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UK Economy is a Confidence Trick


EssKay
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I've just spent the past week visiting a new offshore team I'm managing in Poland. The location is a regional city (not the capital or even in the top 3 biggest cities here).

 

The infrastructure is fantastic (all paid for by EU largesse) and the local professionals are highly qualified (most have 2 degrees + a good few years experience). Most speak 2-3 languages (incl. very good English) and here's the killer - they are at least 50% cheaper than an equivalent resource in the U.K. 

 

I've had lots of time to think about the state of the U.K. economy on this trip and crystallise some thoughts. Foremost amongst these is the belief that the UK economy is a massive confidence trick with very little actually underpinning it.

 

If we look at the factors that typically underpin a "successful" economy (in no particular order):

 

1-Access to abundant, in demand natural resources.

Well, we're a relatively small country so the closest we had to that was North Sea oil. That was a nice little earner for a few decades but unlike, say the Norwegians, we pissed away the gains and now have very little left.

 

2-A large scale manufacturing base to create goods for export.

We did actually have that up until the 1970s but allowed it to be destroyed and offshored to places like China (with the notable exception of a few niche high tech manufacturing companies which bring in a relatively small amount of revenue - Rolls Royce etc). 

 

3-Technological superiority.

Again, we did have this in a number of areas until around the 1970s. However, apart from a few niche technologies, our problem has historically been that we just haven't been able to commercialise the many things that have been invented here. We just don't seem to be able to do mass market tech (hence the lack of a British Apple, Google or Samsung)

 

4-Hegemonic power/favourable trading relationships.

We clearly had hegemonic power in the days of the British Empire, but those are long gone. We still have a fair few favourable trading relationships but we're on the cusp of severely damaging our most significant one (with the EU). What will replace it? Free trade with India and China? That'll be one way traffic for precisely as long as we can keep the confidence trick going...

 

5-Access to a highly educated workforce for service sector / high tech jobs.

Thankfully, we still have this and it's our one saving grace (accounting for 80% of our GDP).  But a lot of those jobs are with large multinationals with no binding ties to the UK. There's no shortage of people in the world and they're catching up fast in terms of education, skills and experience. Crucially, most of the developing "human capital" locations out there are far cheaper than the UK - and as the saying goes - the world doesn't owe us a living

 

Take away the service sector jobs and what are we left with? effectively just selling overpriced houses and low value services to each other.

 

Oh, and piles and piles of debt...

 

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English has pretty much become the Lingua Franca of the world economy and many, many countries teach it in their schools. 

 

Being a native English speaker may still give an individual a marginal advantage, but that's not much to pin an economy on is it?

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A Neoclassical belief in the desirability of free markets, allied to a Neoliberal belief in the financialisation of the economy via free trade, underpinned by a Neoconservative belief in the efficacy of Western military intervention to impose these twin agendas on the rest of the world.

The UK since 1979.

 

 

Edited by zugzwang
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The UK, sorry London is still one of the major Financial hubs.  Currently that counts for a lot as we are key to setting the rules, even the IMF crisis in the 70's didn't really alter this position.

We have always traded in debt, after the 1st this nearly crippled us as the US screwed over the entire system which helped create the global depression of the 20's / 30's.  Is the focus on debt a risk, clearly, the lack of the classic manufacturing base is a worry.  However what happens when the reset happens is what counts and until that happens who knows how well we are doing.

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56 minutes ago, stormymonday_2011 said:

So why have over a million Poles moved to the UK?

Cos the vast majority are at the bottom of the food chain in jobs that don't require 2 degrees yet can earn as much as somebody with 2 degrees in Polska.

Is all relative to the circles you move is as I'm sure Esskay can explain.

Edited by ChewingGrass
cos I want too
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I completely agree with this sentiment.

I write on another forum. One of the younger ones was asking about advice to find a job.

I gave what I think at least some good advice. The advice was to get some good recognised qualifications and get some solid work experience.

I was pilloried by everybody as they called me a moron. It's not Korea here they said things don't work like that here. They suggested lying and blagging their way into a company and making good friends with the bosses or managers so they would be hard to fire.

If this is what it's like up and down the country no wonder productivity is so terrible.

I guess though it does sometimes bite others on the bum eventually. I got qualified (not saying what I do) and got a masters degree and 8 years work experience. Every single one of my English colleagues called me a moron as they got paid the same or more than me without any qualifications or fake qualifications.

Then an audit happened and the only person who was qualified in the whole department was me... not that I got paid a whole load more AFTER this happened though.

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2 hours ago, EssKay said:

I've just spent the past week visiting a new offshore team I'm managing in Poland. The location is a regional city (not the capital or even in the top 3 biggest cities here).

 

The infrastructure is fantastic (all paid for by EU largesse) and the local professionals are highly qualified (most have 2 degrees + a good few years experience). Most speak 2-3 languages (incl. very good English) and here's the killer - they are at least 50% cheaper than an equivalent resource in the U.K. 

 

I've had lots of time to think about the state of the U.K. economy on this trip and crystallise some thoughts. Foremost amongst these is the belief that the UK economy is a massive confidence trick with very little actually underpinning it.

 

If we look at the factors that typically underpin a "successful" economy (in no particular order):

 

1-Access to abundant, in demand natural resources.

Well, we're a relatively small country so the closest we had to that was North Sea oil. That was a nice little earner for a few decades but unlike, say the Norwegians, we pissed away the gains and now have very little left.

 

2-A large scale manufacturing base to create goods for export.

We did actually have that up until the 1970s but allowed it to be destroyed and offshored to places like China (with the notable exception of a few niche high tech manufacturing companies which bring in a relatively small amount of revenue - Rolls Royce etc). 

 

3-Technological superiority.

Again, we did have this in a number of areas until around the 1970s. However, apart from a few niche technologies, our problem has historically been that we just haven't been able to commercialise the many things that have been invented here. We just don't seem to be able to do mass market tech (hence the lack of a British Apple, Google or Samsung)

 

4-Hegemonic power/favourable trading relationships.

We clearly had hegemonic power in the days of the British Empire, but those are long gone. We still have a fair few favourable trading relationships but we're on the cusp of severely damaging our most significant one (with the EU). What will replace it? Free trade with India and China? That'll be one way traffic for precisely as long as we can keep the confidence trick going...

 

5-Access to a highly educated workforce for service sector / high tech jobs.

Thankfully, we still have this and it's our one saving grace (accounting for 80% of our GDP).  But a lot of those jobs are with large multinationals with no binding ties to the UK. There's no shortage of people in the world and they're catching up fast in terms of education, skills and experience. Crucially, most of the developing "human capital" locations out there are far cheaper than the UK - and as the saying goes - the world doesn't owe us a living

 

Take away the service sector jobs and what are we left with? effectively just selling overpriced houses and low value services to each other.

 

Oh, and piles and piles of debt...

 

You just summed it up nicely what the EU gave to the once richer countries - exactly nothing. Less jobs, more people, more debt, net contribution to EU.

In the meantime poorer countries takes all the jobs and the knowledge coming with it + they get some nice sum from the EU on top of it.

Just a few points on the brighter side.

1. In these countries there is much less talent, they already have issues with available cheap workforce.

2. Salaries are skyrocketing there, 5-10% yearly while pound is going down.

3. There is still a slight disadvantage due to language.

The problem is that UK government actually discourages people from getting educated and trying to have a career by encouraging speculation (they call it attracting investment and business). Show me a person who can buy that semi detached for 700K and start his family just by being educated and having a job. And on top of it tuiton fees are now 9.5 grand per term. Who would want to learn, when it is only property speculators or maybe bankers can afford living in london?


The only way out from this is to transforming to "something else" as theresa may would say.

Lower pound to be more competitive, lower asset prices and lower tution fees so young people can see some kind of a future if they get educated and get a good job. We also need much lower asset prices to allow them to start families sooner and then more people will eventually mean more basis for wealth.

An asset price reset would do almost all of these. We still could do it, A LOT of the big US tech companies bought HQ's in london since brexit due to low pound, as talent is still here, but we need to act soon, before we lose the trust.

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The EU plundered the UK when it was at its weakest (manufacturing) in the 1980s and 90s, typically state industries (France) and private (German) bought up whole sectors both recently privatised or part of asset stripping criminal Lord Weinstocks empire and shut them down to eliminate competition.

What we have left is housing as an industry and entertainment services, just driven out of Manchester and the building activity is unbelievable, its almost like the gold-rush has happened yet most folks only have copper and silver in their pockets.

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52 minutes ago, ChewingGrass said:

Cos the vast majority are at the bottom of the food chain in jobs that don't require 2 degrees yet can earn as much as somebody with 2 degrees in Polska.

Is all relative to the circles you move is as I'm sure Esskay can explain.

Disagree.

I mix with a fair few East Europeans in the IT business in the UK and they are definitely not from the bottom of the food chain. People who move countries in search of work opportunities are rarely the poorest and least able.

At the risk of reiterating the same point over an over again the big killer for the UK is the rentier economic mindset of politicians and the media who confuse property speculation and inflation with investment and growth. The sheer amount of effort expended and money being eaten up to maintain asset prices in this country is simply obscene. Despite the obvious social and economic damage it is causing people seem unable to abandon the idea that it is anything but a good thing. Property is the one area where the British are completely and utterly mental. It really is the national religion.

 

Edited by stormymonday_2011
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2 minutes ago, Patient London FTB said:

Aren't we screwed if artificial intelligence helps more talented people speak English? 

AI can speak english all by itself, doesn't need a foreigner to do it for it. Plus AI can/will be able to converse in any language it can squeeze money out of.

AI is the enemy of plebs everywhere, get the pitchforks out before its too late.

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The lying and blagging to get ahead in the UK even without qualifications and real experience does strike a chord.

It even seems to extend to the footie.  Some radio commentators were saying it's almost as important to give a good interview after the match than to play well

Said it all for me.

 

Edited by billybong
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2 hours ago, zugzwang said:

A Neoclassical belief in the desirability of free markets, allied to a Neoliberal belief in the financialisation of the economy via free trade, underpinned by a Neoconservative belief in the efficacy of Western military intervention to impose these twin agendas on the rest of the world.

The UK since 1979.

 

 

Indeed.

 

And look where it has brought us

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1 hour ago, jo_gian said:

An asset price reset would do almost all of these. We still could do it, A LOT of the big US tech companies bought HQ's in london since brexit due to low pound, as talent is still here, but we need to act soon, before we lose the trust.

 

Not sure about "a lot" but there have definitely been a few that have chosen to build up their presence in London since the Brexit vote. You're right - that's a source of optimism and something we need to nurture.

 

There is a much larger group of multinationals though that have either placed UK hiring on hold or are actively offshoring roles in anticipation of a hard Brexit and loss of things like services passporting 

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2 hours ago, zugzwang said:

underpinned by a Neoconservative belief in the efficacy of Western military intervention to impose these twin agendas on the rest of the world

This is the bit that is failing now - at rapid pace.

The world is multipolar. China, Russia, and most of the countries along the Silk Road are going to completely ignore the West and its wishes. The West has very little power now, short of openly declaring war on China and Russia - or perhaps Russia first as it is smaller and less of threat long term.

America, in particular, can either accept the effective end of its hegemon in a reasonable manner, or it can choose to fight to the death. But if it comes down to military action, the US will lose.

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In my experiencr, theres not much of middle in Poland.

Theres a elite, if you like, who are Western centric, English/German speaking, well educated.

Ive a friend whos the daughter of a farm manager who managed to transition from good commie to good businessman. Shes working in the UK to get more English exposure, so they can trade more. Her English is perfect. She bringing up her kids speaking English as their first language. Kids go to her mums at holiday to keep up their Polish. Husbands British; her parents are delirious happy about thst as they are not keen on Polish men.

The Polish elite are few. Most Poles are pretty unskilled and rural. Wage inflation for the skilled is running at a much higher rate than the uk. They might be 50% at the moment, in a few years therell be no difference. p

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1 hour ago, hotairmail said:

There is no such thing as 'EU largesse'. Someone pays for it. You know who it is.

It pains me when I see the state of our infrastructure and then see little blue placques everywhere on pristine new airports and roads in the likes of Spain and Poland.

We have literally gone backwards relatively speaking since our time in the EU.

 

Agreed, but who's fault is it that our infrastructure has languished at the expense of other parts of the EU ?

 

Those development funds are allocated on the basis of development proposals. 

 

Local politicians in other parts of the EU did the legwork, went after them and won the funding. Wtf were our elected representatives doing? 

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Local purchasing power in Poland is only 29% less than the UK (according to the numbeo link below).  A much higher percentage are owner occupiers compared to the UK (according to the wikipedia link below).  

Lower wages, cheaper housing and more home ownership likely helps to make them more competitive than the UK after leaving the Soviet era behind.  At the current rate and taking everything into account their standard of living could soon be comparable to the UK and likely with far less congestion.  

That is unless the UK becomes the richest country in the world as promised by Osborne before the last general election.

Imagine if all the money used to bailout the UK banks had been used to invest in the real economy and infrastructure etc. 

https://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=United+Kingdom&country2=Poland

https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

https://www.theguardian.com/politics/2015/jan/14/britain-richest-country-world-george-osborne-fiscal-policy

 

 

Edited by billybong
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