Thursday, June 24, 2010

Lazy Sundays (june 25, 2010)

Like its football team, much of England is underperforming

By Swapan Dasgupta

Every beleaguered country could do with a little respite. On Wednesday afternoon, at 3.25 pm to be precise, England breathed a collective sigh of relief as Jermain Defoe smashed the ball into the Slovenia goal and ensured a place for the Three Lions in the last 16 of the World Cup. The alternative, which most England fans were mentally prepared for, was a disgraceful return of the team to Heathrow perhaps, like the mutinous French side, flying economy class.

The relief may yet turn out to be woefully short-lived. The tragedy of English footballers, who play in the extremely competitive English Premier League, underperforming in their first two matches in South Africa, has become the subject of some wonderful black humour. My personal favourite: “What’s the difference between the England team and a tea bag? The tea bag stays in the cup longer.”

Confronting adversity with a sense of humour is, of course, laudable. To those familiar with history, it may even remind us of the grin-and-bear-it attitude of the country’s “finest hour”. But there’s a crucial difference. In 1940, a lone Britain was well and truly punching above its weight. Today, the sense of underperformance is so all-pervasive that it is seen as the natural state of being.

It is sometimes difficult for a Briton to appreciate what seems so plainly apparent to a visiting foreigner. Last Sunday, I was on a driving holiday along the Pembrokeshire coast in Wales, spending a couple of nights in a remote Bed and Breakfast off the small seaside town of Fishguard. The town was the site of the last invasion of Britain by a rag-tag French force in 1797. The invasion failed miserably and the surrender was negotiated within a day at the Royal Oak pub opposite the Town Hall.

Pembrokeshire, as the entrepreneurial couple who run the Cefn-y-Dre (which means Back of Town) hostelry in a house that once belonged to the Lloyd George family informed me, has two major sources of livelihood: farming and tourism. Farming isn’t in the pink of health, thanks to cumbersome European Union regulations, but the area is absolutely cut out for tourism. It draws visitors from the ‘ethical’ British (those who hate adding to carbon emission by taking cheap flights to Europe) and expatriate Welsh from the US and Australia. Yet, on one of the most tourist-friendly days of June, the shopkeepers of Fishguard had downed their shutters rather than take advantage of the market opportunity.

This example of underperformance, I must say, is not universal. The market town of Ludlow in Shropshire, a gateway to Wales, has successfully reinvented itself as a haven for foodies. It has more Michelin star restaurants in a five-mile radius than any other place in Britain, apart from Central London. Likewise, the idyllic village of Hay-on-Wye, on the Welsh border, has emerged as a centre of the second-hand book trade, boasting as many as 25 bookshops in a square mile.

The emergence of Hay-on-Wye as a pilgrimage centre for bibliophiles was, however, an incidental consequence of the prohibitive costs of enterprise in Britain’s bigger cities. Even a decade or so ago, cities such as London and Oxford boasted umpteen second-hand and antiquarian bookshops. High rents and high municipal taxes have made small single-unit shops catering to the select few unviable. The charity-owned shops that have emerged in all the high streets have compounded the problem because they too sell used books donated by philanthropists with a space crunch.

The dislocation of Britain and the growing difficulties encountered by entrepreneurs are very apparent to the outsider. To them, Britain appears grossly overpriced and overtaxed — some recent advantages are due to the falling exchange rate of sterling. Unfortunately, the inability of the country to exploit its potential fully doesn’t appear to have been fully grasped by the natives themselves. There is still a smug belief that the country is plodding along in the right direction and that some economists and an ideologically-driven Conservative Party are exaggerating the dangers to the economy. The idea that macroeconomic mismanagement could propel Britain in the same direction as Greece hasn’t sunk into the public consciousness.

This is why the wave of panic that preceded the “emergency budget” of the chancellor of the exchequer, George Osborne, last Tuesday had a salutary purpose. The budget, which some people have described as a landmark event, was aimed at rolling back a fiscal deficit that had touched nearly 11 per cent of the gross domestic product. Part of the problem was, no doubt, caused by the expansionary stimulus package that the former Labour government felt was the Keynesian alternative to global recessionary currents. But at the core of the problem was the reckless expansion of state expenditure — they use the term “public services” in Britain — which had touched nearly 48 per cent of the GDP. To fund this statism, Britain had borrowed wildly, taxed unreasonably and now found itself in a spiral of indebtedness.

The problem that most complacent Britons failed to appreciate was that the country was living well beyond its means, on borrowed capital. The entitlement culture that Margaret Thatcher had done her best to demolish in the 1980s — now referred to, for inexplicable reasons, as the “ugly ’80s” — returned with a vengeance with New Labour. What this meant was that Britain’s slow return to competitiveness was simultaneously eroded by a welfare cushioning that crossed the bounds of normal compassion.

Predictably, this tangled web of welfare and public services led to macroeconomic distortions. More insidiously, it undermined the work ethic and led to over-dependence on migrant labour, mainly from the East European countries of the EU, for unskilled jobs. In a situation where the state guaranteed a basic standard of living for everyone, it made little sense for many people to enter the labour market. This week, for example, it was revealed that an Afghan woman with seven children received the equivalent of £150,000 as housing benefits, without having to do a thing.

Osborne’s budget has raised personal taxes and the value-added tax. But tax rises have been complemented by the assurance that government spending will be reduced by at least 25 per cent. These are savage cuts which may even lead to a wave of public sector strikes against job losses. There may also be a voter backlash against the loss of unaffordable entitlements.

If the David Cameron government can withstand this political onslaught, it may be able to steer Britain in a new direction. The budget scare has at least jolted Britons into realizing that their complacency is unwarranted. A greater appreciation of market realities may yet compel the shopkeepers of Fishguard to keep their shops open on the Sundays of the tourist season. An overweight Britain needs to shed a lot of fat.

The Telegraph, June 25, 2010

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