Economists have always bemoaned about the lack of economic understanding demonstrated in the actions of our political leaders. However in Britain at least we have come to a unique time in our political history, a time when our leaders display an almost complete ignorance of the art of economic management.
The golden rule for the management of the economy should be don’t play fast and loose with the economy, because if you do it will come back and bite you. This our government did when the prioritised ideology and political advantage in negotiating Britain’s exit from the EU. They negotiated a deal that maximised the damage that would be inflicted on the British economy. The terms were so bad for the fishing industry that Scottish fisherman are registering their boats in Copenhagen as Danish, so they can sell their catch to the Europeans. The terms of the deal make it very difficult if not impossible to sell fish direct to Europe from Britain. Already with shortages in the supermarkets and a fuel crisis the government is having to backtrack on the terms of it deal, trying to minimise the negative impact of the deal. Already its going back on its hard line on European immigration in an attempt to persuade European HGV drivers to return to Britain, as a shortage of native HGV drivers mean food products are being left to rot in the fields or warehouses. Slowly step by step the government is removing the restrictions on European HGV drivers that it imposed in January.
Britain is a trading nation and whose peoples well being the well being is dependent on International trade. Only about 60% of Britains food is produced in the country the rest has to be imported. A fact understood by both the German Kaiser and Hitler in both world wars. They tried to bring Britain to its knees by stopping or limiting the import of food and essential raw materials through submarine warfare. Surprisingly the government of Boris Johnson has done something similar to what both the Kaiser and Hitler aspired. It has imposed barriers to the trade with our largest trading partner Europe. The barriers are the imposition of a complex system of controls on trade, so complex that many businesses either side of the channel have withdrawn from trading with Britain or Europe.
What passes under the political radar Westminster is businesses complaints about the large quantity of paperwork required to export to Europe, now we have left the single market. One exporter claimed that now they have to complete 28 separate forms when exporting to Europe, whereas before January that number was the imposition of new border controls trade with Germany has fallen. Imports from the UK have fallen by 56% and exports to the UK by 29%. If Germany was a small insignificant trading nation this would not matter, but Germany is the economic powerhouse of Europe, its largest economy. Soon if not already the UK will cease to be one of the top ten nations with whom Germany trades. Only a politician blind to reality could show indifference to such a catastrophic decline in trade.
Already significant sectors of the economy show marked signs of economic distress. Agriculture, fishing and the food processing industries are examples of this distress. The export of British cheese to Europe has become almost impossible. This downturn in foreign trade is significant because it means there will be a downturn in the level of economic activity, most likely leading to a recession. How far the downturn will go is hard to predict, all that can be said is it’s foolish to deliberately engineer a downturn is economic activity, as any downturn can gain momentum and leading to a very nasty recession. Golden rule number 2, it is easier to start a downturn in economic activity, than to stop one, so don’t start one unless there are compelling economic reasons for doing so.
What appears an unknown to our political leaders, is something called the economies of disintegration. Through reducing production on site and outsourcing it to the cheapest suppliers in the world, the cost of manufacturing has come down rapidly. There is no longer such a thing as a British car, parts come from all over the world. Under this system a car part such as the carburettor can go back and across the English Channel eight times, before the its assembly is completed. Now the government has hit the supply chains with a wrecking ball, no longer can manufactured goods pass freely between Britain and Europe. This wrecking ball is the mountain of paper work required by the import/export authorities of each country. While it can be said that the supply chains of business are far too long and too easily disrupted, it does not make any economic sense for the government to suddenly interrupt the free flow of goods in this supply chain. This will cause shortages and disruption in the domestic industries, as they have been denied the time to adjust to the changes. I cannot predict what will happen in the long term to British manufacturing industry, but the short term effect of interrupting the supply chain will be a decline in manufacturing industry.
If Boris Johnson and his Brexiter government is correct, all previous governments that believed British prosperity depended on increasing it trade with the rest of the world were wrong. Although this government boasts of increasing trade with the rest of the world, its rhetoric gives away the reality. When the government talks of the need for the spirit of the Blitz it is telling a different story. The Blitz was a time of shortages and rationing. Already there are plenty of indicators that the British economy is heading into a dark time, when shortages of goods become common place. A cartoon in a German newspaper sums this situation. A travel agent is talking to a couple who want to travel somewhere, where they can experience the shortages and inconveniences of the former East Germany, the agent recommends a stay in Brexit Britain.
When the economist John Galbraith discussed the means by which the horrors of the Great Depression of 1929 could have been averted, he said steps should have been taken to restore business confidence. A series of meeting between the President and business leaders would have done a lot restore confidence in the business community. Knowing that the government was taking their concerns seriously and acting on them would have done wonders to restore business confidence. Confidence is necessary if businesses are to invest and that new investment would have kickstarted the economy. Of all that I have mentioned this psychological factor is the probably the most significant. A loss of business confidence can easily turn a downturn into a recession or even worse a serious depression. Again Britain is a good example of what not to do in terms of leadership. The impression it gives is that it’s not listening to business. In response to concerns about the negative impact of the rise in gas prices on the biggest users, the government has made it clear it is not willing to help, except in extremis, as business has had plenty of government money already to tide it over during the pandemic, there is no more left. If anything can be more calculated to destroy business confidence, I cannot think of it. All this is compounded by the character of the Prime Minister. He is known for his lack of interest in the detail of government, as a leader he lacks gravitas. At the last Conservative party conference he amused those in attendance with a series of jokes. Those not at the conference noted his lack of interest in the crises that were happening outside the conference hall. The government’s actions, plus the knowledge that we have a lightweight as political leader, will do little to restore business confidence. Golden rule number three, when an economic crisis threatens government should act appropriately, it must never seem indifferent to the crisis. The sterling crisis of 1976 was in worsened by the Chancellor, Jim Callaghan on being questioned at the airport on his return from an international conference about the crisis, said’ ‘what crisis” giving the impression of being somebody not in command of the facts.
In the future students of economics and business studies will be given Brexit Britain as a case study in how not to manage an economy, or to put it more brutally how to turn a formerly prosperous nation into a basket case.