A black and white view of Britain’s economy

Going South: Why Britain will have a Third World Economy by 2014, by Larry Elliott and Dan Atkinson, Palgrave Macmillan, £14.99

Declinism is back, and this is one of its most brutal and eloquent expressions to date.

We aren’t just going through a Great Recession, argue Larry Elliott and Dan Atkinson, economics editors of UK newspapers at opposite ends of the ideological spectrum – The Guardian and the Mail on Sunday. It is not even a slump like the 1930s. Far worse. Britain is now on its final descent to third world status after a century on the skids since the first world war.

This is a movie in black and white – mostly black – when shades of grey would in my view be more realistic. However, both the argument and the consequent thought experiment – if Britain now has much in common with a developing country, how does it develop? – are salutary in the present worsening crisis.

Mr Elliott and Mr Atkinson start in the run-up to 1914, describing the colossal destruction of life and national wealth and power that took place in both the first and the second world wars. Curiously, given their constant excoriation of Britain’s political leaders and their works, they don’t discuss, let alone question, the decision to go to war in 1914. Yet this is probably the single worst and most disastrous initiative taken by any British government in the last century. The first world war led directly to the second and to other wars, and the cold war, dominating Europe and beyond for much of the 20th century. Together they precipitated and accelerated much of the “de-industrialisation” of Britain described by the authors.

At the height of the Cuban missile crisis, when John F. Kennedy was being urged by most of his advisers to invade Cuba in a move that could have precipitated the third world war, the president remarked that he had read Barbara Tuchman’s The Guns of August, describing how Herbert Asquith, British prime minister from 1908 to 1916, together with France and the crowned heads of Germany, Austria and Russia, had “somehow seemed to tumble into war through stupidity, individual idiosyncrasies, misunderstandings and personal complexes of inferiority and grandeur”.

War in Europe, outside the former Yugoslavia, seems a thing of the past. Let’s hope it is. Yet it would be highly complacent to take Europe’s stability for granted and not to see in the lengthening and deepening euro crisis the seeds of acute strife within and between nations. If Britain’s leaders can help preserve and enhance European stability in the turbulent period ahead, this may be their greatest contribution to national wellbeing.

Beyond that, though, how should Britain’s leaders keep it in the developed world? Mr Elliott and Mr Atkinson have few concrete suggestions. They do, however, highlight two “axes of contradiction”, which need to be resolved by this or – now more likely – a future government.

“One is that British industry has terrible, deep-seated problems that require radical surgery, while at the same time it is a world leader with the scope to exploit the fantastic opportunities that lie ahead,” they write. The second is the existing financial system “constitutes a root cause of the economy’s woes, while at the same time being perfectly adequate for the needs of business finance and on the macroeconomic side a precondition for economic success”.

It is increasingly obvious that Britain’s industrial base is too narrow. Its skills, education, infrastructure and financial systems need further radical improvement if they are to become engines of employment and growth. Simply promoting more of the things we do well – higher education, business and financial services, and a small number of industrial sectors, along with the Queen, the army and the BBC – is unlikely to lead to the sunlit uplands, particularly given the acute problems of the financial sector. As the authors note, mass youth unemployment is a prime characteristic of developing countries. Britain has a million under-24s out of work.

The state also needs to be bolder in tackling scandals that go the heart of the present problems. Consider one of Mr Elliott and Mr Atkinson’s facts. In 1980, the chief executive of Barclays earned 13 times the pay of the average worker in the UK. In 2010, he earned 169 times average pay, with a package of £4.4m. And this despite the continuing banking crisis – or perhaps because of it.

“The City,” they write, “has conducted its equivalent of a military coup, a silent affair that required no tanks on the street ... but saw an elite take control of the country and a disproportionate share of its wealth.”

Again, I would have used shades of grey. But they have a point. Unless and until the “coup” is reversed, obscene corporate greed will be an ongoing source of social and economic strife.

The writer is a former UK Transport Secretary and Minister for Schools

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