The numbers told the same sad story they tell every month. Britain imports far more goods than it sells abroad. In terms of export markets, the US was number one in November. In fact, the United States is the only major economy where the UK records a surplus on its trade balance. With eight out of the other top 10 trading partners, the UK has a trade deficit. In the Wimbledon of World Trade, the UK is an unseeded player.
This huge trade deficit is covered by the financial services that the UK sells abroad. It is, it seems, the UK banks that sustain our unbounded capacity to import cheap manufactured goods from China, and slightly more upmarket items from continental Europe. Has this dependence on financial services been a good thing for Britain?
The economic history of Britain during the 20th century was a battle between industry and finance. The best example of this struggle was the ill-fated return to the gold standard in the 1920s.
British industry had lost competitiveness during the First World War and needed a depreciated exchange rate to recapture its export markets. The financial sector wanted a return to the pre-war monetary system based on gold and more appreciated exchange rate. Financial interests won that battle. British industry endured a deep recession and a decade of appalling unemployment.
After the second world war, the struggle continued. Britain went through a series of volatile economic cycles, driven by a need to maintain high interest rates to prevent foreign money from leaving British banks.
The consequences for manufacturing were dire. With high interest rates, manufacturing investment levels were low, and the sector suffered decades of decline. Our once great industrial cities were slowly wasted by the demands of those rotten banks in London.
There is an enduring myth in Britain that Mrs Thatcher broke this post-war cycle of economic underachievement. With her privatisation and unsympathetic attitude to struggling manufacturing companies, she reinvented Britain.
But the myth isn't true. What she did was hike interest rates and allow the exchange rate in 1980 to appreciate to the point where no British manufacturing exporter remained competitive. The banks made a killing, London prospered, but the economy of West Midlands died.
These import and export charts may not change much from month to month. However, they recount a profound truth about our economic history. One where the dynamism that characterised our manufacturing sector was destroyed by the needs of a few greedy bankers in London.
The plain fact is that UK banks may finance our seemingly limitless demand for foreign goods, but we have paid a heavy price for that largesse. The UK has become little more than a rentier state. We are a nation of estate agents, loan officers, and buy to let landlords. We owe it all to the banks.
10 comments:
North v south?
Thank you, a beautifully clear conspectus.
We do have tourism. It's economically an "export" even if it doesn't count as such. It's worth £115bn a year to the UK. We also trade profitably with all the Americas, Africa and Ireland. It's just Asia and the (rest of the) EU which are the problems.
We also have tourists leaving Britain.
Fair summary. And as N points out, we have 'invisible exports' as well, where the deficit isn't so bad (or even might be a surplus).
I doubt that tourism brings in gross £115 billion (even though there are reports that claim this), but the number is quite big (whatever it is).
Let's assume it is true, for us to have a deficit on tourism, the average Brit would have to spend £2,000 a year per person on holidays abroad - surely we can't be spending that much?
The truth is that booms and busts are part of the natural cycle.
Unfortunately since the abandonment of the gold standard the booms and busts have become even more volatile as the central banks of world inflate, inflate and inflate until the bust arrives.
We don't need a gold standard but we need gold to trade freely among nations to rebalance world trade which would act as a stabilising influence of some sort against excessive booms.
There is a strong wiff of nostalgia in this post. You yearn for the past Alice. In this matter, you don't know what you are talking about. The years before Mrs. T were a living nightmare.
It was no myth, young lady.
Graham
Pity that these figures were so predictable. There was some hope that we would see a stronger recovery but let's face it - that was a bit of a pipe dream really.
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Lizardjim
The November data produced a funny results. Exports grew faster than imports in percentage terms.
However, in absolute terms, the trade deficit deteriorated. This is because the level of exports was so much lower than those of imports.
(A big percentage increase of a small number is often smaller than a small percentage increase of a big number).
So, despite the huge sterling devaluation, UK trade performance was still abysmal. We continue to have a huge external deficit.
Alice
The UK's external deficit is alright because the exporting and importing of goods are currently at par with one another.
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