The Chimera of Britain’s Economic Growth

There is extraordinary talk about the success of the British economy both in Britain and abroad with approving comments from overseas bodies like the International Monetary Fund.

Thus in the Daily Telegraph of December 1st, we have Roger Bootle – a respected commentator – referring to the British economy as having done “extraordinarily well” on the strength of 12 months’ “growth” and the creation of 600,000 jobs over two years.  This is an economy which has a goods trading deficit approaching £120 billion per year, meaning that for every £100 billion worth of goods which foreigners buy from Britain, we buy £140 billion worth from them.

Similarly (because the two are connected) the British government is spending £92 billion more than it receives in income – chiefly income taxes, VAT and duties on petroleum and alcohol.  In other words the British government’s day to day expenditure is only 83% covered by its income – the 17% difference being borrowed as long-term debt to be repaid in the 2040s and ‘50s.  The interest on the debt is over £50 billion, equivalent to the whole cost of schools, or more than half the British government’s borrowing in 2013/14, i.e. this government is engaged on a real Rake’s Progress – borrowing to pay the interest on past borrowing.

Now here’s a thought

Germany’s external trade is in surplus to the tune of around £150 billion and its internal deficit is very small – about 0.2% of GDP (compared with Britain’s 5.5% of GDP).  Suppose Germany allowed itself to borrow 5% of GDP, say, by simply giving every German taxpayer a rebate of around £2,000 in the form of vouchers to spend on anything they chose.  Then, hey presto, on the conventional measure of GDP, this action would increase GDP growth to over 3% within a year, provided the Germans split their purchases between imports and domestic production more or less evenly.  Then Germany, not the UK, would be the “fastest growing economy in Europe”, about equal to the USA in fact.  And Germany would still have a goods trade surplus of about £70 billion.

More Production is what Britain Needs

Britain’s “growth” is a debt-fuelled chimera, serviced by millions of low-paid jobs in bars, cafés, taxi services and the like.

What the country needs desperately is the production for sale abroad (and at home) of more of all those mid-range goods which people all over the world need in their daily lives – white goods, vehicles, textiles, foods, sanitary ware, etc. and the machinery to make them with.

Properly designed and marketed, there are huge markets for such British goods, as itemised in Stephen Bush’s Brexit essay (page 104, Table 2.2.3) on this website.  The UK has only 0.8% of the $800 billion import market of three just such emerging economies: Turkey, Indonesia and Mexico.

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