The UK’s responses to global economic changes

High on the list of public priorities in the General Election is a sustainably improving economy. Even avid supporters of Brexit balance their new-found acceptance of economic damage from leaving the EU, with tall tales of an eventual post-Brexit boom for ‘Global Britain’.

Brexiter MPs have at different times blamed economic contraction and lower growth on ‘Remainers’ blocking Brexit and causing uncertainty, an idea which hasn’t gained much traction. Slower UK growth has also been falsely blamed on weaker global and European economic growth.

The latter claim is at least is an acknowledgement by Brexiter MPs that the UK economy is integrated with the European and world economy; UK exports divide roughly 50/50 between European countries that follow EU rules, and the rest of the globe.

Since the protectionism model lost favour in the early 1990s world trade has increased roughly 500%. Much of this extraordinary expansion in trade has been driven by China, and its long term ‘economic opening up policy’, which led to the largest migration the world has ever seen as 400m people moved to the coastal areas.

Despite recent wage growth, Chinese factory workers are still typically paid only about £80 a week. What’s more, since the company-based health & welfare systems were stripped out over the last 20 years, there is very little welfare support.

To compete globally, does the UK have to cancel its welfare system and reduce wages to Chinese levels?

Germany, Netherlands and Scandinavian countries have shown that this path is not necessary, as welfare has broadly improved and wages have risen. Germany exports 20% more than it imports and factory floor salaries are five times that of China at a very minimum.

The UK has performed less well than Germany in responding to monumental global change. It has much higher debt (85% of GDP vs 60% GDP), lower skill levels and lower productivity. Salaries in Germany are about 10% higher than the UK on average after tax, but importantly the cost of living in Germany is 12% lower, and welfare payments are much higher, with income inequality less marked.

Germany’s specific response to China has been to go ‘upmarket’ in technology and skills, and make government more efficient and transparent to contribute to the efficiency drive. Industrial & commercial reforms have played a major part too.

These global changes have driven closer economic integration across Europe and forced a strengthening of EU global trade negotiating capability.

The UK appears not to have had a strategy to compete globally in the same way. It also suffers from a sclerotic, ‘cronyised’ and opaque government sector, hegemonic banking, and very weak democracy at sub-national level, with a de facto level of administrative centralisation only surpassed by Malta and Luxembourg. Even very small infrastructure projects sit in Central Government for years ‘waiting their turn’, and when initiated take longer and cost more than in Germany.

For much of the population the relatively poor economic performance of the UK has been blamed on the EU rather than the underlying domestic obstacles and absence of clear strategy in the face of seismic global change.

My fear is that when the ‘Global Britain’ narrative fails to deliver if the UK leaves the EU, as without a strategy is certainly will, the UK will turn in on itself, there being no EU membership to blame any more.

The UK Liberal Democrats adhere to values and policy principles which have the scope to tackle the underlying UK problems in the wake of global change – transparency and accountability in government, decentralisation, anti-monopoly measures, raising skills, tackling inequality, working with European partners in the wake of global change, and working through international institutions like the UN to address global economic & environmental problems.

By contrast other major parties lack coherent reform themes, are fuzzy about the problems they are trying to address, and appear parochial.

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance. He is a member of the Lib Dem Federal International Relations Committee and an Executive member of Liberal International (British Group).

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  • Richard Underhill. 13th Nov '19 - 9:29am

    “weak democracy at sub-national level, with a de facto level of administrative centralisation only surpassed by Malta and Luxembourg”.
    This was what Charles Kennedy was saying in a fringe meeting at federal conference in Glasgow.
    Following the defeat in the referendum in the North-East and the withdrawal of the referendum in the North-West PM Tony Blair seemed to lose interest in this issue, despite having his own constituency in Sedgefield.

  • Peter Martin 13th Nov '19 - 9:39am

    @ Paul Reynolds

    “Germany, Netherlands and Scandinavian countries have shown that this path is not necessary…….”

    But have they?

    Neoliberals like the German model which would include

  • Richard Underhill. 13th Nov '19 - 9:41am
  • Peter Martin 13th Nov '19 - 9:50am

    @ Paul Reynolds

    “Germany, Netherlands and Scandinavian countries have shown that this path is not necessary…….”

    But have they?

    Neoliberals and ordoliberals like the German model which would include countries like Denmark, South Korea and Singapore too. The idea is that home consumption is held down and the currency level is managed (we can’t say manipulated 🙂 ) to ensure that exports always exceed imports. There is, therefore, always more money flowing into their economies than leaving them. This removes , or at least severely reduces, any need for governments to engage in deficit spending to keep the economic wheels turning.

    The snag is, of course, that every net exporter creates the mirror image of itself. ie The dreaded net importer!

    So until the neolibs and ordolibs have worked out a way to negate this sad, but true, arithmetic fact of life, these countries haven’t shown anything at all!

  • Rupinder Singh 13th Nov '19 - 2:04pm

    @ Paul Reynolds

    Excellent presentation Paul.

    You ask a very pertinent question that is implicit: the formulation of LibDem policy in the 21st century given the re-emergence of China & India as economic behemoths after a hiatus since the pre-industrial revolution, and in the case of China a new competition/partner in terms of its own economic/political model supported by a military adjunct? Add to this the impact of Climate Change only marginally experienced thus far in the UK and structural changes in societies as we become a longer-lived race.

    I agree that the starting point as Liberals or centrists must be to anchor ourselves to values. The challenge is then to articulate both present voter concerns (Healthcare, Education, policing, welfare, Climate Change) but in a way that answers the question you pose, of “owning” the forward-looking challenges of the 21st century head-on.

    “Global Britain” or “Singapore-on-Thames” are catchy but meaningless slogans. Put bluntly, Brexit will mean the de-unionisation – when rather than if – with a likely subsequent loss of UK soft power inc the UN seat & Albion of 60m odd will remain a “price taker” of EU rules. But we still need to answer the real concerns of the economically dis-enfranchised – largely working classes – who are sold the easy argument that Johny foreigners and the EU are to blame for loss of manufacturing jobs or the decline in real incomes.

  • Arnold Kiel 13th Nov '19 - 2:48pm

    Paul, I completely agree with your analysis. It has a further regional dimension: Brexiters’ “global Britain” claim is entirely London-centric. The London-economy is already globally successful. As its output is largely immaterial, it will suffer less from EU-disintegration, and might gain from escaping EU-money-laundering and tax-evasion regulation. The next logical step, btw. is dropping Trident: strategic defense against your Russian and Chinese paymasters is senseless.

    The rest of the country has very little to offer to customers on other continents, but is home to all UK industry and thereby the main beneficiary of EU customs-union- and single-market-integration. Foreign capital and expat-management have allowed these facilities to participate in American, Japanese, and German product innovation and productivity-gains. After Brexit, this will go.

    The promoted global/European tradeoff, if it exists at all (see Germany), is, in reality, a London/ROUK tradeoff.

  • Another thread being derailed by Peter and his tinfopil obbsession, sad. Still one should have some sympathy he seems to be the last Brexiteer standing as the rest seem to have been redployed, I wonder if they are now on Fakebook, the Daily Mail, Twitter or horror of horrors supportting Donald.

    P.S Peter as you requested

    an intresting look at what happens when a country can’t pay its debts. Plenty of change ensuses but not generally in a good way.

  • @Peter Martin – From the logic of your argument, it is obvious that if you are going to be a long-term net importer – like the UK then it is strongly advisable to have close relations with countries that are net exporters (such as Germany) and so benefit from the redistribution of their wealth…

  • Économies cannot grow forever. The limitations on growth are set by the capacity of our planet. We need to plan for a steady state on our planet. There is an increase in population still on our planet, but richer countries, when allowing for immigration, tend to decrease. To survive then we need to make sure that no one lives in poverty. If we stop killing people we don’t agree with then that would help.
    Until we base our plans upon the idea that the planet belongs to everyone then we will continue our path to disaster.

  • Peter Martin 16th Nov '19 - 3:57am

    @ Roland

    I’m not sure what you are getting at. Germany and the UK have good relations. Not so good with Germany and Italy. The problems start when countries get too close. Shari g a currency is not a smart move.

  • Peter Martin 16th Nov '19 - 10:38am

    @ Tom Harney,

    “Économies cannot grow forever”

    This is an interesting comment. We are always going to use our intelligence to do the same thing in progressively more efficient ways. So we rely on a growing economy to keep everyone gainfully employed. If we decide to have a steady state economy we will need to do some serious thinking about how that will need to work.

    At present, our thoughts are totally incoherent and contradictory. On the one hand we can’t manage without lots of migrant workers to pick our apples and run the health service. On the other we’ll have to give everyone a UBI because we can’t think of anything useful for them to do.

    So we’ll need to get our act together!

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