Not so very long ago Gordon Brown and co (and all sorts of economics think-tanks and journalists) made much of their view that Germany would fare much worse than Britain in coming out of the recession/depression because it made so many manufactures dependent on export markets.

For the record, during 2008 Germany overtook the USA as the world’s largest exporter, a position she retains.  Approximately 25% of all machinery sold in the world is German.  Germany’s trade surplus is over 200 billion dollars – twice as big as Britain’s trade deficit ($100 billion).  How does Germany do it?

Well first and foremost Germany employs people to make the things the world wants while Britain increasingly does not.  In the present terrible and largely self-inflicted crisis, no single politician or journalist has even noticed the huge imbalance in our use of labour compared with our principal competitors.

Comparing with Germany in 2002 (at the beginning of Labour’s debt-fuelled growth in consumer spending) we see that as a percentage of the economically active labour force, Germany had 20% of its 50% larger labour force engaged in manufacture, while Britain had 13%.  Production as a whole was 19% in Britain and 29% in Germany.  The biggest balancing factor was in “Business Services” where Britain had 15% and Germany had 10% of its labour forced employed.  In retail and catering Britain had 21% and Germany 16%.  Public sector employment wasn’t that much different (22% in Britain and 20.5% in Germany).

In Britain in 2006 bank lending to “Business Services” totalled £210 billion and £47 billion was lent to manufacture.  These loans to Business Services were quite separate from “Financial Intermediation” which accounted for £491 billion or 52% of all our bank lending .  How unbalanced can you get?

Manufactures make up about two-thirds of the world’s trade and have done for decades.  One would think it would be obvious to those who control our affairs that that is where we should concentrate our economic activity in order not to continually run up trade deficits as we have in the last 27 years.

Despite Nigel Lawson’s insouciance about trade deficits (we can always “finance” them, i.e. borrow or sell an asset) the fact is clear to all that the trade balance matters enormously.  Because of these deficits our international asset position has gone from positive (by about £200 billion) in 1985 to negative (-£100 billion) in 2005 on which we pay interest.  Because of continued trade imbalances, which are demoralising as well as financially debilitating, the pound which bought 8 Dmarks in 1971 now buys the equivalent of 2.1 Dmarks (1.1 euros).  Every £billion of imported cars or machinery, textiles, IT equipment means 10,000 skilled, blue collar jobs lost for a year.

What can be done?   Well, see the Performance of the Economy Page.

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