The British economy is haunted by the ghosts of Brexit | Mint

The British economy is haunted by the ghosts of Brexit

Sunak has done well to pull back from the brinkmanship and open hostility his predecessors showed in negotiations with the EU, but the effects of severing these links to dynamic supply chains with Europe are everywhere apparent.  (AFP)
Sunak has done well to pull back from the brinkmanship and open hostility his predecessors showed in negotiations with the EU, but the effects of severing these links to dynamic supply chains with Europe are everywhere apparent. (AFP)

Summary

Bad policies have added to the woes of a country that’s falling badly behind on productivity

This week, the UK will see rail strikes as workers demand significantly higher pay raises. From Sunday, workers on London’s fabulous metro are threatening industrial action. Earlier this month, it was the turn of doctors of the National Health Service (NHS), who rejected Prime Minister Rishi Sunak’s offer of a 6% salary hike and are demanding 35% to catch up with what in developed-world terms has been runaway inflation. It was a staggering 8.7% in May, and inflation in grocery bills was in double digits. New rentals are 25% more expensive than they were pre-pandemic.

Whichever economic metric one looks at, the UK seems a country in accelerated terminal decline. It has long been a fading power with an outsized place on the global stage. But, like a boulder gathering speed as it rolls down a slope, even that trajectory has speeded up after the debacle that was Brexit. The underlying problem, which long predates a particularly irresponsible Conservative Party government under former PM Boris Johnson, is that UK’s productivity growth lags other developed economies.

The Resolution Foundation, a think-tank, has repeatedly sounded alarm bells about the US, France and Germany being “one-sixth more productive than the UK, measured in terms of [gross domestic product] per hour worked. And this gap has grown over time." A report from the foundation bluntly calls the UK “stagnation nation." As the FT’s chief economics commentator Martin Wolf pointed out earlier this month, citing data from the Conference Board, GDP per employed person in purchasing-power-parity terms fell from 81% of US levels in 2007 to 68% in 2021. Its growth in household incomes lags even that of France, where workers famously trade pay for more leisure.

The Frankenstein’s monster that loomed over this period of moderate decline, of course, was former PM David Cameron’s gamble in allowing a referendum in 2016 on taking the UK out of the European Union. Sunak has done well to pull back from the brinkmanship and open hostility his predecessors showed in negotiations with the EU, but the effects of severing these links to dynamic supply chains with Europe are everywhere apparent. From manufacturing inventories to replenishing grocery store shelves, the UK has gone through its own variation of a non-violent but damaging partition in trade terms. Labour shortages are apparent everywhere. Immigration queues at Heathrow are routinely running to two-hour wait times, for instance, and hotels last summer were forced to make fewer rooms available despite holiday season demand because they had too few workers as workers from eastern Europe are no longer easily available. If its student visa schemes were not so routinely used to work in that country by many from the developing world, including India, I would wager that retailers in London would seize up. Even as it sensibly makes it easier to get work visas, the Conservative Party has doubled down on trying to act tough on immigration because with such a dismal economic record, nationalist populism might help it in opinion polls where it is well behind the Labour Party. Last month, Sunak even donned a bullet proof vest to join a raid on illegal immigrants in Harrow.

Sunak has been left such a toxic legacy that not much can be done to prevent a Tory wipeout in the next election. Even nominally ‘feel good’ events such as the 75th anniversary for the country’s famous NHS this month instead become moments to reflect on its decline. A general air of pessimism in reporting by the heavily influential Murdoch media outlets doesn’t help. A much-quoted statistic of 7.4 million people on hospital waiting lists was not people waiting for operations, but overwhelmingly those waiting for “diagnostic tests and results", The Times clarified last week. This important distinction notwithstanding, the article began by wistfully, if absurdly, comparing the NHS’s current predicament with Denmark, a country with a tenth of the UK’s population. The problem is that the UK spends much less on CT scanners and MRI machines than any OECD country.

Underinvestment in machinery and manpower is widely apparent, except perhaps to the elite who wallow in an overheated nostalgia and hypernationalism. The wildly disproportionate outrage after Jonny Bairstow’s dismissal in an Ashes cricket Test this month being against the spirit of the game was Wodehousian in its tragicomic melodrama. Even the prime minister’s spokesman felt compelled to weigh in. Australian players were abused when they walked through the Long Room at the hallowed Marylebone Cricket Club. Wimbledon usually is the epitome of good crowd behaviour, but this year’s tournament was diminished by the booing of defending champion Novak Djokovic in the semis and finals and a cold reception for the world No. 2 Daniil Medvedev and women’s world No. 2 Aryna Sabalenka, who, along with other Russian and Belarusian players, were arbitrarily banned from last year’s tournament.

As so often in India, one finds oneself in a country with an outsized opinion of its past and present involved in trivial debates about both. Both countries’ deluded trade policies tilt, Don Quixote-like on his skinny horse, against the logic of gigantic cross-border supply chains that are the foundation of East Asia’s exports. London, nicknamed Londongrad for its perennial role as a laundromat for foreign money, is still a vibrant place in summer. But the UK’s cracks are showing.

Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.

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