Filenews 12 December 2023 - by Matthew Brooker
Change is painful and requires, perhaps more than anything else, honesty. There's a reason Alcoholics Anonymous' 12-step program includes the motto "do a quest and a fearless moral inventory of ourselves." How can we hope to know where we are going if we are not willing to understand and acknowledge where we are now? Britain's biggest challenge in reversing its relative economic decline may be the mere recognition that it exists.
The widening of the gap with Germany and France
London-based think tank The Resolution Foundation offered a service to that end this month, clarifying, in monetary and percentage terms, how far the country has fallen behind. Most Britons would consider France and Germany to be comparable figures, perhaps doing slightly better or worse at times, but nevertheless being part of the same larger "neighbourhood".
So it might come as a shock to tell the British how big the gap has become. Middle-income households in Britain are 20% poorer than those in Germany and 9% behind those in France. Things are even bleaker for the low-income group: 27% worse than their counterparts in both countries.
Compared to a wider group including Australia, Canada, France, Germany and the Netherlands, Britain is on average 16% poorer (the US is a category on its own, consistently wealthier): if the UK closed the gap in median income and inequality with these countries, The typical household would be 8,300 pounds ($10,400) richer per year. The poorest would see their incomes increase by 37%. The standard of living of the lowest income British households is £4,300 lower than that of their French counterparts. These are staggering figures.
That, and a plethora of similar statistics, come from Ending Stagnation, a 291-page study that serves as the final report of the foundation's Economy 2030 survey, a two-year project that aimed to determine what a serious attempt to end Britain's relative decline might look like. Some deterioration in the country's comparative position was to be expected, but the scale of the gap that has opened with Britain's counterparts was surprising, Emily Fry, an economist at the foundation and one of the authors of the report, told me.
Low productivity
The main "culprit" is low productivity. It is the efficiency with which an economy combines labour and capital into production that underpins rising wages and living standards and is closely linked to Britain's twin problems, namely degraded economic growth and high inequality. During the 1990s and early 2000s, the UK closed the gap with more productive countries such as France, Germany and the US. This stopped in the mid-2000s and has since been reversed. Britain's productivity has grown by 0.4% a year in the 12 years since the global financial crisis, half the average for the 25 richest countries in the Organisation for Economic Co-operation and Development (OECD).
Ending Stagnation covers a huge range of issues and policy challenges, including: persistently low and volatile investment in the UK, regional disparities and underperformance of cities outside London, dysfunctional tax and collection systems, insufficient housing construction, reform of economic planning, decentralisation of power, trade in the wake of Brexit and the transition to net zero carbon emissions.
Few of these topics are new. Most of them have been discussed for years. It is striking, then, that last Monday's all-day conference to present the report was attended not only by the leader of the main opposition in the UK, Keir Starmer, but also by Chancellor of the Exchequer Jeremy Hunt. This suggests some level of cross-party recognition of the challenges posed by the institution's research and its importance.
This should not be taken for granted. Part of the difficulty in seeking a response to the idea that the UK is at a critical crossroads requiring structural change is that this is not in line with the lived experience of many of those who hold the levers of wealth and power in their hands. The richest households are well compared to their counterparts in the rest of Europe. It is at middle and lower income levels that the gap is widening. Stagnation is a less unpleasant experience at the top of society than at the bottom or in the middle of it, as the report observes.
Challenges and advantages
Inaction, then, is a challenge. So are easy but unworkable solutions. Britain is not going to reinvent itself as a productive superpower in the image and likeness of Germany. Nor was Brexit a golden path to the promised land of Global Britain. The economy has actually become less open to trade (measured by exports plus imports as a percentage of gross domestic product) since Britain left the European Union. Brexit has exacerbated the productivity challenge in a number of ways: by hampering supply chains for highly integrated and high-value European car trade, while increasing low-productivity domestic food production.
Not everything is "black". Britain has strengths, particularly in services. The country is the second largest exporter of services in the world after the US. This growth pillar far exceeds financial services, whose share of exports fell to 9% last year, from 12% in 2022. The UK also has successful musicians, architects and lawyers. That's where trade policy should focus – securing services trade deals with higher-income countries like Singapore, Australia and Japan – rather than chasing chimeras.
Millions of people who turned to food banks and 15 years of zero wage growth should already have been enough to indicate that something might need to change, but Ending Stagnation is a good assessment of what that is. Is Britain ready for this debate?
Performance – Editing – Selection of Texts (2019-2023): G.D. Pavlopoulos
