“I’m free to please whom I choose any old time
So hold me, love me
Love me, hold me
But I’m free any old time to get what I want
Yes, I am…”
(Mick Jagger, Keith Richards)
A change of leadership…
At the time of writing, Prime Minister Starmer’s frequently muddling time at the top appears to be dribbling to a conclusion. There are several options waiting in the wings for a shot at the title. The problem for all of these aspirants is that they will soon be in the ring, not with a weakened former human rights lawyer, but a frequently belligerent 800lb gorilla in the form of the UK’s government bond market. Words are inevitably cheap in the customary pre-fight trash talk – it is easy to rail against the shadowy forces of finance and your predecessors being ‘in hock’ to that same bond market whilst in this pre-fight phase. You must hope that the gorilla doesn’t take your posturing too seriously, lest you anger it further…
This may all sound sinister and anti-democratic to you. Fair enough, however there is reassurance here too. The parameters of policy making have long been more constrained than popularly imagined. People lending to governments around the world, including us, are mostly apolitical in their aims. We want our money back at the end of the loan period and the minimum of unanticipated inflation eating our returns on the journey there. Meanwhile, the primary drivers of trends in economic growth are mostly well beyond the reach of the policy makers that we elect. Most of the time, these leaders have roles in the distribution of opportunity, wealth and incomes, but much less in the absolute quantity of them.
The UK’s post war economic history is a frequently misused example of political agency. Below we aim to muddy the picture a little.
A brief tour of post war
The UK economy spent much of the century up to 1970 underperforming its competition, both near and far. Some of this underperformance was unavoidable – in terms of output per head, the US overtook Britain in the years running up to World War I – in some part this was a byproduct of the vast advantages in raw materials per head enjoyed by the former colony. However, the UK also underperformed its European peers in the post-war decades, up to and including at least some of the 1970s. The fact that the UK started from a higher initial level of income and productivity excuses the first bit of catch up. However, that the economy continued to lag France and Germany even after being overtaken, hints at a more avoidable period of relative decline.
What part did politics play?
The temptation to commandeer chunks of economic history to support one ideological leaning or other is ever powerful. However, the real world is routinely messier, with politicians often in yoke to the underlying economy and its pre-existing idiosyncrasies and eccentricities, rather than the other way around. Admittedly, some of the UK’s poor productivity growth during this period can be chalked up to the nationalisation of industries in the immediate aftermath of World War II by the Attlee Labour government. There can be little doubt that this curtailed innovation and competition within those industries. During this time, the state also had an unhealthy tendency to try and fine-tune the economy, a lingering legacy of the necessities of the wartime economy. We can now see more clearly that such meddling served to destabilise the economy by accentuating, rather than attenuating downswings.
However, other structural flaws also played an equally significant, if not dominant, role. For example, cartelisation, which had proliferated during the 1930s and 1940s, characterised the greater part of the manufacturing sector. Inefficient plants and businesses were kept alive, leading to poor productivity growth as the incentives to innovate were diluted. The absence of competition in much of the economy was further reinforced by the legacy of inter-war protectionism and the UK’s initial refusal to join the European Economic Community (EEC), prompting British firms to concentrate their exports on the less competitive Commonwealth markets.
Accompanying all this, UK industrial relations had become increasingly dysfunctional throughout the post-war years. Britain entered the post-war era with an unreformed system characterised by multiple unionism, craft-control, legal immunities for trade unions, and plant bargaining with shop stewards. Disproportionately powerful trade unions, amidst the full employment of the era, contributed to an inflexible and expensive workforce, which itself acted as a serious deterrent to investment and innovation. It is worth noting that these structural factors were present under both Conservative and Labour parties throughout the post-war years, and they can (and do) exist in nations that are governed under all shades of the political spectrum.
Thatcherism to the rescue?
The supply-side policies implemented by Margaret Thatcher’s Conservative government between 1979-90 were certainly helpful in reversing the UK’s relative decline. With a sweeping range of policies which included reforming industrial relations, privatising state-owned businesses, encouraging foreign investment, and deregulating the economy, it is clear that supply-side reform stimulated much-needed competition among British industries, leading to higher productivity growth. By the end of the 20th century, UK income levels had surpassed those of its European peers, thus putting an end to economic decline.
However, Thatcherism wasn’t the only reason for this turnaround. The UK was already opening its markets up to foreign competition before Prime Minister Thatcher came to power, with its entry into the European Economic Community (EEC) in 1973. Some plausibly argue that the UK’s EEC membership, and the faster productivity growth brought on by greater competition from more technologically advanced European firms, was the dominant factor in ending the UK’s relative economic slumber.
Grand historical shifts are more often than not the product of multiple interacting variables, rather than a single overriding cause. Britain’s relative economic decline and revival throughout the post-war years is a good example. Previous drags on UK economic performance had arguably less to do with the reigning political ideology of the time, and more to do with long-standing institutional flaws within the economic structure itself. Similarly, the cure to Britain’s decline was rooted in greater competition, something that can (and should be) implemented by any political party straddling either side of the political spectrum.
Where does that leave us today?
As we pointed out in our article focusing on the UK economy, there is less cause for reflexive doom here than widely realised. The UK economy would certainly benefit from a stable policy making backdrop, however our rosier outlook for the UK is not dependent on it. Whatever becomes of our 58th prime minister or his successor, the UK is worthy of a glass half full.
1. Britain’s Relative Economic Performance, 1870–1999 – Crafts, 2002
2. Competition and Innovation in 1950s Britain – Broadberry (2001)
3. From empire to Europe: the decline and revival of British industry since the Second World War – Owen (1993)
4. Industrial Relations and the Economy 1939-1999 – Brown, 2003
5. British Relative Economic Decline Revisited – Crafts, 2011
6. How EEC membership drove Margaret Thatcher’s reforms – Campos, Coricelli, 2017
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/insights/starmergeddon
Starmergeddon?
Starmergeddon?
“I’m free to please whom I choose any old time
So hold me, love me
Love me, hold me
But I’m free any old time to get what I want
Yes, I am…”
(Mick Jagger, Keith Richards)
A change of leadership…
At the time of writing, Prime Minister Starmer’s frequently muddling time at the top appears to be dribbling to a conclusion. There are several options waiting in the wings for a shot at the title. The problem for all of these aspirants is that they will soon be in the ring, not with a weakened former human rights lawyer, but a frequently belligerent 800lb gorilla in the form of the UK’s government bond market. Words are inevitably cheap in the customary pre-fight trash talk – it is easy to rail against the shadowy forces of finance and your predecessors being ‘in hock’ to that same bond market whilst in this pre-fight phase. You must hope that the gorilla doesn’t take your posturing too seriously, lest you anger it further…
This may all sound sinister and anti-democratic to you. Fair enough, however there is reassurance here too. The parameters of policy making have long been more constrained than popularly imagined. People lending to governments around the world, including us, are mostly apolitical in their aims. We want our money back at the end of the loan period and the minimum of unanticipated inflation eating our returns on the journey there. Meanwhile, the primary drivers of trends in economic growth are mostly well beyond the reach of the policy makers that we elect. Most of the time, these leaders have roles in the distribution of opportunity, wealth and incomes, but much less in the absolute quantity of them.
The UK’s post war economic history is a frequently misused example of political agency. Below we aim to muddy the picture a little.
A brief tour of post war
The UK economy spent much of the century up to 1970 underperforming its competition, both near and far. Some of this underperformance was unavoidable – in terms of output per head, the US overtook Britain in the years running up to World War I – in some part this was a byproduct of the vast advantages in raw materials per head enjoyed by the former colony. However, the UK also underperformed its European peers in the post-war decades, up to and including at least some of the 1970s. The fact that the UK started from a higher initial level of income and productivity excuses the first bit of catch up. However, that the economy continued to lag France and Germany even after being overtaken, hints at a more avoidable period of relative decline.
What part did politics play?
The temptation to commandeer chunks of economic history to support one ideological leaning or other is ever powerful. However, the real world is routinely messier, with politicians often in yoke to the underlying economy and its pre-existing idiosyncrasies and eccentricities, rather than the other way around. Admittedly, some of the UK’s poor productivity growth during this period can be chalked up to the nationalisation of industries in the immediate aftermath of World War II by the Attlee Labour government. There can be little doubt that this curtailed innovation and competition within those industries. During this time, the state also had an unhealthy tendency to try and fine-tune the economy, a lingering legacy of the necessities of the wartime economy. We can now see more clearly that such meddling served to destabilise the economy by accentuating, rather than attenuating downswings.
However, other structural flaws also played an equally significant, if not dominant, role. For example, cartelisation, which had proliferated during the 1930s and 1940s, characterised the greater part of the manufacturing sector. Inefficient plants and businesses were kept alive, leading to poor productivity growth as the incentives to innovate were diluted. The absence of competition in much of the economy was further reinforced by the legacy of inter-war protectionism and the UK’s initial refusal to join the European Economic Community (EEC), prompting British firms to concentrate their exports on the less competitive Commonwealth markets.
Accompanying all this, UK industrial relations had become increasingly dysfunctional throughout the post-war years. Britain entered the post-war era with an unreformed system characterised by multiple unionism, craft-control, legal immunities for trade unions, and plant bargaining with shop stewards. Disproportionately powerful trade unions, amidst the full employment of the era, contributed to an inflexible and expensive workforce, which itself acted as a serious deterrent to investment and innovation. It is worth noting that these structural factors were present under both Conservative and Labour parties throughout the post-war years, and they can (and do) exist in nations that are governed under all shades of the political spectrum.
Thatcherism to the rescue?
The supply-side policies implemented by Margaret Thatcher’s Conservative government between 1979-90 were certainly helpful in reversing the UK’s relative decline. With a sweeping range of policies which included reforming industrial relations, privatising state-owned businesses, encouraging foreign investment, and deregulating the economy, it is clear that supply-side reform stimulated much-needed competition among British industries, leading to higher productivity growth. By the end of the 20th century, UK income levels had surpassed those of its European peers, thus putting an end to economic decline.
However, Thatcherism wasn’t the only reason for this turnaround. The UK was already opening its markets up to foreign competition before Prime Minister Thatcher came to power, with its entry into the European Economic Community (EEC) in 1973. Some plausibly argue that the UK’s EEC membership, and the faster productivity growth brought on by greater competition from more technologically advanced European firms, was the dominant factor in ending the UK’s relative economic slumber.
Grand historical shifts are more often than not the product of multiple interacting variables, rather than a single overriding cause. Britain’s relative economic decline and revival throughout the post-war years is a good example. Previous drags on UK economic performance had arguably less to do with the reigning political ideology of the time, and more to do with long-standing institutional flaws within the economic structure itself. Similarly, the cure to Britain’s decline was rooted in greater competition, something that can (and should be) implemented by any political party straddling either side of the political spectrum.
Where does that leave us today?
As we pointed out in our article focusing on the UK economy, there is less cause for reflexive doom here than widely realised. The UK economy would certainly benefit from a stable policy making backdrop, however our rosier outlook for the UK is not dependent on it. Whatever becomes of our 58th prime minister or his successor, the UK is worthy of a glass half full.
1. Britain’s Relative Economic Performance, 1870–1999 – Crafts, 2002
2. Competition and Innovation in 1950s Britain – Broadberry (2001)
3. From empire to Europe: the decline and revival of British industry since the Second World War – Owen (1993)
4. Industrial Relations and the Economy 1939-1999 – Brown, 2003
5. British Relative Economic Decline Revisited – Crafts, 2011
6. How EEC membership drove Margaret Thatcher’s reforms – Campos, Coricelli, 2017
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/insights/starmergeddon
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