One aspect of the Osborne strategy (if you can call it that) which has hitherto received little or no attention is that the economy looks like hitting the worst trading position ever on record. Without a significant improvement in exports over the next few months, the trading deficit may turn out as bad, or even worse, than the previous worst performance in 2008 following the Great Crash. But UK exports are unlikely to improve much, if at all, given that they fell sharply between March and April alone – to China by 17%, to Germany by 16% and to the US by 9%. This matters because an unsustainable trading record like this can only end by a sharp fall in living standards (even more than that already experienced) as foreign countries steadily refuse to let Britain continue to live beyond its means.
The UK trading performance is much more serious than most people realise. The last time Britain had a current account surplus was in 1983, 29 years ago. In the last 55 years Britain has only had a surplus on its traded goods in 6 years. Initially in the 1970s the surplus in services (insurance, shipping, etc. as well as banking) covered the deficit in goods, but from 1987 the deficit in goods rose much more sharply and a large net deficit between goods and services grew ever wider. By 2010 the deficit in traded goods had reached the staggering level of £99bn and the surplus on services at £49bn could cover only half of this. A yawning deficit of this magnitude cannot continue for long without the creditors (like any bank manager) calling time.
Why has this happened, and how can it be reversed? Our manufacturing capability has been allowed to decline long-term following Thatcher’s elevation of the City after Big Bang 1986 and the converse privatisation and selling-off of so much of the industrial landscape. The neo-liberal market made the manufacturing decline all the sharper by the preference for mergers and acquisitions over long-term investment, the sale of key British firms to foreign interests, the damaging break-up of crucial supply chains, the relentless emphasis on short-term profiteering over long-term market share, and the neglect of apprenticeships and quality training which along with the decline of R&D stunted UK productivity.
All of these need to be reversed by a robust industrial strategy. So far there has been only vacuous talk of a ‘rebalancing’ of the economy which in the light of the next-to-no reforms of the structure, role and culture of the banking industry plus no positive policies towards a revival of British manufacturing is simply whistling in the wind. But the latest trends for traded goods suggest that even this vapid muddling through can’t last for long.