By Graham Vanbergen: I asked the most capable model of Chat GPT (i.e. version 4) – “why the UK economy has done so badly over the last 40 years in Britain against its peers.” The answer is as plain as day, and not a single word has been changed from the first text offered. You’ll notice that the first four out of five issues it raises are policies at the heart of the Conservative government’s flagship policies since Margeret Thatcher and the era of neoliberal financialisation. I continue to maintain that there is nothing wrong with capitalism, but there is with this version of it, which is clearly failing our once-great nation. On point five, it is clear that a country, such as Britain, would not be able to overcome the challenge of the huge forces of globalisation – but the country was sold an idea within Brexit that ‘global Britain’ would then be in a position to take advantage having been freed from the shackles of the EU. The opposite occurred – yet another failure of ideology-driven policy by one political party and one party only.

It should not be forgotten that the UK, sitting on the 80th largest landmass by country with the 22nd largest population, was the sixth largest trading nation on earth. However, when it comes to GDP per person, we now sit at number 27 – with 12 EU countries ahead of us. Poland and Slovenia are predicted to overtake us in just six years’ time.

As the FT said in no uncertain words last August in its headline – ‘The UK is doing a shoddy job of keeping up with the neighbours‘ – “The UK’s limp economic performance reflects a slow accumulation of disappointments. A finance-heavy economy suffered a steep recession in 2008, followed by a slow recovery (blame David Cameron), more economic damage from Covid-19 (blame Boris Johnson), and the economic trauma of Liz Truss (blame Liz Truss). As a backdrop to all this, the economic costs of Brexit are steadily accumulating (Theresa May can take her share of the blame here).”

It is evident that the majority of people are doing their best in the UK but are now swimming against a strong current.

 

A Retrospective Analysis: The Underperformance of the British Economy Over Four Decades

The British economy, once the envy of the world during the Industrial Revolution, has found itself lagging behind its peers over the last forty years. This period, starting from the 1980s onwards has been characterized by various economic challenges and structural changes, both domestically and globally. The reasons behind this underperformance are multifaceted, involving policy decisions, global economic shifts, and inherent structural issues within the UK economy itself.

Deindustrialization and the Shift to Services

One of the critical factors in this economic trajectory has been the rapid deindustrialization of the UK. While a shift from manufacturing to services has been a common trend among developed economies, the pace and management of this transition in the UK have been problematic. The decline in manufacturing not only led to the loss of traditional industries but also resulted in significant regional disparities, with former industrial heartlands in the North and Midlands experiencing prolonged economic difficulties.

Financial Sector Focus and Economic Vulnerability

The UK’s economic policy, particularly from the 1980s onwards, heavily favored the financial sector, epitomized by the deregulation of financial markets known as the “Big Bang” in 1986. While this bolstered London’s position as a global financial hub, it also increased the UK economy’s vulnerability to financial crises, as evidenced by the 2008 global financial meltdown. The over-reliance on the financial sector for economic growth has been criticized for contributing to economic instability and failing to provide broad-based economic benefits across different sectors and regions.

Austerity Measures and Public Investment

The response to the 2008 financial crisis further exacerbated the UK’s economic challenges. The austerity measures introduced in the aftermath, aimed at reducing public spending to curb the national deficit, have been widely criticized for hindering economic recovery. The reduction in public investment affected public services and infrastructure, impacting productivity and growth. Moreover, austerity contributed to widening inequality, further undermining economic potential.

Brexit and Economic Uncertainty

Brexit has introduced a new layer of economic uncertainty. The decision to leave the European Union, a process that dominated political and economic discourse from the 2016 referendum onwards, has had profound implications. Uncertainty over the UK’s future relationship with its largest trading partner has impacted investment decisions, labour mobility, and regulatory frameworks, creating additional economic headwinds.

Globalization and Competitive Challenges

The global economic landscape has also presented challenges for the UK economy. The rise of emerging economies, particularly in Asia, has dramatically increased competition, affecting the UK’s traditional areas of economic strength. Moreover, globalization has necessitated a more adaptable and skilled workforce, highlighting deficiencies in the UK’s education and training systems, which have struggled to meet the changing demands of a globalized economy.

Conclusion

The economic trajectory of Britain over the past forty years reflects a complex interplay of domestic policy choices and global economic trends. While the shift to a service-based economy, the focus on the financial sector, and decisions such as austerity and Brexit were shaped by contemporary political and economic rationales, their long-term impacts have contributed to the UK’s relative underperformance. Addressing these issues requires a comprehensive strategy that encompasses investment in education and skills, rebalancing the economy away from an over-reliance on financial services, enhancing regional economic development, and navigating post-Brexit challenges to secure a stable and prosperous economic future.