Observations of an ex pat: Diagnose First

Editor’s Note: This was submitted on 9th September but held back because of the death of the Queen.

Britain’s new Conservative Prime Minister Liz Truss is doomed to failure because she has failed to correctly diagnose the cause of her country’s problems.

Any doctor will tell you that before you can successfully treat a patient you must first know what you are treating. In fact, the treatment is often the easiest part of the medical business.

The same rule applies to most aspects of life, especially politics. Before you can correct social and economic ills with new policies, laws or decrees you must correctly identify the cause of the problem. If you fail to do so the problem will fester and grow in much the same way as an untreated cancer.

Problems in political diagnosis often arise when the politician insists on examining the patient through a narrow ideological lens. Medieval Europe, for example, was a socially stagnant period because all social issues were addressed through the pages of the Bible. The Soviet Union collapsed because the ruling Politburo decreed that all of society had to be organised through the prism of Marxist-Leninism.

Liz Truss is attempting to solve Britain’s mounting problems through a narrow conservative, anti-European window.

Part of the reason for her approach is that it is the conservative government who is responsible for the very problems she is attempting to resolve. Let’s start with the issue of foreign investment in the UK which is essential to economic growth and which Ms Truss claims she will attract with the traditional conservative economic tactic of lower corporate taxes.

Pre-Brexit, Britain was a magnet for foreign investment for several reasons: it was English-speaking. It was politically stable. Business relations were conducted according to internationally-respected English commercial law which was protected by an independent judiciary. There was a world beating arts sector and excellent educational and research establishments. BUT, most of all, the United Kingdom was a bridgehead into the world’s largest trading bloc—the European Union.

Between 2011 and 2016 foreign direct investment in the UK grew at a staggering annual rate of 8.3 percent according to Investment Monitor. It reached its peak at the time of the Brexit vote. In 2017-2018 it fell by 9.3 percent. In 2018-2019 it was down by another 16.3 percent. It rose slightly—3.8 percent—the following year, but this has been mainly credited to market adjustments.

Lowering corporate taxes is unlikely to solve the problem. From 2016 British corporation has been 19 percent, one of the lowest in Europe and two percent lower than federal US corporation tax. Foreign companies did not stop investing in Britain because of its tax structure. They stopped because it withdrew from the EU.

But the new prime minister emphatically denies that Brexit has in anyway contributed to the country’s decline since 2016. To do so, would be to admit that the conservatives were wrong to take Britain out of the EU. So she doubles down. Support for a hardline Brexit has become a defining characteristic of the Conservative Party. Neither does Ms Truss make any attempt to improve relations with Europe. “The Jury is out,” on whether French President Emmanuel Macron is a “friend or foe”, she told a questioner recently.

The most pressing battleground the EU is the Northern Ireland Protocol which reaches another deadline this coming week. The Conservative government of Boris Johnson negotiated a withdrawal agreement which placed Northern Ireland in the EU single market and customs union, Before the ink was dry on the treaty papers, Johnson was reneging on the Northern Ireland Protocol. As Foreign Secretary Liz Truss helped organise the charge against “unreasonable and inflexible Brussels.” As Prime Minister she has appointed three hardline Brexiteers to lead negotiations on the Northern Ireland Protocol. This is despite a pointed warning from President Biden that her refusal to compromise on the issue would damage US-UK relations.

A big part of the problem is that Liz Truss was not voted into office by the British people. She was elected by .003 percent of the electorate and they were all card-carrying members of the conservative party. According to the party’s own Bow Group researchers the average party member is a 72-year-old White male. They are also largely anti-immigrant and anti-EU. That is only constituency to which Ms Truss had to pitch in order to be elected Prime Minister.

The rest of the electorate will have to wait two years for their chance to vote on her policies, by which time Ms Truss’s mis-diagnosis will have wreaked extensive damage on the United Kingdom.

* Tom Arms is foreign editor of Liberal Democrat Voice and the author of “The Encyclopedia of the Cold War” and the recently published “America Made in Britain” that has sold out in the US after six weeks but is still available in the UK.

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12 Comments

  • Jenny Barnes 20th Sep '22 - 1:48pm

    Thatcher was successful in getting the UK economy to grow because of North Sea Oil. No such bonanza is likely for the Truss tories in the near future, so the “growth” agenda is doomed. Her policies as so far announced and the economic situation will likely lead to a year or more of recession.

  • Liz Truss’s overriding policy is that “growing the size of the pie” (ie, growing the economy) matters more than ensuring it is fairly distributed….
    As far as I’m concerned, “It doesn’t matter what the size of the pie is if you don’t get a share”

    As for Thatcher growing the economy; ‘she came into power in a recession and, eleven years later, exited in a recession’…She not only squandered the UK’s oil resources but sold off utilities and services at knock down prices..Anyone can ‘keep the wolf from the door’ by selling the family silver but no-one can do that for ever…Her ‘No u-turn’ speech was great retoric but a disastrous policy…

    Her greatest speech was in 1988; her,“A single market without barriers—visible or invisible—giving you direct and unhindered access to the purchasing power of over 300 million of the world’s wealthiest and most prosperous people.” It is criminal that this legacy has been thrown away by those claiming to be her heirs…

  • By election late October West Lancashire. Be a good test of this article. It is bit of a “Red Wall” seat. Sad to see Rosie Wilkinson leaving Parliament for pastures new, she was a Liberal Alliance candidate in the Knowsley by election, where we performed strongly, remember delivering in the rain at Prescot, which we controlled at the time. Decision for us do we soft pedal or make a real noise. We should go for the latter, with a good known local area candidate we can expect some peel off of the Tory vote, also important to see off the Greens, they could be a threat to our third place, having some pockets of strength in the seat, and I am not sure the Labour vote will move much.

  • Jenny Barnes 20th Sep '22 - 4:26pm

    ofc, it could be that they know perfectly well their ideas will not produce growth, but will provide bigger slices of the diminished pie to those who have been used to getting most of it. The pie is bound to shrink because of the increased cost of energy, nothing to do with inflation.

  • Between 2011 and 2016 foreign direct investment in the UK grew at a staggering annual rate of 8.3 percent according to Investment Monitor. It reached its peak at the time of the Brexit vote.

    Those figures are hugely distorted by two large takeovers in 2016: the £79bn acquisition of SABMiller by Anheuser-Busch and the £24bn purchase of ARM Holdings by SoftBank. It’s hardly surprising that FDI was lower in the following years. Both those deals went through after the EU Referendum decision demonstrating continued confidence in the UK.

    ‘Record foreign investment in UK skewed by two big company mergers’ [October 2017]:
    https://masscentral.com/record-foreign-investment-in-uk-skewed-by-two-big-company-mergers/

    Britain attracted a net £119.6bn of foreign investment in 2016, the highest since the measure was established in 1946. Overall foreign direct investment was £220.5bn.

    However, a single deal, the £79bn takeover of London-listed brewer SABMiller by its rival Anheuser-Busch InBev in the autumn of 2016, counted for two-thirds of the net foreign investment figure.

    A deal by Japanese telecommunications company SoftBank for UK chipmaker Arm Holdings made up around £24bn, or another 20 per cent of the total. […]

    Britain needs foreign investment in order to finance its current account deficit, which, at 5.9 per cent of national income, is the largest in the G7 group of rich countries.

    Most people consider such foreign takeovers of iconic British companies like ARM, Boots, Cadbury’s, Pilkington Glass, British Steel, Rowntree, etc., etc., to be detrimental to UK jobs and future prosperity.

  • Pre-Brexit, Britain was a magnet for foreign investment for several reasons: […] BUT, most of all, the United Kingdom was a bridgehead into the world’s largest trading bloc—the European Union.

    All those reasons still apply. The EU-UK Trade and Cooperation Agreement (TCA) means the UK has 100% quota and tariff free access to all EU markets. While the EU’s archaic and protectionist customs procedures may hinder some smaller exporters, particularly of small batches of food, they are not a significant impediment to trade – UK exports to the EU have rebounded to new all-time records…

    ‘UK trade: April 2022’ [June 2022]:
    https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/april2022

    EU exports have increased for the third consecutive month in April 2022 and are at the highest levels since records began.

    In addition, the UK now has the best access to an increasing number of fast growing markets around the world with Free Trade Agreements covering 98 countries (71 non-EU, 27 EU) – more than any other country or customs union. The UK’s imminent accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will make it the world’s largest free trade bloc.

    There’s also much potential in deepening the rolled-over EU trade deals which are generally shallow (having been negotiated down to the lowest common denominator amongst 28 EU members). Some have already been enhanced to cover services (the UK is the world’s second-largest exporter) and negotiations are underway with Canada, Israel and Mexico to add to Singapore and Switzerland.

  • Jeff 21st Sep ’22 – 2:48pm…..negotiations are underway with Canada, Israel and Mexico to add to Singapore and Switzerland….

    You don’t mention the country that was, supposedly, THE trade deal:’ I wonder why? After all, THAT trade deal was everywhere during Johnson’s 2019 campaign and, in Jan 2021, Liz Truss stated that ‘Talks are in the pipeline and, if you add up the CPTPP and the United States, that’s 40 per cent of global GDP, that is a huge market for us to go after.’

    Aesop’s “The Fox and the Grapes” comes to mind..

  • Indeed Jeff you would be absolutely right – If it wasn’t for the facts that the Free Trade agreements that the Government has made are all pants from an UK exporters viewpoint, and the exports to the EU are massively up mainly because lots of gas is being imported to the UK by sea and then immediately exported to the EU by pipeline so that they cans stock up for winter, while we have no mechanism for stocking up because the Conservatives allowed the Rough Storage facility to close in 2017 and it was only reopened last month – too little too late. Also there is very little profit accruing to the UK for the gas being transmitted compared with most exports, so looking on it as anything more than a minor plus and it is really over egging it to suggest our current economic situation is little more than an absolute crock.

  • Barry Lofty 22nd Sep '22 - 9:27am

    My simple answer to the Brexit vote is that we have lost far more than we have gained in so many ways whether some people wish to admit it or not!!

  • expats 21st Sep ’22 – 8:06pm:
    You don’t mention the country that was, supposedly, THE trade deal:

    The United States is our largest market with which we run a near £50 billion trade surplus. Tariffs are relatively low (e.g. 2.5% on cars), so an FTA would just be icing on the cake. During the Referendum campaign it wasn’t considered to be that important…

    ‘Why Vote Leave’:
    http://www.voteleavetakecontrol.org/why_vote_leave.html

    We’ll be free to trade with the whole world
    The EU stops us signing our own trade deals with key allies such as Australia and New Zealand, and growing economies like India, China or Brazil. We’ll be free to seize new opportunities which means more jobs.

    …THAT trade deal was everywhere during Johnson’s 2019 campaign…

    When Trump and the Republicans were in office.

    …in Jan 2021, Liz Truss stated that ‘Talks are in the pipeline’…

    The Biden administration postponed all trade negotiations until the US recovers from the pandemic. More recently they have used the possibility of a trade deal to attempt to influence UK policy on Northern Ireland. Truss has sensibly called their bluff by dismissing the prospect of such a deal “in the short to medium-term” taking it off the table. Realistically, the UK would have had to wait until 2024 anyway. Completing several other trade deals first which uphold our food and animal welfare standards, will set a precedent and strengthens our negotiating position on these sensitive issues.

  • David Evans 21st Sep ’22 – 11:45pm:
    …the Free Trade agreements that the Government has made are all pants from an UK exporters viewpoint,…

    The rolled-over EU trade deals perhaps as they don’t generally cover service exports – the UK’s great strength. Hence the potential for enhancing these deals as with Singapore…

    UK-Singapore Digital Economy Agreement (UKSDEA):
    https://www.mti.gov.sg/Trade/Digital-Economy-Agreements/UKSDEA

    New FTAs with Australia and New Zealand highly favour UK exporters. We have a vastly wider range of goods and services to sell them than vice versa. These FTAs give UK exporters near 100% tariff free access; Australia only retain tariffs (for five or six years) on some steel products and cheese…

    ‘Rishi Sunak is dead wrong about UK farming and the Australian trade deal’ [August 2022]:
    https://www.briefingsforbritain.co.uk/rishi-sunak-is-dead-wrong-about-uk-farming-and-the-australian-trade-deal/

    The UK’s new Australian and New Zealand trade deals are, if anything, overly protective of UK farmers to the detriment of UK consumers. […]

    Annex 2A contains Australian retained protections. It is very short, only one and a half pages. […]
    …all of the other products in the 280 page Schedule of Tariff Commitments will see trade protections eliminated in full. Australia has no additional quotas or product specific safeguards. […]

    The UK version however, Annex 2B, runs to 14 pages and retains protections on agricultural products as follows: […]

    The UK economy has a lot to sell Australia and New Zealand and the other nations in the transpacific partnership:

  • Jeff 22nd Sep ’22 – 1:08pm………expats . During the Referendum campaign it wasn’t considered to be that important…

    Did I imagine the outrage and fury from Brexiteers (Johnson, Farage, Leadsome, et al,) when president Obama made his “Back of the queue” statement? Obama was denounced as, “A lame duck president who would not be in power to affect the deal”

    As for your, “The Biden administration postponed all trade negotiations until the US recovers from the pandemic……..Truss has sensibly called their bluff by dismissing the prospect of such a deal “in the short to medium-term” taking it off the table.”

    Even a staunch Brexiteer like you can’t believe that.. The truth is that that the failure of the desperately wanted unilateral deal has little to do with the pandemic..Obama wouldn’t, Trump stalled and Biden isn’t interested..

    Hence my ‘Aesop’ reference.

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