Sunday, 13 December 2009

Just a word about the economic decline of Britain

As you probably gathered, I am a big fan of the Abu Dhabi-based newspaper, The National.

Here is another brilliant article by them, written by Frank Kane.

* Last Updated: December 08. 2009 7:08PM UAE / December 8. 2009 3:08PM GMT

I know The Economist is not everyone’s idea of a fun read, but from time to time it really does have the right stuff. “Standing still, but still standing,” was a brilliant headline in that publication the week the Dubai World story broke.

Last weekend it did it again for me by introducing me to the Arabic concept of “shamata”, which I had never encountered in my time here in the Middle East. It translates roughly the same as schadenfreude, the German word for “taking joy at another’s pain”. Why does English not have a simple one-word term for this exquisite sensation, rightly identified by Germans and Arabs as worthy of its own individual place in the dictionary?

In that vein, here is my own little burst of “shamata”. The UK chancellor of the exchequer, Alistair Darling, will today unveil his pre-budget review to the House of Commons. It is universally expected to be the most gloomy, pessimistic and downright spiteful bit of economic policymaking to come out of Britain in many a year.

The economic background is truly awful. The UK, with its overwhelming dependence on the twin pillars of property and financial services, was the worst affected of any of the big industrial nations by the credit crisis. It is still mired in recession while the US, France and Germany have pulled out.

The precise statistical evidence of Britain’s decline is well known and I do not propose to rehash the dry numerical evidence here. Soaring government, corporate and personal debt, falling property prices, rising unemployment, declining currency, shrinking exports … I could go on, but will not.

Instead, it will take just three “freakonomic” facts to illustrate the extent of the UK financial morass.

One: The Bank of England (BoE) has noticed a sharp rise in demand for £50 (Dh301) notes. Since the Lehman Brothers collapse last year, and throughout this year, the British public has been clamouring for the big pink-brown bills with a picture of Sir John Houblon, the first BoE governor, on the reverse side of the image of Her Majesty.

Conclusion: Britons have lost faith in the reliability of their banking system, once the envy of the world, and are hoarding the £50s, stuffing them in the safe or mattress to keep them from being blown by their bankers in some ill-judged investment in trashy US mortgages.

Two: Britain may lose its place among the 10 largest economies in the world by 2015. The Centre for Economics and Business Research says there is a distinct chance that in just six years Britain, fourth in 2005, will have been overtaken by China, France, Italy, Brazil, Russia and India.

Conclusion: The credit crisis will prove to be the decisive stage in a process of economic decline that has been inexorable since the end of the Second World War. The UK will be the main casualty of the shift of economic power towards Asia.

Three: HSBC, the big global bank that began life in Hong Kong and Shanghai and is returning to its Chinese roots, estimates that 85 per cent of UK property loans made over the past five years are in breach of their lending agreements.

Conclusion: The British property sector, the national totem of financial and psychological security since time immemorial, is, for the foreseeable future, bust. It cannot be the dynamo of economic recovery in the country.

I doubt that Mr Darling will raise any of these “facts” in his speech. Instead, he will announce a ferocious increase in income taxes to an eye-watering 50 per cent of earnings. He will include some equally draconian measures against bonuses for financial services executives in what has become known in the British press as “banker bashing”.

He has to raise more money to pay for the huge bailout packages to the banks he took over last year to avert a total collapse of the UK financial system. He also has to bash bankers because it is about the only popular thing he can come up with in a pre-election period. By all sensible prognoses his boss, the prime minister Gordon Brown, has only six months left at 10 Downing Street.

I had dinner in Dubai this week with an old media pal from the UK, a household name in press and TV and as staunchly British as they come. Over a glass he said gloomily: “I’m going to have to get out if they put tax up to 50p. I pay enough already and then on top of that I have to pay 17.5 per cent in sales tax whenever I buy something.

“It’s intolerable. Now, just when do you think the recovery will kick in here?”

Call it schadenfreude, call it shamata. Even revenge. Whichever, it feels great.


Media Junkie said...

i wonder how it would affect its consitutional monarchies like Canada, Oz and NZ, amongst few others...

BuJ said...

interestingly.. all the monarchies you mentioned have the same head of state :)

The Contentious Centrist said...

This is one subject in which I would agree with your general take. I think the UK is indeed sinking into third-worldism.

Canada is not really in danger of being affected by it, however. Canada is America's little sister much more than it is Britain's step-daughter. Canadians could not care less what British PM or HRH have to say about anything but they are extremely attentive to American politics. In fact, Canadians often forget that they are not American citizens...

BuJ said...

Wow, CC, I think your positive comment needs to be noted, reciprocated and even celebrated!

What's going on?

As for the topic at hand, I think that the Canadians feel very little connection with the Brits. The situation is less acute with the Australians, who are keen to emphasise their ozzieness but still feel a bit of nostalgia towards the UK. This nostalgia is lacking with the Canadians, and really, I don't blame them.

Actually, one of the best things about Canadians is that they are not American citizens.

Media Junkie said...

BuJ and CC - I can't agree with you more. My personal bias aside, Canada seems to be the best of both the Old and New Worlds.

rosh said...

BuJ, I don't think the UK's economic situation affects Canada or most other Commonwealth states as much. Canada in fact is very very closely related to the United States, in almost every way possible, financially. Though the Canadian governemnt protects its 5 big banks from external competition, the banks take very little risk -- almost feels lethargic. Which in these tough times is rather good for them I suppose..

MJ - very true! Canada indeed, is the best of both worlds. CC is correct, Canucks don't care of the Queen (except for having her on the quarter, monetary bills and a few highways named after Elizabeth) There's a lot of Enlgand in Ontario and the Western provinces, however there's also a lot of Americanism / Americana, especially in Ontario and Alberta. You're correct BuJ, the Canucks often forget they are Canadians, one reason Québécois wish to break away from Canada. They came pretty close.

And in response to your post, I think the UK shall bounce back. There's a lot of good and substance in the UK. It needs a complete overhaul in the sort of socialism that has taken over. America is the opposite end of the spectrum -- Canada, somewhere in between, though I wouldn't call it the perfect balance, yet.

BuJ said...

hi Mr Rosh.. thanks for that and sorry for the extreme delays.. i was waiting for Christmas Day to reply to you hehehe

I agree the UK will bounce back, but it will be slower than the rest of the world.. however I still believe in the UK.. it's a fantastic place in a fantastic location and it has the right ingredients!

although sometimes i feel the UK is like an old yet powerful computer.. all it needs is a reformatting of the hard-disc and bang, it'll be the best computer in the world!