While UK Prime Minister David Cameron and his chancellor George Osborne claim their austerity policies are making the UK economy stronger, a devastating report by the World Economic Forum argues otherwise. In fact, parts of the UK economy are now performing worse than Haiti and Zimbabwe.
The World Economic Forum releases it’s Global Competitiveness Survey every year, a major report that is read and referenced by decision makers in politics and business the world over. This year, the UK slipped from 9th to 10th overall, out of the 140 countries studied. But if Cameron and Osborne are saying the UK economy is not only in recovery, but the fastest growing economy in the developed world, how can we be slipping down the league tables?
The answer is debt. In the area of the assessment entitled ‘macroeconomic environment’, the UK came 108th, behind Haiti, Senegal, Zimbabwe and even Liberia.
Graphic via Mike Bird/Business Insider
Why does this matter? What does ‘macroeconomic environment’ even mean?
In short, macroeconomic means the big picture. You know the difference between immediate weather versus weather systems? Well think of the macroeconomy as the latter.
If we stick with our weather analogy, micro weather would be, you look outside the window and it’s sunny. But if you wanted to understand the macro weather, you’d go sit in the Met Office and see what’s happening with the gulf stream, and hot/cold fronts, and the wider weather systems. That will tell you not only what the immediate weather is where you are, but what’s happening elsewhere and how that will impact your local weather in the future. Then you’d be able to see that while it is sunny now, there happens to be a Hurricane coming.
When examining the macroeconomic environments of the 140 countries in the study, the World Economic Forum assessed five factors to build that ‘big picture’. While the UK’s overall rank was a dismal 108, we actually ranked significantly lower than that in several key areas.
- Inflation: 1st of 140
- Country credit rating: 14th of 140
- Government budget balance: 118th of 140
- Gross national savings: 118th of 140
- General government debt: 123rd of 140
Cameron and Osborne claim to have balanced the UK’s books, yet one of the most respected global studies ranks the UK’s budget 118th in the world. Something is wrong with this picture.
If any other element would have come out this poorly, but macroeconomic environment would have been high, Cameron and Osborne could have argued: ‘look, while individual elements of the economy are still struggling to recover, we have the big picture in place, the other elements will fall into line.’ But they don’t have that defense. What this study suggests, as have notable economists throughout the last five years, is that Cameron and Osborne are making short term cosmetic economic lifts by decimating the national economy. By creating more public debt in their first three years than New Labour did in 13 (and they bailed out the banks!), they are crippling the UK economy in the longer term.
Think of it like two neighbors living in wooden houses which both need a new heating system. House 1 goes out and buys a new, safe central heating system. House 2 tears bits of wood from the structure of the house to make a fire. At first, House 2’s ‘budget’ looks better because it isn’t carrying the cost of the new heater or the ongoing heating costs – and as they’re only using floorboards from the attic, no one seems to notice a problem. But over time, the floorboards run out, so do the ones in the spare room, and eventually guests start noticing panels are missing from the walls. It becomes harder and harder to live in the house as bits are missing and unsafe, rain is coming through the roof and rotting away the internal structures, the inhabitants are getting sick, and things become so bad the the house is uninhabitable. Eventually, it collapses. While House 1 have been getting on with their lives in safety and warmth, House 2 has fallen apart. In order to make House 2 livable again, the new owners not only have to buy the central heating system the house needed all along, but they have to spend large sums to repair the house.
This is what future governments will have to do once Cameron and Osborne vacate their roles, the next government and us taxpayers will be footing the bill for their devastating short-termism. The conservative government are not balancing the books, they are cooking the books.
Multiple studies have shown that this has been the slowest economic recovery in history, and that the Chancellor has used cuts to, and sales of, public services to create positive looking figures in the short term, while killing off the potential for future growth (investment and assets) in the future.
This was the same mentality that New Labour had during the first decade of the 21st century when they failed to regulate the Financial Services sector. They felt the good times would never end, there ‘would be no return to boom and bust’. But bust came, and instead of learning from the disaster and taking a wholly new approach, the Tories have doubled down on this morally and literally bankrupt strategy.
The Tory party (and neoliberals everywhere) will tell you we can’t afford to end ‘austerity’, but the truth is, we can’t afford not to.
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