Britain Going South

Notes and comments from the LSE lecture / discussion with Larry Elliott (Guardian) and Dan Atkinson (The Mail) on their new book - Going South: Why Britain will have a Third World Economy by 2014. Larry Elliott took through a whistle-stop tour of economic policy-making since 1914 and then Dan Atkinson continued the polemic with a rather incoherent meander through the characteristics of failing countries. But it was a lively and entertaining evening nonetheless.

Larry Elliott

Relegation battle for the UK economy - more like Oldham Athletic rather than a Manchester City.

Public policy resembles the management of Aston Villa - many decades of quick fixes but hard to see much success

1. 9 months into a double-dip recession
   
2. Economy 4% smaller than start of the downturn
   
3. Recovery slower than after the Great Depression (see NIESR chart here )
   
4. 30 years since a trade surplus in goods
5. Real incomes falling, little in the way of housing equity to supper wealth and spending
6. Banking system is dysfunctional - big, bust and corrupt - the system kept afloat by QE and by funding for lending scheme
7. Since recession started the Treasury has borrowed over £550bn and the national debt has doubled
8. Trend growth likely to have fallen below the 2.5% seen as normal in years past
9. Financialization of the economy has papered over the economic cracks allowing domestic consumption to be maintained against the tide of poor economic fundamentals
10. Looming energy crisis - if only we had Norway's sovereign wealth fund as a way of paying for an ageing population and the need to diversify away from north sea oil and gas production!

Watching King and Osborne making economic forecasts is like watching the Dead Parrot sketch from Monty Python - there is precious little to rebalance the economy with.

Revenues from the economy's strong suits are not enough to compensate for the weaknesses in revenues from other sectors.

Dan Atkinson

Britain on course to exit the developed world - exhibiting many of the features of an un-developing country

Private sector deficiencies - cold callers, flawed investment projects, utilities that fleece customers, failing merger and acquisition processes

Economic policy is incoherent, leadership elites do not understand where growth comes from

The country is chronically unable to pay its way in the world, high levels of debt, functional illiteracy, structural unemployment. 30 years since the last balance of payments surplus.

UK's international net asset position is negative - more than £300 billion. Heathrow and Cadbury's both counted as foreign-owned assets

Corporate Britain sat on a pile of cash but CFO's reluctant to invest, cash balances worth more than £754 billion - more than 50% of GDP.

The UK is best described as a sub-merging economy

Policy prescriptions

Investment in human capital / apprenticeships

Improvements in long-term finance

Active policies to reverse de-industrialisation