Thursday, 30 October 2008

The UK - a one industry economy

If finance services were bananas, then the UK would look a lot like Honduras.

During a recent speech, Mr Darling revealed the extent of our dependence on the financial sector.

"The credit crunch affects the tax take from the financial sector, which over recent years has been generating about 25 per cent of our corporation tax revenue"

This overdependence on financial services will magnify the economic fall out from the credit crunch. Just wait until the employment shake out from our bloated banks begins. The benefit offices will be full of unwanted loan officers and bank tellers.


Anonymous said...

Loan officers are the coal miners of the early 21st century.

niq said...

That's OK. Finance isn't our only industry.

We still lead the world in armaments sales to the world's nastiest regimes. Second to the US in absolute volume, but way ahead of them relative to any measure of our respective overall economies. Since the end of the Cold War, we've sustained this by leading the world into an ever-growing number of regional wars.

Anonymous said...

Honduras has more sun. It also has some coffee.

albert said...

Perhaps they should get together and start their own bank, like the kids in the hollywood musicals.( making there own stage show that is.)

Nick von Mises said...

So the Evil Bankers were providing 25% of the funding for NuLab's social engineering experiment?

Talk about public sector union leaders biting the hand that feeds them.

michael said...

I am not surprised that the government looked towards the Financial Sector. It is high profile, was making easy profits, tends to be in the news, etc. Ideal for a politician!
Manufacturing does not have the same public profile, nor does it make the same profits as the financial sector!
The cost of living in the UK is so high that that labour intensive manufacturing will always be difficult. It will almost always be cheaper to (ab)use cheap labour in other countries and import the consumer goods that we need.
It is difficult to see what we can do about this!

Anonymous said...

Could we please stop called 'financial services' an 'industry' and loans and mortgages 'products'? especially when the 'products' of our banks only finction as magnets for other people's money.

B. in C.

Nick von Mises said...

Michael - It's called the theory of comparative advantage and it leads to the enrichment of both countries. Check out an economics text. The fact that the UK has just printed money to pay for the goods is a separate issue.

B in c - Financial services are needed to funnel capital from savers to entrepreneurs in the most efficient manner. Without it net production would be far far lower. They are extremely important for civilisation. The fact that there's a government/bank cartel that thoroughly messes up the functioning of this necessary process is a separate issue.

Peter said...

The media does not help - it loves the City, and the drama of the dealing rooms. This does not require doing any real reporting work. But it's a perma backdrop for nearly every business report. Very exciting, totally uniformative.

michael said...

Nick von Mises,
I know that we need the financial sector and that it is an integral part of any economy. I have nothing against the financial sector per se.
But we have something very different going on here. The government has focused on the Financial sector at the expense of manufacturing industry.
They saw it as easy money, no real effort, no need to support manufacturing in the UK. Let the poor countries with their cheap labour do the hard work!

Financial services will always be needed but the clue is in the name - they are meant to be services. They are meant to provide services to businesses and a different range of services to the public. They are limited in their ability to make profits by the wealth of businesses and the public.

No wonder they turned to subprime lending! It opened up a whole new market from which they could make short term profits before dumping these dodgy loans onto someone else. In my view this was criminal, it was a bubble that was going to burst and the banks knew it. They were all playing 'pass the parcel' and hoped they were not the ones holding the parcel when the music stopped.

Most of all the government is culpable for what has happened. They were meant to govern the country and they failed. They were meant to regulate the Financial Sector and they failed.

It is ironic that this government is one of the most controlling governments that the UK has had! We have more laws to control all our actions than we have ever had. We are being watched by cameras everywhere, we are being snooped on by officials from all over the place. They want us to carry biometric ID cards. etc etc

But when the government needs to monitor the Financial Sector to keep it from getting into the kind of mess that it has got us all into, then that is not so important.

They failed to regulate the Financial Services sector.
It was on their watch and it was on their doorstep! They allowed it because they wanted the profits that the financial sector were making.

And we now know that the government knew about many of these problems. For example, the press is reporting that they knew about the Iceland economic problems months ago. Yet they allowed the councils and charities etc to keep their money in Icelandic accounts where it could end up being lost!