MKNE political information

Has the UK caught ‘Dutch Disease’? No, not ‘Dutch Elm Disease’ but the economic catch-22 identified by the Economist to describe the impact of revenues from natural gas on the industrial economy of the Nederlands in the 1970’s. There is now an argument that the UK has suffered a similar hollowing-out of the economy through the dominance of the financial services sector in our economic life and that this will weigh us down for decades to come.

The general claim is that where one economic sector offers exceptionally high profit opportunities, it can squeeze out investment in other sectors. Also the heightened economic activity tends to strengthen the currency, putting weaker economic sectors at an economic disadvantage. OK if this leads to a permanent establishment of comparative advantage, but should the favoured sector go to decline then the economy in question is left with reduced continuing comparative advantage and a need for pretty painful adjustments.

This it is asserted happened in the Nederlands with the boom and decline in the production of natural gas, and the Nederlands is still allegedly experiencing a structurally weakened economy in the aftermath.

Over in European Tribune there is a series of postings by a French Economist asserting that the Financial Services Industries in the UK have (because of there historic superior profitability) led to a similar hollowing out of the UK economy. In a real credit crunch that cracks financial Services bubbles the UK will be left with a seriously weakened economy overall because so many of our otherwise continuing ‘industries’ are not competitive. This he calls the ‘Anglo Disease’.

That there is a serious problem is widely acknowledged, see the Financial Times for one mainstream comment ( ‘The UK Economy is vulnerable’ ). The Eurotrib analysis takes this even further to suggest much longer term dire consequences..

This is rather controversial. But it is worth looking at the figures shown in the postings and thinking about this possibility.

Mind you as I commented over in ‘Eurotrib’:

…. part of me does think back to the history of French comments on the 'English' economy'.. for example....

“The bank of England is destroyed: its fake currency shrinks to its real currency.. its credit lost; its resources annihilated; and general terror...”

That is from the "Memoire sur l'Angleterre" the 1773 document laying out the hoped-for results of the French strategy of subversion in Britain's colonies in North America. Enthusiastic hopes of a collapse of the 'un-natural English economy' have surfaced many times over the centuries in France... Let's see how the present situation evolves.

Reference: Memoire sur l'Angleterre (1773) in Ministere des Affaires Etrangeres, Memoires et Documents: Angleterre Vol 52 Fol. 180-223. Cited in I. and R. Tombs 'That Sweet Enemy' pp168-9

One thing is sure though – having an economic shaman currently in charge of government policy is not encouraging..

Labels: comparative advantage, economics