The state of the British economy and its post-Imperial future

As I wrote in an earlier post here, "The Future Of Britain" is written by its past. Any national economy has to have a valid and sustainable model to grow.

Britain had been struggling to adapt its economy in relation to the world and its own population since the end of the Second World War; by the end of the seventies, the new Conservative government followed the economic thinking of the Monetarist school. An inefficient manufacturing and public sector was seen to blame for many of the problems that existed; the private sector was seen as the most efficient sector, therefore this was promoted by the Thatcher government, while at the same time killing the power of the unions to control employees pay rights.
The Conservatives, due to their background, were naturally more minded to trust the opinion of The City, which up to this point had played a minor role in the British economy. Influenced by the Monetarist, laissez-faire approach, the complacent arrogance and ignorance of the Conservative government led them to believe that the British economy did not need a strongly-supported manufacturing base to the economy. In fact, many of them associated factories and manufacturing with backwardness, union militancy and inefficiency. It was the government's belief that an expansion of a booming financial sector was Britain's way forward in the post-modern age: with a strong financial sector, everything else would fall into place and grow along with it. It would be a sign of progress, therefore, that Britain would no longer need a real manufacturing base.

Up to the end of the seventies, Britain had a large manufacturing base that produced exports. Although it had its inefficiencies, the modest income of these industries was allowed to wither by the government and an ignorant private sector; rather than invest to regain their competitive edge, they were cut down, slice by slice, to maximise profits through minimising costs (i.e. laying-off the workforce and relocating premises). The manufacturing base became an early casualty to "globalisation", as companies moved their factories abroad. As was already said, the government turned a blind eye to this as it saw the financial sector as the future of Britain. The incoming Labour government in 1997 continued with this willful ignorance and complacency, continuing to massage the ego of the financial sector further. By the start of the 21st century, resting the hopes on the financial sector was the only hope to keep Britain's economy going, as there was very little else left to support it. Manufacturing was minimal, as "service industries" had replaced manufacturing. Even the agricultural sector had become unprofitable due to the lop-sided effect on the price of imports from the strong pound (courtesy of The City). All was good, as long as the economy kept booming.

The results of this thinking are clear to see now. Believing themselves to be infallible, the financial sector quickly began to forget the most basic rules of economics (let alone ethics) in order to make the most profit possible. The City and the government encouraged an expansion in credit lending, as well as making people see their own homes as an investment rather than a roof over their heads. By 2007, the whole system in Britain that was creating the financial-backed boom was shown to be the complete fraud that it had been all along. Ireland used an almost identical model, to the same sorry result.

This explains why Britain in 2013 has a completely dysfunctional and lop-sided economy, unsustainable in any real sense of the word. The best way to explain this, apart from in layman's terms, is to compare the British model to other economies and their models around the world.
In order for a nation to grow, it needs growth supported by exports. A few countries can get around this by being financial centres, such as Singapore, Hong Kong (although not technically an independent state) and Switzerland. This is the model that the British Conservatives aimed (and still aim) to imitate. But, by nature, such countries have a generally small, highly-skilled and educated workforce, which fits in well with the financial sector. Britain has none of these, except for London and the South-east (I'll come back to this point later in a moment).
For a country to have exports, there are generally two paths to success: either produce demanded products (such as Germany, the Far East and the USA); or have a demanded resource, such as oil (The Gulf States, Central Asia, the USA, Russia, etc.), precious metals (Africa, Mongolia etc.), coffee beans, whatever. Without either of these paths, the chances of economic growth are limited.

The Conservatives still believe that Britain can be ran like Singapore, but this thinking merely displays their blinkered London-centric mentality and economic ignorance of the rest of the country, never mind their complete ignorance of economics.

I said that only London and the South-east compare economically to places like Singapore; the rest of Britain in 2013 feels more like a neglected colonial appendage to a London city-state - the "Kaliningrad" of London, to use a Russian metaphor. Economically, there is London and the South-east; and then there is everywhere else. Greater London's economy is still flourishing based on the financial sector and related services. Meanwhile, the other regions of the UK are an a different economic country, dependent on the success of London somehow trickling through to them. If nothing changes, the future of Britain will be this: to be the "Empire Of London" in all but name; a wealthy London supporting its neglected and dysfunctional regional "colonies", made economic dependencies of the Imperial Capital.
Fifty years ago, the economy of the UK was far more balanced, as the manufacturing sectors of the North and the Midlands actually contributed much more to the economy. But no longer. Sold a lie by the government thirty years ago, it is Britain as a country overall that is suffering the results of that complacent idiocy.

Germany thrives still because its economy is balanced; its manufacturing sector was continually nurtured by government. Turkey is an up-and-coming power due to the investment thrown into its manufacturing; with a similar-sized population and dynamic approach like Germany, Turkey has a great opportunity to match Germany as a regional power in the medium and long-term.

Britain, sadly, has little future under the economic orthodoxy of its establishment. If you imagine rich Singapore controlling a economically run-down South-East Asia, you might be close to the truth to what future "Britain" as an economic power holds, as a wealthy and ignorant London establishment neglects the unfashionable and depressed corners of its "British Islands Empire".
And some of the establishment have the gall to question why rich London should support its poor regions.
Because you made them poor, that's why!

The Future Of Britain

Realistically, what is Britain's future as a nation-state and power in the world in the coming decades?

In truth, it is not that hard to make some educated guesses based on what is happening in Britain now, where the direction of global politics is going, and what the predicted trends will be.

As I've said in my earlier post here, Britain in 2012 is a nation-state in stagnation, and socio-economic dysfunction in many of the regions outside of the South-Eastern England. The stagnation is due to the financial crisis, while the dysfunction is a combination of longstanding structural failings in long-term strategic thinking by government and the private sector, exacerbated since 2008.

The British economy since the decline of the manufacturing sector thirty years ago (accelerated by Monetarist/Thatcherite economic policy) has been increasingly dependent on the financial sector as the main driving force behind economic growth. This strategy, backed by the financial sector and followed trustingly by the government ever since, was meant to ensure a stable future for Britain in the 21st century. It has produced the opposite.

Looking at it objectively, this is obvious: it is reckless and naive to rest the hopes of nearly sixty million people on the success of the banking sector. But this is what has happened to British economic policy in the last thirty years.
Britain likes to compare itself economically to Germany, as a comparable economic power. But this is unfair: Germany does indeed have a strong economy, one that these days effectively keeps the Eurozone working and itself from feeling the effects of the economic crisis. But Germany's economy is based on two prongs - its financial sector, yes, but also its vigorous, efficient and dynamic manufacturing sector, that provides a healthy flow of exports.
The British government, under the supervision of the shortsighted financial barons, allowed its manufacturing sector to atrophy and wither. Furthermore, unlike Germany, the British government's attitude to unions has been aggressive, with catastrophic results on union membership and wage stability.
It is often forgotten in Britain that Germany's unions have a seat on the corporate board. This is not seen as an aggressive move on the part of the unions; it is seen as a co-operative approach between employee rights and employer rights. It means that companies make decisions together with their employees, rather than resembling a war-zone. The difference between Britain's workplace and the German workplace could not be greater.

 The arrogance of the banking sector and right-wing economists explains how this happened. This combination of arrogance and what I call "post-Imperial complacency", is why Britain:

1.  imports the majority of its foodstuffs (because it is cheaper for the huge private behemoths like "Tesco" etc.), forcing the home agricultural sector into penury.
2. has an ever-growing "North-South" divide (because the private sector sees Britain outside of the London metropolitan area as an economic inconvenience, forcing an ever-growing "brain drain" from the regions) 
3. has a dysfunctional housing market from lack of private and public sector planning and motivation. The  "North-South" divide means that while house prices in the depressed regions stagnate and some areas become depopulated, the London area becomes massively overcrowded, with an ever-increasing cost of living. It makes Britain an increasingly economically-polarised nation: the regions trapped in a cycle of lower and lower incomes and economic prospects; the capital trapped in a cycle of higher and higher costs. Over time, it means that the two parts of the country may become impossible to reconcile economically, with those in the regions unable to relocate, while those in London unwilling to move to the economically stagnant regions.
4. has a mountain of debt, some government-incurred due to bailing-out the banks, some due to government overspending, and the rest due to personal debt brought about through irresponsibility. 
5. has a fast-growing population, much of it from the families and direct descendants of immigrants. But due to lack of government strategy and planning, there are fewer and fewer places in schools for them, resulting in overcrowding or family relocation simply to find a suitable school.
6. Has a generation (or two) of graduates who are to have a mill-stone of debt around their necks for much of their adult life, but without any suitable employment. In other words, Britain is becoming a nation-state of the highly-educated under-employed.
7. Has an increasingly dysfunctional employment market, as a result of the combination of points 1,2 and 6, as well as the over-dependence on the financial and (fluctuating) service sector. The number of long-term unemployed is reaching levels not seen for decades, and looks like a "new normal" is emerging of a permanently-unemployable underclass. Furthermore, the proportion of part-time and temporary jobs is increasing, so it appears that Britain will have an increasing portion of the population without stable career prospects.

These issues are all a direct result, in one way or another, of the government's economic strategy of the last thirty years. When you put all your eggs in one basket, as the UK government has done with the financial sector, the result is always predictable. It's simply a matter of time.

So that is the domestic state of affairs in Britain. From that we can make some educated guesses about what will happen to Britain's role in the world.

Britain's future in Europe is the most pressing foreign policy issue these days, and looks likely to dominate until the matter is decided one way or another in a referendum. The weak and directionless leadership of David Cameron, exploited by UKIP's Nigel Farage, is adding to the sense of drift and swift decline of Britain's reputation in Europe. It appears all-but-certain there will be a referendum on the Europe question in the next few years, either before the next election or shortly after. But any UK government is deluding themselves if they think they would be able to "re-negotiate" Britain's terms in the EU. For one thing, it would represent a dangerous precedent to what is a highly-centralised organisation. The EU leadership could not risk the contagion of other nations also wanting to "re-negotiate", leading to a chaotic and unruly clutch of European squabbles.

No, any referendum would be either "in or out"; "out" most likely meaning some kind of "free trade association" similar to that which Norway has with the EU. Judging how things stand, that vote is most likely to be "out", leaving Britain semi-detached from the centralised EU bureaucracy by the end of the decade.

That decided, it would leave Britain more reliant on its non-EU economic partners. In the next five years, we are likely to see the influence of three powers becoming more obviously apparent: China, Brazil, and Turkey. 

China is obvious. It's influence in Africa, South America and Europe is bound to increase further, and as the Chinese middle class gradually increases, we can expect to see the effect of the stronger yuan (renminbi). Brazil is becoming an increasing rival to China in Sub-Saharan Africa, taking advantage of Brazil's more benign influence in Africa compared to China's more naked neo-Imperialism. This rivalry is likely to be the next "scramble for Africa", soon to appear in the news.  Much of South America looks to be already in the pocket of China, but the Far East is where most experts in geopolitics think any future Chinese conflict may occur. While Japan is not likely to lose its status as the most advanced economy in the world for a fair while yet, a conflict between these two cannot be ruled out, though it may not occur until China itself feels either threatened (by Japanese paranoia towards China) or over-confident (about asserting its claims to disputed naval territories). This all depends on the balance between hawks and doves in the Chinese leadership, and by impression is that, for the time being, the Chinese are happy to be the world's mercantile power, if not its military one.

Having already mentioned Brazil's growing influence in Africa, this will put Europe (and Britain) in a dilemma.  Who to support? Brazil is obviously closer to Europe culturally, as well as sharing an apparently benign interest in expanding its trade links to Africa. But the sheer size of China's influence on Europe as well as in Africa, may result in some difficult choices in the coming decade for Europe and Britain. The USA also may face some awkward choices in the coming decade regarding China and Japan.

I mention Turkey because of the Middle East. It already looks like Turkey has had an early advantage in gaining access to the Egyptian economy, due to the "good neighbour" policy of its Islamist government. As well as already gaining an increasing share of trade in the Balkans, Turkey looks likely to do the best out of the legacy of the "Arab Spring". In Egypt, Turkey has already gained friendship with a market of equal population size to itself. Then there is also Syria, which looks likely to become a strong economic partner to Turkey when the civil war finally is resolved one way or another. Turkey already has a strong economic hold on Iraqi Kurdistan. Furthermore, other EU countries may look to Turkey as a more convenient and agreeable trading partner than China for some of its imports. So Turkey's future economic prosperity looks to be secured in the region for the long-term, with its policy of "New Ottomanism".

Where does this leave "post-Imperial" Britain, set to be semi-detached from Europe, and with a dysfunctional economy? Looking at the situation with realism, and looking again at the common links that the USA and the UK share with their shared view of globalisation, it would not surprise me if Britain, in a new period of post-EU uncertainty, turned to its greater Anglophone cousin across the water by the end of the decade, for the warm embrace of combined "Anglophone Neo-Imperialism". 

As I'm sure some would be bound to say at that time, "there's more that unites us than divides us".