For all the fanfare of hosting this week’s G8 summit, the UK remains locked in a dire economic predicament. For all our gloating at the Eurozone, Britain’s national income is still well below its 2008 peak.
Other “leading” Western economies are performing much better. While Germany and the US are also yet to stage a truly convincing recovery, the GDP of both is now well above pre-crisis levels. Yet the UK’s nominal GDP remains 4pc below where it was at the time of the 2008 Lehman collapse.
Five years on from the recessions of both the early- and late-1970s, the British economy was 3-4pc bigger than when the downturn started. The same was true following the early-1990s slump. Even after the Wall Street crash, British GDP had grown more than 4pc by this stage, as we clawed our way back from the deep early-1930s depression. So, as the G8 summitry kicks-off in Fermanagh, remember that this is the most feeble economic recovery in the UK’s long island history.
For now, unemployment thankfully hasn’t spiraled. Yet that’s largely because workers are being switched to temporary “zero hour” contracts as employers wait for the upswing. But where will recovery come from? More quantitative easing? I don’t think so. Fiscal stimulus? For all the errant nonsense talked about “austerity”, the UK has flogged Keynesian economics to death.
We’ve borrowed upward of £120bn a year for the last three years and the Treasury forecasts never-never economics continuing on this grotesque scale for a long while yet. Official figures show our national debt almost tripling between 2008 and 2015 – and that’s just the debt on the books. To pretend our fiscal policy isn’t already wildly expansionary, and at a time when yet more borrowing could spark a disastrous bond market rout, is the height of dishonesty. Yet these are the surreal terms in which are national debate is conducted, which is why many millions of mainstream voters are so disillusioned with our political class.
The truth is that Britain needs to export its way out of this downturn. That’s something we are singularly failing to do. David Cameron’s image-makers have picked up on this, with the Prime Minister lately growing fond of declaring that the UK must “compete in the global race”. A clumsy phrase, it still conveys a profoundly important message. Because despite the pound falling no less than 20pc against our main trading partners over the last five years, UK exports have slumped, That’s done nothing to foster economic growth, improve our national accounts nor tackle the chronic job insecurity felt by millions of UK workers.
While Britain is already a major exporter, we’re an even bigger importer. This country ranks twelfth among countries selling goods and services overseas but we’re seventh when it comes to sucking in stuff from abroad. Last year was typical, with UK exports worth £310bn, compared to £420bn of imports. As such, we ran an absolutely massive trade deficit, second only to America in absolute terms.
Being the twelfth-biggest exporter is actually a pretty dismal performance given that Britain is still the sixth biggest economy on earth. The reality is, though, that even including our considerable service sector exports, the UK has run a trade deficit for most of the past 30 years.
For a generation, then, despite our matchless trading heritage, Britain’s external sector has been a drag on net growth, adding to our ever-deepening indebtedness. For much of that time, the scale of our exporting failure, particularly in manufacturing, has been masked by oil, with North Sea exports keeping the trade deficit within manageable bounds. But now we’re an oil importer again, an old-fashioned balance of payments crisis isn’t an idle threat.
The UK simply must export more – and amid the photo-shoots and communique-angsting of this week’s G8 shindig, drumming up trade is where the efforts of our politicians and diplomats should be firmly focused. We hear endless rhetoric about “rebalancing” the economy towards exports, particularly to the fast-growing markets of the East, but it is barely happening.
Having spent a significant chunk of my adult life living and working in emerging markets, words can’t truly convey the speed at which much of the non-Western world is transforming, and the urgent necessity for UK commerce to response. China’s national income has expanded at an average of 10pc a year for the last three decades. The East Asian Tigers – the likes of South Korea, Singapore, Taiwan, Malaysia and Hong Kong – have meanwhile grown 6pc a year or more. During 2013, the GDP of the emerging markets as a whole will surpass the “advanced nations”, the World Bank says, for the first time in five centuries. This is the major economic trend of our time, yet responding to such realities is a mere footnote when it comes to British economic policy.
Asia is now a market of 3,000m people boasting a burgeoning middle class, a new mass market for UK goods. The Former Soviet Union, Africa and Latin America are also crucial markets of tomorrow. If we don’t get our goods and services in there fast our Western trading rivals will do so instead, to say nothing of domestic producers fast-adopting Western technology and developing know-how of their own.
The UK’s latest trade numbers showed a “narrowing” of our external deficit in April. But exports actually fell 1.3pc, with the “improvement” driven only by imports dropping even more due to lower real incomes. The Confederation of British Industry rightly dubbed these latest numbers “unsatisfactory”, insisting that “there is still a long way to go”. Above all, CBI stressed that “the government needs to do more to help raise exports to the fast-growing economies”.
This view now has credence across the political spectrum. “Too much of British business feels secure in the warm embrace of the European single market and is failing to recognize that today’s great export opportunities lie in the developing world, particularly Asia,” Lord Lawson recently observed. “In the race to win in the Asian century, others are now overtaking us,” commented Shadow Welfare Minister Liam Byrne.
UK sales in the largest emerging markets – Brazil, Russia, India and China – amounted to £27bn in 2012. That’s 5.2pc of total exports, less than we sell to Belgium. The BRICs, which already account for a third of the world economy and are home to two out of every five people on earth, will constitute at least half of global GDP by 2025. Britain’s response to the rapid development of the East has been long on rhetoric, boarding school places and central London penthouses, but woefully short on meaningful commercial action.
UK-based multi-nationals can look after themselves. Government efforts should instead focus on helping our best small and medium-sized enterprises to “go East”. Traditionally generating more than half our growth and two-thirds of all employment, SMEs are the “life-blood” of UK commerce. Yet for all kinds of regulatory, logistic and cultural reasons, they’re not securing the fast-growing Eastern markets we simply must crack if Britain is to mount a meaningful recovery.
British diplomats should do less intriguing and conspiracy in foreign capitals and lots more legitimate commercial deal-making. That’s what our economy needs and is what the vast majority of voters want. Think folk with their sleeves rolled-up hustling for honest business, rather than men spouting generalities in red socks. This diplomatic culture shock is vital to our economic revitalization and it needs to start at the G8 summit this week.