People like to trash the U.K. these days for its Anglo-Saxon-Capitalist economy, and rather stubborn refusal to take full part in the modern political experiment known as Europe. The financial crisis was seen by many as a triumph of the more socialist continental European model.
But Britain’s accused ‘weaknesses’ might actually be the strengths they were intended to be by those who built them into the economy.
Thus while the British economy’s flexibility means that it will contracts more rapidly when hit by shocks, it also means that it can adjust and rebound more rapidly as well.
Nevertheless, the prospects for growth look reasonable. Britain’s record on improving productivity before the crunch was better than its neighbours’. Flexible labour markets have helped restrain wages, so unemployment has not risen nearly as much during the recession as was once feared. Although unions can still damage companies and disrupt public services, they are comparatively small and weak. And, whereas the weaker members of the euro zone are shackled to the stronger countries, Britain has been able to regain competitiveness by allowing its currency to fall. Growth will probably settle down at somewhere between 2% and 2.5%—well below its rate during the long boom, but not that bad historically.
Too bad the economy has become more rigid lately….
Reducing the deficit is only one reason to cut government spending. The other, bigger, reason is that the state needs to shrink. The numbers of government employees are swelling; the regulations they design go on tying up business; the tax burden is getting heavier. Many of these dismal trends are Mr Brown’s fault. What the country desperately needs in the election campaign is a sensible debate about how to reverse them. But nobody—least of all Britons—should underestimate the advantages of an open economy in an intertwined world.
Hopefully Britain realises that it needs to lean into its strengths, not shackle them, if it wants to avoid disaster.
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