“Great Britain has lost an Empire and has not yet found a role.”
Dean Acheson, former U.S. Secretary of State. 1962
“Where does the UK fit in this world of changing economic geography? The answer is simple. We count the money and we do the bullshit.”
Larry Elliott: Economics editor of the Guardian. May 2007.
“O wad some Pow’r the giftie gie us, to see oursels as others see us! It wad frae mony a blunder free us, an’ foolish notion!” Wrote Scottish bard Robert Burns in his 1786 work “To a louse”. Interestingly, on the rare occasions that the giftie does indeed gie us that power, it’s noticeable that assumptions about ourselves and others are often seen in an inverted manner: The stoic seen as stubborn; the spontaneous as unsettled; the impassioned marked down as angry and choleric.
It goes the other way too: the neurotic may be thought of as sensitive; the bitterly sarcastic as wryly humorous. Thus it is with national characteristics likewise: look to the opposites of popular conceit if it is “freeing from a foolish notion” you are after. Here in Britain, as Geoff Dyer writes in the New York Times, the most trumpeted of local attributes is the stoicism which reaches its apotheosis the spirit of the blitz and the Battle of Britain, but which in actuality, manifests itself in-
A highly stylized willingness to muddle on, to put up with poor quality and high prices, to proffer (and accept) apologies not as a prelude to but as a substitute for improvement. We may not enjoy the way things are, but we endure them in a way that seems either quaint or quasi-Soviet to American visitors.
While Dyer is writing on the micro-level and of service in general (and God forbid that Islington tennis club members become a measure of national decorum as he seems to infer), this crypto-masochism is equally evident in how we accept “poor quality and high prices” on a broader level.
Take the British economy: to the government over the past decade, the country has been at the cutting edge of the knowledge economy with booming “creative industries”, global brand recognition and a “vibrant” financial sector. What in actuality we have had to put up with, as the Guardian’s economics editor Larry Elliott wrote despairingly in 2007, is having the country turned into-
One big offshore hedge fund churning speculators’ money while asset-strippers draw up plans for the few remaining factories to be turned into industrial theme parks.
Strong and prescient words, written as they were prior to the financial crisis, but Elliott (whose surgically incisive look at all that is wrong with how Albion is run was summed up tidily in his work “Fantasy Island”), was just getting warmed up:
We all know what the Germans are good at. They do precision engineering: all those quietly humming washing machines and the cars with their sleek bodywork and gleaming chrome.
We also know that Germany is a country in serious trouble, failing as it has to embrace the need for flexibility in the tough new global environment. We know this because Gordon Brown has told us many times over the past 10 years that the European model is washed up.
Germany was so abysmally competitive last year that it ran a record trade surplus and was the biggest exporter of any country in the world.
Three years on, Britain is struggling to emerge from recession, continuing to post an abysmal current account deficit every quarter as it has for the past 15-odd years and seeing its currency slump in value.
To rub salt in an already very painful wound, global investors are backing “seriously troubled” Germany, with its inflexible labour markets et al, as the place to park money in 2010, calling for-
The shifting of private investment dollars to more fiscally responsible government bond markets
Yet while Germany may welcome staid buyers of its bonds, has a proud record of calling it like it is when it comes to speculative capita, terming private equity groups and short-term investors like hedge funds “swarms of locusts” that “fall on companies, devour all they can, and then move on”, as SDP chairman Franz Müntefering put it in 2005, adding that-
“Some financial investors don’t waste any thoughts on the people whose jobs they destroy.”
“It is dangerous when hedge funds take over and impose their view on stability oriented shareholders”, Rolf Breuer, the outgoing chairman of the Frankfurt stock exchange operator, piped up in agreement the same year.
And if you hadn’t got the picture, hedge funds like SAC Capital were left staring at losses to a tune of some £24 billion in 2008 after building up massive bets on VW shares falling, unknowing that Porsche had been secretly building up a 74.1 per cent stake in the firm through intermediaries with the quiet complicity of the German government.
“Take that, you fucking locusts”, must have been the cry in the Bundestag when Porsche released the information, leaving hedge fund managers in tears and with fingers badly burned.
By contrast, the only time we hear such sweet talk from the Mother of Parliaments is when our elected representatives have conspired yet again to fuck over those who elected them. We are clearly the bugs to our MPs. But I digress.
Germany is not the only exporter doing relatively ok out of the crisis. Despite predictions that global buyers would disappear, hurting producers badly, and again, that Britain’s “flexibility” would see it exit the crisis far earlier than countries that do that old fashioned thing of making useful stuff and selling it, South Korea is also set to post GDP growth of 5% this year and even, incredibly, avoided recession last year, while overtaking Britain as the world’s ninth largest exporter.
With significant foreign exchange reserves, a current account surplus of some US$43 billion in 2009* and a broad manufacturing base, things are looking good. A recent record-breaking deal to sell locally developed, internationally recognised nuclear reactors to the UAE (Britain, by contrast, has never managed to sell one of its shoddy, unsafe reactors abroad) also raised national confidence.
As icing on the cake, the place does it with precisely the feisty unions (that many blamed for Britain’s decline in manufacturing) who draw attention in the international press every so often for setting fire to things and generally causing a ruckus.
What is it that allows a country to build up a strong manufacturing base and maintain it? Is it, as ideologically blinkered economists have long argued, full exposure to the vivifying winds of international competition? Like hell it is. It is precisely the form of dirigisme that has long been anathema to the British governmen but pursued single-mindedly by the Koreans and Germans.
Yet as massive “quantitative easing” or creation of money by the Bank of England continues apace and interest rates remain at record lows, shafting savers and propping up house prices which, according the Economist, remain 30% over-valued, the pound is plummeting on money markets and foreign investors are going apeshit.
Our green and pleasant land is in dire, dark and desperate economic straights that have yet to filter through to popular consciousness. Yes, it’s hard as hell to find work if you’re a youngster these days, with a quick glimpse at employment websites showing merely page after page of call centre jobs. But that has actually been the case for quite a while.
And yes, property prices tumbled somewhat in 2008, but they’ve recovered in 2009 on the back of massive creation of money by the Bank of England. Other than that, life has continued as usual, although the pound, as mentioned, has plummeted and overseas holidays, along with imports, are consequently increasingly pricey.
As Charlie Brooker wrote, in one of the best commentaries to have come out of the “credit crunch”-
Is this the end of the world? If so, it’s a bit more boring than I’d imagined. So far, it’s been an invisible apocalypse. Poke your head out the window and there’s little evidence of charred debris.
Just wait, Mr Brooker. It is shortly set to get a lot less boring. And remember that the Chinese proverb “may you live in interesting times” is generally considered to be a curse.
As Edward Helmore reports, analysts agree that Britain’s economic “strengths” in the 00s – financial services activity, property speculation and consumer spending – are now its burdens. ING economist James Knightley calls it “the big hangover from the credit boom”.
Meanwhile, the rating agency Standard & Poor has downgraded the collective rating of Britain’s banks. Citing the banks’ significant debt burden, the agency now places the UK banking system on a par with Austria, Portugal and Chile.
PIMCO, the world’s biggest bond house, has declared that it is selling some of its cache of UK government debt, otherwise known as gilts, and judged that there is a 80pc chance that Britain will have its top-notch rating downgraded.*
Neil Woodford, head of investment at Invesco Perpetual adds there is a “high probability” of Britain losing its AAA credit rating, which would send the pound plunging. The move would send Britain spiralling into a debt crisis, as the Treasury is forced to pay greater interest rates on its debt, which in turn pushes the deficit still higher.
The sharks of the international finance markets are, in short, eyeing pulling the plug on UK plc.
Meanwhile, take a look at the government’s approach to the real economy, as one of the country’s few remaining internationally competitive companies with a local manufacturing base and a proud local history faces a hostile takeover from a U.S. conglomerate owned by a tobacco company.
Founded in 1824 by John Cadbury in Bull Street, Birmingham, Cadbury plc. is now facing a controversial hostile bid by U.S. food and beverage maker Kraft, which is owned by purveyors of cancer sticks Phillip Morris (now renamed Altria group.) The independent and profitable firm has been based in Birmingham for over a century.
In 1878, John Cadbury’s sons Richard and George (who had taken over the company after John Cadbury’s retirement in 1861), acquired the Bournbrook estate, comprising fourteen and a half acres of countryside five miles south of the outskirts of Birmingham. They renamed the Bournbrook estate to Bournville and opened the Bournville factory in 1879.
The company, built up by the firmly Quaker Cadbury family, took a progressive approach to the welfare of its employees from the off. In 1893, George Cadbury bought 120 acres of land close to the works and planned, at his own expense, a model village which would ‘alleviate the evils of modern more cramped living conditions’. By 1900 the estate included 313 cottages and houses set on 330 acres of land. As the Cadbury family were Quakers there were no pubs in the estate; in fact, it was their Quaker beliefs that first led them to sell tea, coffee and cocoa as alternatives to alcohol.
While any romanticising of the firm would be trite, for at the end of the day it remains a corporation dedicated solely to the making of profit and maximising the moolah of its share holders, it has firm roots in the local community, continues to turn a good profit and employ British workers.
Kraft, by contrast, has a proud record of lying to its customers, for example by labelling a dip made of modified food starch, hefty amounts of coconut and soybean oils, and a dose of food coloring “Guacamole”, despite the profound absence of avocado, or being sued for calling its toxic concoction “Capri Sun” “all natural” when it is nothing of the sort.
Business professor David Bailey, who writes an astute blog for the Birmingham Post, laid out in detail why a Kraft takeover makes no sense whatsoever and why the British government should make takeovers more difficult:
Analysts suggest that Kraft will need to look for upwards of £625 million in costs savings to justify the takeover, and if it ups its offer in response to any rival bids then the cost savings needed could rise to as much as £1 billion.
Cadbury would be better off remaining independent given that its management is doing a good job, and why we should make takeovers in general much more difficult. Curbing the voting rights of hedge funds – which have piled into Cadbury shares in recent weeks (apparently acquiring some 14% of Cadbury shares) in the hope of a quick profit from a takeover deal – would be one way to start.
Another dimension is that we are now again witnessing a well-run British firm being the takeover target for a foreign multinational. Mainstream economists tell us that the nationality of ownership doesn’t matter. Wrong. High level functions like R&D, headquarter operations, and more general high value added manufacturing activities often remain near the home base; home really does still matter.
So a key risk of a Kraft takeover is that the firm will treat its UK operations as branch plants and will shift activities around its global operations so as to minimise costs and maximise returns for shareholders.
And as he writes in another post, concern is growing over the behaviour of RBS, the British based-but-global bank which failed disastrously last year and has had to be bailed out at huge cost by taxpayers, and which is now helping to bankroll Kraft’s hostile bid for Cadbury…
Hang on, yes, you read that correctly.
You see, this is the sort of thing that should frankly be causing politicians, bankers and corporate whores to fear for their heads as a furious public rampages through the streets burning effigies and calling for blood, or at least a little justice in the world. But the general public doesn’t read the business pages. Let me spell that out for you again in a simple manner:
A failed bank, bailed out with your and my taxes, besides rewarding its incompetent fucking staff with huge bonuses, is using our goddam money to bankroll the pillage of an iconic local firm set up by as sound a bunch of Quakers as you’re likely to find, by a bunch of corrupt, lying fake-guacamole merchants with a race-to-the-bottom business model, who are likely to strip it of assets, move production to Romania and then wank over its corpse.
And the British government, rather than adopting some poison-pill legislation, just sits back and grins. Can we have a hostile takeover of the country by the Germans and Koreans please? They’d run it a hell of a lot better.
Bailey’s post on the Kraft/Cadbury struggle “Here today, goo tomorrow” is a must read: check it out
- From figures published November 2009, UK public sector net debt was £829.7 billion. (or 59.2% of National GDP) – Source: Office National Statistics .
- Excluding Financial sector intervention, public sector debt is £681 billion or (48.7% per cent of GDP).
- South Korea’s overtaking of Britain as the world’s ninth largest exporter was interesting to note, because it was Korea that took large swathes of Britain’s manufacturing sector; the shipyards of Hull stand empty, while those of Ulsan are busy with machines clattering and workers cobbering great oil tankers together. Rover and Northfield’s plants are dead whilst Hyundai and Kia turn into world beaters, increasing market share globally even as GM and Ford implode.
- Via Larry Elliott again:
As Warren Buffett once put it, when the tide goes out you learn who’s been swimming naked – and as the water has receded rapidly down the beach, it has been possible for the first time in many years to see the UK economy as nature intended. And it is clear we are not getting a glimpse here of Botticelli’s Venus.
The markets have certainly come to the belated conclusion that the UK is mutton dressed up as lamb. Shares have bombed in London over the past month because of the recognition that the UK corporate sector is about to endure a long and painful recession, which will lead to a sharp reduction in profits.
Sterling fell against the dollar last week by more than it did in the immediate aftermath of Black Wednesday in September 1992. Why? Because the UK has papered over the cracks of a hollowed-out industrial base by taking risky bets in the global financial markets. The epic scale of the UK’s trade deficit has been disguised, up to a point, by the willingness of the City to act like a hedge fund – borrowing for short periods and lending for long periods.
Hedge funds are risky businesses; they thrive in the good times but can go bust when the weather changes, as it has over the past year. In those circumstances, the foreign holders of sterling seem resolutely unconvinced by Brown’s claim that Britain is better placed than before to ride out the storm. They have had a quick squint at the 6% of GDP trade deficit, the debt-sodden consumer, the crashing housing market – and headed straight for the exit.
We never learn. All together now, with Ani Difranco:
They say goldfish have no memory
I guess their lives are much like mine
And the little plastic castle
Is a surprise every time
And it’s hard to say if they’re happy
But they don’t seem much to mind