de-facto control the election result, although that latter effect is slowly fading with time.

Riiiiight! So I take it that, in your worldview, people who broadly agree with 'Thatcherism' are indoctrinated and therefore not responsible for their actions, but you, somehow magically, with your opinions and beliefs, are not indoctrinated?

Personally, I tend to think that Mrs. Thatcher was broadly on the right lines and did much to make the UK a better, more prosperous, place (while making some mistakes on the way). Does that mean that I'm indoctrinated, but you aren't?

 

[johncrossley]

I'm not particularly interested in the comparison with Germany or France, as they are relatively on a par with the UK. I get that they are other big countries in Europe, but I'd be more interested in understanding why the Netherlands, Sweden and Denmark are considerably richer than the UK despite being renowned (especially Denmark and Sweden) for being somewhat socialist and high tax. Obviously Norway as well, but they've clearly got a head start with its oil.

 

[Magdalia]

The fortunes of the UK and German economies have varied a lot over the years. Around 1980, West Germany had about double the GDP per capita, but the UK overtook Germany in the early 00s. Obviously Germany has had to pay for the reconstruction of eastern Germany, which is still much poorer than the west. Now the UK and Germany have more or less the same GDP per capita.

Statistically that is an inappropriate comparison. Unification lowered Germany's GDP per capita significantly simply because East Germany had a much lower GDP per capita than West Germany.

== Doublepost prevention - post automatically merged: 1 Feb 2023 ==

Obviously Norway as well, but they've clearly got a head start with its oil.

A head start that the UK had too.

 

[johncrossley]

A head start that the UK had too.

But in the UK's case it was spread across 10 times as many people.

 

[Magdalia]

Thatcher's will pervades every element of British society, especially amongst the political class and the demographics that de-facto control the election result, although that latter effect is slowly fading with time.

There is a model in political theory called the Overton Window, which sets the boundaries of what is regarded as acceptable politically. It can be argued that Mrs Thatcher shifted the Overton Window, and nobody has succeeded in moving it again since.

 

[najaB]

I'd be more interested in understanding why the Netherlands, Sweden and Denmark are considerably richer than the UK despite being renowned (especially Denmark and Sweden) for being somewhat socialist and high tax.

High tax countries tend to do better overall. I know that's an anathema to neo-liberal thinkers, but unfortunately it's true.

 

[HSTEd]

Riiiiight! So I take it that, in your worldview, people who broadly agree with 'Thatcherism' are indoctrinated and therefore not responsible for their actions, but you, somehow magically, with your opinions and beliefs, are not indoctrinated?

I am not a member of the political class and I am not in the demographics that benefited from her short-termism.... which are the normal two routes to being a member of the cult!

Personally, I tend to think that Mrs. Thatcher was broadly on the right lines and did much to make the UK a better, more prosperous, place (while making some mistakes on the way). Does that mean that I'm indoctrinated, but you aren't?

And yet here we are, in the Britain that Thatcher created, discussing apparently inevitable national decline!

My thesis is that the supposed economic improvements that Thatcherite policies have created are mirages, and that once the short-term boost was exhausted (including from the huge oil and gas boom) that secular stagnation would set in.

And in the present, the UK economy has gone nowhere in 15 years and the key "achievements" of the Thatcher era, especially privatised energy, are falling to pieces!

EDIT:

To use World Bank figures, in 1970-1979 UK real GDP grew 34.4%, from 2010-2019 it was 22.1%, despite the former containing both oil shocks!

EDIT #2: for 1980-89 it was 29.8%

 

[DynamicSpirit]

High tax countries tend to do better overall. I know that's an anathema to neo-liberal thinkers, but unfortunately it's true.

Do you have any links to back that up?

 

[Yew]

Not necessarily. The Iron Lady turned a pretty hopeless economic and productivity situation around, not without some collateral damage however. But you don't make omelettes without breaking eggs - nobody is perfect, and no turnaround is going to be without collateral damage. Nor is there seemingly anyone remotely like that on the horizon, but that could change.

Indeed, it's amazing how northern mining towns have turned around and are now leading the world in high tech industry thanks to her foresightful investment and stimulus packages.


Oh, none of that actually happened, and it was just short term thinking that kicked off this whole obsession with the delusional idea that somehow a bunch of greedy speculators have our best interests in mind when they're gambling on the stock markets.

 

[johncrossley]

Do you have any links to back that up?

Obviously it is well known that the Nordic countries are wealthy and high tax. But maybe they would do even better if they were low tax. You can't possibly know without living in two parallel universes simultaneously.

 

[DynamicSpirit]

I am not a member of the political class and I am not in the demographics that benefited from her short-termism.... which are the normal two routes to being a member of the cult!

Hmmm. I'm sure you're intending that semi-humourously, but I'd strongly dispute that Thatcher was about short-termism. The Thatcher project was about fundamentally transforming British industry and our political culture so that we focused on industries being efficient and self-sufficient rather than relying on state subsidies to stay afloat. That was a very long-term project that was always going to take multiple parliaments. In order to push that agenda, the Thatcher Government risked huge unpopularity during its first term - and may well have been kicked out of power after 4-5 years if it wasn't for their good luck in benefitting from Thatcher's response to the Falklands invasion plus Labour installing a basically unelectable leader.

And yet here we are, in the Britain that Thatcher created, discussing apparently inevitable national decline!

Which, funnily enough, was exactly what the predominant national narrative was in the years immediately before Mrs. Thatcher came to power. By the end of her 10 years in office, that talk was almost completely gone: The prevailing culture was much more of an expectation of economic growth, and now 32 years later we're back to talking about national decline. I think an impartial observer looking at those facts would conclude that reality is more like: The Thatcher years were largely a success, and then something went wrong somewhere along the line during the 32 years after she left office (feel free to pick which subsequent Government you wish to blame, but it makes no sense to blame Thatcher for what is going on 32 years after she left office).

Given that the UK economy has gone nowhere in 15 years and the key "achievements" of the Thatcher era, especially privatised energy, are falling to pieces!

So, because the UK economy has gone nowhere in a period starting around 2007, you're blaming a Government that had already left office 17 years previously?!?!?!?

For what it's worth, my own thesis would be that the main reason the UK economy has gone nowhere recently (aside from the short-term shocks of Brexit/Covid/Ukraine) is that we have largely forgotten the lessons of Thatcherism, and instead increasingly moved towards big-state-trying-to-do-everything, high-regulation, dependency-culture: All the things that the Thatcher Government correctly recognised as harmful to a prosperous society. The ultimate irony is that that has largely happened under Tory-lead Governments.

 

[yorksrob]

Obviously it is well known that the Nordic countries are wealthy and high tax. But maybe they would do even better if they were low tax. You can't possibly know without living in two parallel universes simultaneously.

Yes, unless they suddenly decide to swap their functioning societies for a load of half-baked market twaddle, we're unlikely to witness such an experiment.

 

[Yew]

Personally, I tend to think that Mrs. Thatcher was broadly on the right lines and did much to make the UK a better, more prosperous, place (while making some mistakes on the way). Does that mean that I'm indoctrinated, but you aren't?

I could see merit in some reconfiguration of the industries of 1970's Britain, but Thatcher seemed to focus on knocking down the old industries, without building the foundations of new ones to replace them.


Areas with highly skilled and well paid jobs in mining and manufacturing have had them replaced be low paid jobs in distribution and services.

 

[yorksrob]

Hmmm. I'm sure you're intending that semi-humourously, but I'd strongly dispute that Thatcher was about short-termism. The Thatcher project was about fundamentally transforming British industry and our political culture so that we focused on industries being efficient and self-sufficient

And flogged off.

Actually, that probably wasn't what Mrs T wanted, but it was the inevitable outcome of the philosophy.

 

[Yew]

Which, funnily enough, was exactly what the predominant national narrative was in the years immediately before Mrs. Thatcher came to power. By the end of her 10 years in office, that talk was almost completely gone: The prevailing culture was much more of an expectation of economic growth,

Was not the stagflation of the 70's largely caused by OPEC and the oil crisis? I agree that we shouldn't have tried to use domestic economic policy, as the basic laws of supply and demand do not apply when international politics come to play.

So, because the UK economy has gone nowhere in a period starting around 2007, you're blaming a Government that had already left office 17 years previously?!?!?!?

Are you suggesting that Thatcher did not represent a step change in economic ideology, from the post-war consensus to Neoliberalism?

I can understand that the minutia of legislative changes are not responsible, but we are clearly seeing the effects of the change in economic views that she shepherded in.

 

[DynamicSpirit]

Obviously it is well known that the Nordic countries are wealthy and high tax. But maybe they would do even better if they were low tax. You can't possibly know without living in two parallel universes simultaneously.

Indeed. To do a decent analysis, you'd need to consider more than just a couple of countries - because you'd need to rule out other factors being the reason for those countries' relative success. For example, a few other things that strike me about the Nordic countries are: They all have small populations (Government closer to the people?), were for many decades exceptionally stable democracies, low in corruption even by European standards, less badly devastated by the fighting in WWII compared to their neighbours further South. There are probably other differences with other countries that I haven't thought of. Maybe their apparent economic success was because of high taxes. Maybe it was because of some of those other factors. Unless you do a more sophisticated analysis, you just don't know.

(EDITED because I initially mis-read @johncrossley's post. I'm actually largely agreeing with his point)

 

[johncrossley]

Yes, unless they suddenly decide to swap their functioning societies for a load of half-baked market twaddle, we're unlikely to witness such an experiment.

What is slightly unknown about the Nordic countries is that they embraced privatisation and tendering of public services earlier than most of the rest of Europe. For example, they tend to have franchised buses and trains whereas full state ownership of public transport is more common further south.

 

[Yew]

Actually, that probably wasn't what Mrs T wanted, but it was the inevitable outcome of the philosophy.

To her credit, I am willing to concede that she probably imagined new, high-tech industries taking the place of the old ones; and that she backed the wrong horse in thinking that the free market was the tool to rebuild the deindustrialised areas.

 

[yorksrob]

What is slightly unknown about the Nordic countries is that they embraced privatisation and tendering of public services earlier than most of the rest of Europe. For example, they tend to have franchised buses and trains whereas full state ownership of public transport is more common further south.

Perhaps their less efficient transport systems are hidden by their high tax rate, whereas those other European countries have better services and lower (compared to Nordic) taxes.

== Doublepost prevention - post automatically merged: 1 Feb 2023 ==

To her credit, I am willing to concede that she probably imagined new, high-tech industries taking the place of the old ones; and that she backed the wrong horse in thinking that the free market was the tool to rebuild the deindustrialised areas.

Unfortunately, all of her successors have compunded the issue of putting too many eggs in the free market basket.

 

[DynamicSpirit]

Was not the stagflation of the 70's largely caused by OPEC and the oil crisis?

Those crises were certainly a factor (in much the same way as things like Covid and energy prices today). But I would say there were also already strong underlying problems: Inefficient (often, nationalized) industries that relied on huge subsidies to produce shoddy goods. Unbelievably high top tax rates that made it basically a waste of time for any entrepreneur to try to innovate (unless you didn't mind basically all your profits being taken away by the state). Very poor labour relations and an associated routine level of strikes that would make today's industrial action look insignificant by comparison. Etc. etc.

People today often condemn the Thatcher privatisations as misguided/corrupt/whatever, but forget that a big part of the motivation for those privatisations was that the industries concerned had generally been performing so badly as nationalized industries.

Are you suggesting that Thatcher did not represent a step change in economic ideology, from the post-war consensus to Neoliberalism?

I'm suggesting that she represented a step change in ideology that was (broadly) absolutely necessary and correct if the UK was to regain prosperity and strong growth, but that things have subsequently gone wrong again. I would go as far as to suggest the economic situation today strongly resembles that in 1979 to the extent that we have recent international crises that have added to an economic/political culture that was already going the wrong way (because it was going too far in the direction of statism/high regulation).

 

[yorksrob]

I would go as far as to suggest the economic situation today strongly resembles that in 1979 to the extent that we have recent international crises that have added to an economic/political culture that was already going the wrong way (because it was going too far in the direction of statism/high regulation).

Unfortunately our problems have been largely caused by a lack of regulation:

Lack of regulation of financial markets - leading to the 2008 crisis from which we've not yet recovered
Lack of regulation of the housing market, enabling speculators to buy up a valuable commodity and price working people out
Lack of regulation of the takeover market enabling Britain to be denuded of its companies
Lack of regulation of energy production, leading to a loss of control of natural resources and their pricing on the open market
Lack of regulation of most train fares, meaning higher walk on fares than most of Europe.

There are probably others.

 

[johncrossley]

Perhaps their less efficient transport systems are hidden by their high tax rate, whereas those other European countries have better services and lower (compared to Nordic) taxes.

Why do you say their transport systems are less efficient? I would say they aren't very different to those in countries further south, obviously taking into account the generally sparse population so long distance services are bound to be infrequent. Certainly transport in Copenhagen and Stockholm is at least on a par with other big European cities.

High tax plus privatisation may be the secret formula. The usual combination is either 'low tax and privatisation' or 'high tax and nationalisation'.

 

[Yew]

I'm suggesting that she represented a step change in ideology that was (broadly) absolutely necessary and correct if the UK was to regain prosperity and strong growth, but that things have subsequently gone wrong again.

How are we supposed to grow if the main act was closing down industries?

I would go as far as to suggest the economic situation today strongly resembles that in 1979 to the extent that we have recent international crises

There are certainly parallels, particularly with the recent rise in inflation.

that have added to an economic/political culture that was already going the wrong way (because it was going too far in the direction of statism/high regulation).

Generally the phrase "culture war" is one heard from the hard right in the US. Your comments about us "going in a direction of statisim/high regulation" seem to be demonstrably untrue.

 

[yorksrob]

Why do you say their transport systems are less efficient? I would say they aren't very different to those in countries further south, obviously taking into account the generally sparse population so long distance services are bound to be infrequent. Certainly transport in Copenhagen and Stockholm is at least on a par with other big European cities.

High tax plus privatisation may be the secret formula. The usual pattern is either 'low tax and privatisation' or 'high tax and nationalisation'.

We seem to not like high tax over here, so perhaps we ought to go for the middle way of lower tax and continental style nationalisation.