Is British economy fundamentally broken?

[Martinus]

It seems to me that for the last 20 years or so, Britain has created a sort of unwritten socio-economic contract, in which the rich generated wealth by vacuuming world cash through financial markets and giving it out as welfare handouts to the underclass, to prevent unrest and keep the internal consumption going (the City high-fliers do not buy cheap plasmas, and after Mrs. Thatcher effectively shut down Britain's heavy industry and then the rest of manufacturing industry fled abroad, there is preciously little wealth generating jobs left in the UK). Essentially, the beautiful eloi (sp?) worked and shared their wealth with the ugly lazy and poor morlocks.

Now that this steady flow of money into the economy has stopped due to the financial markets' crisis and the eloi are closing down the gravy tap by the "necessary cuts" (it's funny how the lucky, privileged rich do not see they are effectively breaking that contract that allowed them to keep/attain their position, and instead see it as justice against the lazy welfare underclass), what is the chance of the morlocks rising up and eating them?

Discuss.

[alfred russel]

Financial sector profits are back, and I'd assume the tax revenues are too. Order is restored?

[Richard Hakluyt]

http://www.pwc.co.uk/eng/publications/the_future_of_manufacturing.html

The pdf files expose some fundamental misconceptions about UK manufacturing industry, which continues it's long-term growth and remains the 6th largest in the world.

Our problem, IMO, is that when bumper profits and taxes were coming in from the financial sector (due to the financial bubble), we went on a spending spree.

Here is a 2007 article from the Guardian about this problem :

http://www.guardian.co.uk/business/2007/nov/20/economics

In that year the government should have been running a substantial surplus, instead we were already moving towards a £40 bn deficit...........in the best of times!

[Martinus]

Financial sector profits are back, and I'd assume the tax revenues are too. Order is restored?

Not sure. I don't know the details, but I'd assume taxes in the UK come from domestic consumption, not from the financial sector (which can hire good tax advisers to implement some creative tax structure to avoid paying taxes in the UK).

So if the welfare is cut down, the consumption will be too - effectively preventing the recovery of the economy and creating massive social unrest.

[Martinus]

It's actually interesting how in retrospect the German economy - for so many years called the "sick man of Europe" - proves to be the right model, based on domestic production (and hefty foreign trade surplus) coupled with some of the best social protections, ensuring solid redistribution of goods (not to mention making sure tax havens are not a valid option).

Compare this to the UK model, where the tory government hires, as its "fiscal responsibility expert", a guy who got rich on a store chain by avoiding paying taxes in the UK thanks to his Monaco-resident wife.

[citizen k]

Britain's wealth today comes from artistic/ intellectual properties.

[Tamas]

German economy has a massive population and country size, lotsa' natural resources, and east euro colonies.

[Martinus]

Britain's wealth today comes from artistic/ intellectual properties.

[Brazen]

Seconded RH's comment about manufacturing.

Radio 4's Money Programme had a debate between bankers and manufacturers about their respctive value to the economy earlier this week. If I'd listened properly, I'm sure I'd have an opinion

To answer the question, we're not doomed and we're far better off crawling slowly out of this dip than the sudden swing to the better and back in the 80s.

[Josquius]

Manufacturing is still there, trouble is its not the mass employer it once was. I remember hearing a interesting fact the other week, the British car industry produces as many cars today as it did 40 years ago despite its seeming decline. Automisation means even the biggest and most succesful factories, like Sunderland Nissan, only employ 5000 people or so. Which leaves a lot of people without many work options.

[Martinus]

Manufacturing is still there, trouble is its not the mass employer it once was.

That was my point. If you create an economy where more than 5-10% or so of the working age populace simply has no option for gainful employment, and then decide to cut welfare to the "lazy ones", you are on a straight way to social unrest.

Having a "slimmed down" economy, that is not weighed down by mass employment of the working class has its advantages but you need to address social costs (and share the wealth with those who are left out) rather than sneer at them from your City/White Hall ivory tower for being unable to find a job.

What Germany does best is that they seem to factor social costs (and social "welfare", not necessarily meaning hand outs but the well-being of the populace at large) into their economic model. You can't build an economy that simply treats employees as a "resource" that is subject to the same rules of supply and demand as raw materials or manufacturing equipment - because sooner or later you will have a revolution on your hands. I think Brits have forgotten about it.

[Caliga]

The key is some sort of reproduction management strategy, an immigration/emigration strategy, or starting wars in order to kill off the idle.  Unfortunately for the West, we typically won't engage in the first two, so......

[Tamas]

Manufacturing is still there, trouble is its not the mass employer it once was.

That was my point. If you create an economy where more than 5-10% or so of the working age populace simply has no option for gainful employment, and then decide to cut welfare to the "lazy ones", you are on a straight way to social unrest.

Having a "slimmed down" economy, that is not weighed down by mass employment of the working class has its advantages but you need to address social costs (and share the wealth with those who are left out) rather than sneer at them from your City/White Hall ivory tower for being unable to find a job.

What Germany does best is that they seem to factor social costs (and social "welfare", not necessarily meaning hand outs but the well-being of the populace at large) into their economic model. You can't build an economy that simply treats employees as a "resource" that is subject to the same rules of supply and demand as raw materials or manufacturing equipment - because sooner or later you will have a revolution on your hands. I think Brits have forgotten about it.

I see your point but isn't this basically what all the European states has attempted? If Germany seemingly succeeded with it, that makes them the exception which does not prove the rule to be feasible.

I think the age of easy social welfare systems is well over now that unlimited free credit is gone for them. I am not sure what will follow, but the "throw money at it and it will just go away" model has failed and its time to figure out a new one.

[Richard Hakluyt]

German unemployment is not typically lower than that of the UK, it is usually higher if anything :

http://www.google.com/publicdata?ds=z9a8a3sje0h8ii_&met=unemployment_rate&idim=eu_country:GB&dl=en&hl=en&q=unemployment#met=unemployment_rate&idim=eu_country:GB:DE

[Warspite]

I wouldn't say the British economic is fundamentally broken, given that even after the worst banking crisis in three generations we have an unemployment rate that is only 1 percentage point higher than Germany's, the supposed thrift, export manufacturing powerhouse.