Richard Jones

I agree that GM has many advantages over the rest of the North (v obvious to me as a recent immigrant from Sheffield) but I wouldn't write off Leeds, Liverpool, even Sheffield, who are learning from the GM example

Belated happy birthday Mike (and let me know if you fancy another trip to the grit!)

e.g.
- makes clear the role of underinvestment, public & private: q is, what are the political economy causes of this?
- decompositions focus on TFP as main location of slowdown (& some cited works narrow that down to tech intensive sectors like ICT & mfg). What's changed in our innovation system?

It's a very good and v clear piece. As the authors stress, this is the perspective from macroeconomics, so while it clarifies some questions, it doesn't answer them...

We're actually in agreement - my next comment was that we have to look for the causes of the crisis in the years leading up to it.
Causes imo included a political economy leading to systematic underinvestment, public + private, & Dutch disease from peak North Sea oil & financial services bubble.

Although US exposure was important, imo there were UK roots too; labour productivity already starting to stall by 2005. I think proximate cause of that was a long period of underinvestment, both public and private, as well as "Dutch disease" due to peak North Sea oil & financial services bubble.

On the other hand, the financial crisis wasn't the result of an asteroid strike from outer space, its causes were to be found in the state and evolution of the UK's economy in the years before the event - so I think it's important to understand what went wrong.

Graph of real GDP per capita for the UK

If we're looking for the source of our current economic woes, the plot makes clear the pivotal event was the late 2000s financial crisis
Understandable & correct to identify suboptimal & counterproductive fiscal, monetary & political responses since then, but they weren't the primary cause...

My guess is that the typical opponents of net zero identify too much with the politics of the Thatcher/Lawson period, with which closing down the UK coal industry & the dash to gas was closely associated.

I am actually quite surprised that we don't hear more of this - if you don't think climate change is a problem, then re-opening coal power stations, & perhaps reopening some UK coal mines, would be a logical thing to do.

I understand the nostalgia for the days when North Sea oil & gas made the UK self-sufficient in energy, but those days are gone.
You can't run a prosperous industrial economy without affordable and secure energy; realism dictates we must adjust to the new reality.

1. We can't be self-sufficient in gas, because we've pretty much used up the North Sea reserves. (Fracking? Might give us 4 or 5 bboe more but good luck with the planning permission).
2. Gas is internationally traded, UK production & consumption is too small to shift the market

Surprised by a number of replies to this thread on the other channel asserting that there is plenty of North Sea gas left, and that simply increasing North Sea production would solve our energy security problem and reduce our energy costs.
Some even suggested a conspiracy to deny this.
My replies:

Rishi Sunak put Lawson's photo on his desk when he became CX himself. Ideas matter, and Lawson was an unusually influential Chancellor

Yes, that was a bad and telling sign!

1. It's the duty of the state to ensure the security & affordability of energy
2. The financial services industry needs regulation to serve its societal function of allocating capital efficiently
3. The UK needs to pay its way in the world

For the UK to recover, I think we need to explicitly repudiate these three elements of Lawsonian doctrine. In contrast, I would make these three assertions:

Does this matter?
It means there is a continuous outflow of funds from the UK, in debt interest, in profits of foreign owned companies.
And loss of ownership means loss of control - investment decisions increasingly made in overseas HQs

The result is that the UK has moved from being a net creditor nation to a net debtor nation - our net international investment position turned negative in the 90s.

Plot of UK current account balance as fraction of GDP: from ONS

The UK's current account balance has been negative every year since 1983. We buy more from abroad than we sell, paying for the difference by selling assets:
Overseas acquisition of government debt, UK infrastructure & real estate, foreign acquisition of UK firms

3. After the balance of payments of payments crises of the 70's, Lawson declared that trade deficits didn't matter &, following abolition of capital controls, would correct themselves.
They didn't.

2. Excessive deregulation of the financial services industry led to an unsustainable boom in the 2000's, which combined with UK's 2000 peak in oil & gas to keep the £ high too long, damaging manufacturing through "Dutch disease".
This ended with the 2008 financial crisis & its long term consequences

It also killed the UK's civil nuclear power industry, stalling a roll-out of new PWRs of which Sizewell B was planned to be just the first. A 20 year gap in building nuclear power stations has left us without capacity to build new ones as the AGRs near their end of life

1. Leaving energy to the market at a time when gas prices were historically low & UK found North Sea oil & gas, led to underinvestment & an over reliance on gas.
We've now extracted most of the gas & find ourselves exposed to an insecure & expensive international market...

Who/what to blame for current state of UK?
Nigel Lawson, imo, not blamed enough for 3 policy doctrines which caused long-term damage:
1. Energy is just another commodity that can safely be left to the market
2. Financial services industry should be deregulated
3. The trade deficit doesn't matter

Blackpool's rate of new business formation (5.6 per 1000 people/yr) exceeds Oxfordshire's (4.2 per 1000 people/yr)
It's that greater degree of entrepreneurial spirit that must account for the fact that Blackpool is famously more prosperous than Oxfordshire.

Not where I would have chosen to spend my Monday morning.
But my thanks to staff of East Midlands ambulance service & Sheffield Northern General for my mother's prompt and caring treatment.

Blackpool's rate of new business formation (5.6 per 1000 people/yr) exceeds Oxfordshire's (4.2 per 1000 people/yr)
It's that greater degree of entrepreneurial spirit that must account for the fact that Blackpool is famously more prosperous than Oxfordshire.

"Britain needs more large, technologically sophisticated firms that exploit the division of labour to produce complex, internationally competitive, high value products & services" would be both more original and more true.

Britain needs to unleash the spirit of entrepreneurship We continue to put too many obstacles in the way of businesses that want to take risks and make things happen

"Britain needs to unleash the spirit of entrepreneurship", by Camilla Cavendish
Could have been written any time in the last 20 years, & would have been just as cliched and vacuous.
www.ft.com/content/9c32...