A response to Andrew Rawnsley’s article: the future of the UK economy

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Rawnsley piece is on the borderline of demagogic rhetoric and spirited opinion and its good reading. He taps into the mood and in doing so, he displays the same problem as the financial system. He offers a lot of feel good moments, but in the end offers nothing sustainable. The event is without context and therefore appears so easy to digest.. If the bank bailout had been against a background of no or little social welfare spending, then one could agree.  However, the reality is less prosaic than he portrays. There are five main areas wrong with this argument. The first three are short-term, the remaining two are structural problems revealed by the issue.

First, the UK’s government’s Faustian bargain with the financial sector.

Second, the intractable problem is to wean the economy’s reliance on banks and yet sustain its use as an engine of growth.  How does UK continue to fund its programmes without Finance? To put it bluntly, the UK is nearly as reliant on finance as the Middle East is on Oil.  Once it goes, there is nothing else.  What will remain will not sustain what has been offered in terms of social welfare over the past 15 years.

Third special interest politics, such as the occupy “movement” cannot be sustained within the UK political system. The UK’s parliamentary system is not designed to cope with the politics of protest in the way that the US system can (Federalist papers 10 and 51).  They are speaking for their own interests but portraying as the majority interest.

Fourth, the deeper problems, this is a sign the UK is not a republic and the groundswell is moving away from a system of monarchical system. The reforms demanded within the movement and in response to the economic changes are showing a change in the country.

Fifth, the UK economy is overly dependent upon the South East for its economic growth so any shift in politics and society has to discuss this structural issue.

 

First, the UK government made a deal, perhaps a Faustian bargain, to allow the City to dominate the UK economy in exchange for increasing the tax revenue to pay for the political projects. http://www.bankofengland.co.uk/publications/speeches/2010/speech442.pdf This puts it crudely, but Rawnsley is not seeking to finesse the situation. Over the past 15 years, the banks have grown wealthy and the UK government has grown wealthy. The money was redistributed in programmes, such as education, SRB, NRF, and BSF, and increased NHS spending. http://fullfact.org/files/2011/03/Welfare_Reform_Bill_2R_Briefing.pdf Thus, it is wrong to suggest that this is a one-way street.

 

Second, the banking reform is needed and is going forward. However, the problem for the UK is that it is so reliant upon London and London in turn is reliant on the City for its growth.

http://www.centreforcities.org/assets/files/2011%20Research/11-03-14%20Centre%20for%20Cities%20Supporting%20Note_Growth%20conundrum.pdf

The point is that the UK needs to rebalance its economy, but to what? How? These questions raise the issue of structural changes as well as changes within the economic mix within the UK.  The Government has limited ability in the short-term to affect these changes. What it can do is restructure and encourage through tax incentives, as well as spending decisions, to shape the economy in the end. However, this is not going to be solved by slogans. It is a hard, brutal political process in which parliament, and he public, has to join to decide what kind of country the UK is going to be over the next 15 years.  If it were easy, it would have been done already. However, to suggest, as Rawnsley has, that the UK government present and past has *not* been working on this issue simply defies belief.

I agree that the banks need reform, but that can only happen if the economy reforms as well. Once you start to reform the economy, you have to find a way to support the same social welfare spending on less overall economic growth or you have to develop the bank in such a way that the country is not as reliant.  In other words, you have to get the banks back to contributing to the tax revenue streams without at the same time choking off what they can deliver. http://www.ft.com/cms/s/0/1e1ff056-7b41-11e0-9b06-00144feabdc0.html#axzz1cGgQmkrz  The UK government does not have a free hand to “bash the banks” without damaging its ability to deliver social welfare programmes. http://www.hm-treasury.gov.uk/d/junebudget_complete.pdf

 

Third, the UK is not a federal system and it cannot sustain special interest politics in the same way because it is not a republic.  In other words, its system is not designed to merge special interest politics. Parliament is not a system designed for handling this type of politics. How it handles it is different from how the US handles it. In part, this is because the “movement” such as it is, is more than seeking a political redress of a specific issue. If it were, then parliament could pass a bill. However, the problem is that it seeks to change society. As such, parliament cannot do this directly because some parts of society, the monarchy, the Church of England, are harder to change than others.  Moreover, the demands to change society do not translate easily into legislation.  Were this to be the case, we could start to see Government Bills or Private Members bills being offered to discuss the issue.

Another way to look at it is that Parliament is not designed so that special interest checks special interest. In the US system, the 10th Federalist Paper and the 51st Federalist Paper set out a system of balanced powers. http://www.constitution.org/fed/federa10.htm and http://www.constitution.org/fed/federa51.htm  Thus, one does not capture the state in the same way that one can capture the state in the UK.  Thus, overall control rests with Parliament so that any special interest politics represents, even if never intended, a fundamental political challenge the to the parliamentary prerogative. . In a recent lecture, Lord Neuberger made the case for parliamentary sovereignty.   http://www.judiciary.gov.uk/Resources/JCO/Documents/Speeches/mr-speech-weedon-lecture-110406.pdf

 

Fourth, republic or monarchy and the monarchy sustain the parliament’s sovereignty while the dreams of republic sustain its public support. What we are seeing is that the tectonic plates within the UK political system beginning to shift.  The future of the monarchy is tied to the future of the parliament.  Overtime, it remains to be seen whether the UK can sustain such a tension.  In the short term, however, the occupy movement is demonstrating a challenge to the establishment in that sense.  In the long term, the challenge is whether the parliamentary system can remain sovereign with the increased demand for rights based legal structure. See Anthony Staddon Holding the Executive to account. The Accountability Function of the UK Parliament (World Bank Institute, 2008) http://siteresources.worldbank.org/PSGLP/Resources/HoldingtheExecuTheAccountabilityFunctionoftheUKParliament.pdf

 

Fifth, the UK depends on London and the City of London for its economic growth.  How that will change is *the* economic question that still needs to be answered.  Again, this is not going to be solved by a slogan, but by the long, difficult, and problematic process of restructuring the UK economy. http://217.154.230.218/NR/rdonlyres/8EFCB97E-F905-45BE-89F9-01AEEBD6AE67/0/BC_RS_LondonsCompetitivePlaceintheUKandGlobalEconomies.pdf

How can the UK government change the country to shift is reliance on the Southeast?  At one level, the choice has been to increase its competitiveness, in other words, keep feeding the golden goose.  The problem here, though, is that the golden goose can get ill.  Thus, the UK government has to raise some hens in other areas (Manchester, Birmingham, Newcastle, Bristol, Edinburgh) to keep the eggs (perhaps not as golden) coming.

 

In the end, the only grownups in this whole process are the public. They will have to pay the bills and they will have to clean up after all of this.

 

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    About lawrence serewicz

    An American living and working in the UK trying to understand the American idea and explain it to others. The views in this blog are my own for better or worse.
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