Even eastern Europe is catching up with our sluggish GDP. Our politicians have been slow to act, but economists say there’s still reason for hope
**by Sam Bowman**
In 1991, during the depths of the post-communist recession, Poles were poorer than citizens of Suriname and Gabon. Thirty years later, Poland has grown so rapidly that, by the end of this decade, Poles may earn more than Britons.
Poland is a remarkable success story. But it is not alone in catching up with Britain. South Korea and Slovenia are both set to overtake us in terms of GDP per capita too, as early as next year.
On the other side of the Atlantic, Americans earn so much more than us that, collectively, they could stop working in late September and still earn more than Britons continuing to work for the rest of the year.
Productivity — how much we produce each hour we work — has increased by just 5 per cent in Britain over the 15 years since the start of 2008. That is about 0.3 per cent per year. Two per cent is considered to be normal.
If we had managed to recover to our pre-crisis growth trend, productivity and wages could be 20 per cent higher today, according to Stian Westlake, executive chair of the Economic and Social Research Council. Britain would be a much richer place.
Other western European countries that have struggled started from a higher level. At $69 (£53.60) per hour, French and German productivity is closer to the United States’s $74 per hour than it is to Britain’s $54.
America’s economy has also proved more robust in the face of inflation. US consumer prices rose by 2.9 per cent over the past 12 months, compared with 7.9 per cent in Britain. If the UK was a US state, it would be the poorest in the country: Mississippi wages, with Californian housing prices. How, then, did we get so poor? And what can we do to fix things?
One reason it has taken Britain so long to face up to this longstanding problem is that our insular political and media class has been slow to take an interest.
Consequently, our politicians are rarely serious about anything except managing public opinion; they have let every trivial concern take priority over the biggest one of all, economic growth. During her brief stint in office, Liz Truss did at least bring a sense of radical focus to this issue — though many of her proposed solutions were flawed.
But the scale of the problems we have faced since 2008 goes far deeper. The post-financial crisis recovery was slower than many economists had hoped, in part because of poor handling by the Bank of England.
“The policy stance of the Bank of England was too contractionary in 2008 and not sufficiently expansionary during the subsequent recovery,” says Scott Sumner, author of The Money Illusion, a recent history of the financial crisis and subsequent recession. “This led to very weak growth in nominal GDP and a slow recovery in the real economy.”
Austerity may have made this worse, by cutting spending on infrastructure and research and development. Financial regulation designed to avoid another crisis probably came at the cost of a slower recovery as well.
Then came Brexit. The Bank of England projects that Brexit will reduce UK productivity by about 3.25 per cent in the long run. Earlier this year, it noted that trade volumes with the EU had been worse than it had forecast.
The Covid recession and debt burden both mean that, according to the Office for Budget Responsibility, inflation-adjusted disposable incomes will not return to 2021 levels until 2027.
But even without these calamities, the UK was in weak shape. Capital investment has been lower compared with our international peers for decades. While many argue that this means we need a new industrial strategy, we aren’t even getting the basics right.
Our corporation tax regime has for decades penalised investment in machinery and buildings relative to spending on things such as rent or pens and paper.
Energy prices, a huge share of many manufacturers’ costs, have spiralled. The industrial price of electricity tripled between 2004 and 2021. Even before Russia’s invasion of Ukraine, UK businesses were paying double for electricity what they would pay in the US.
As historic industries have declined since the 1970s, we’ve done nothing to make it easier for people to access the industries growing most rapidly, especially around our leading universities.
London house prices are seven times higher than they were in 1992, while English wages are only three times higher. According to the Centre for Cities think tank, we have built four million too few houses, relative to our population, compared with the rest of Europe — and this gap grows every year. Even our successful sectors, such as biotech in Cambridge, struggle to grow because of the shortage of staff and lab space.
It has become extraordinarily difficult to build infrastructure in Britain. New onshore wind turbines have been in effect banned since 2015. An electricity interconnector with France that could supply 5 per cent of the country’s electricity needs was blocked because it would spoil residents’ views.
Nuclear power — a source of reliable, zero-carbon energy — is vastly more expensive than it could be. Electricity produced by Sizewell C, a new nuclear power station being built on the Suffolk coast, will cost six times per megawatt more than South Korea’s national energy company, Kepco, manages for its output. According to Sam Dumitriu, of the campaign group Britain Remade, Sizewell C has had to produce 44,260 pages of environmental documentation to win approval.
The Lower Thames Crossing, a tunnel project to connect Kent with Essex under the Thames estuary, has held five consultations since 2017 and still does not have permission to build. To date, more than a quarter of a billion pounds have been spent on the planning application — more, Dumitriu tells me, than it cost to build the Laerdal tunnel in Norway, the longest road tunnel in the world.
It’s worth comparing our situation with France’s. Many Brits think of France as a country of high taxes, high unemployment, boozy two-hour lunch breaks and early retirement. But France has seven million more homes than Britain, and builds about 400,000 a year to our 250,000. Because of this, housing is cheaper and homes are bigger. Childcare is nearly half the price, in part because it requires fewer staff per child. France’s 1980s nuclear power investments have kept energy prices relatively low in recent years, and it emits a fraction of the carbon that our own electricity generation does. France can (just about) afford to have the welfare state and early retirement culture that it does because it is fundamentally better at getting stuff built.
This is not a happy picture. But it is also not cause for despair. Most of what I’ve laid out here should be cause for hope, because the problems we need to solve are clear. What would be truly worrying would be if we were getting things such as housing and energy supply basically right, and still stagnating.
On the upside, things are so bad that even our dawdling politicians realise serious action is necessary. Both main parties say they want to get more houses built, even if they are vague about how. The recent debate over net zero and the cost of living has highlighted that cutting emissions by rationing energy use is likely to be costly and painful, when we could instead opt for cheap, abundant clean energy by making it easier to build new renewables and nuclear power.
The UK has a huge amount of economic “potential energy” that should make us optimistic for the future. There is massive pent-up demand to live in London, Oxford and Cambridge. Some parts of the economy are genuinely world class, including biotech, fintech, AI, and some advanced manufacturing, as well as film, music and literature. These industries are still admired around the world.
As Tyler Cowen, author of The Great Stagnation says, the south of England is “one of the few places where you can really birth and execute a new idea”, pointing to the AstraZeneca Covid-19 vaccine and DeepMind as recent examples. Open our most successful cities to more people, and we may thrive. Make it easier to build clean energy, roads and railways, and the rest of the country can start to grow too.
Poland, the US, Slovenia and South Korea all have their problems as well. We don’t need to get everything right to start growing healthily again. We don’t need to panic or despair. We just need to focus on the biggest problems we have, and get real about fixing them.
We haven’t we are one of the richest countries in the world and now other places are catching up our lack of a lead is being seen as a decline.
Everywhere has its ups and downs but we’ve consistently been one of the best of countries in all possible areas for the entire modern era and it’d take something pretty drastic to change that.
The government would like to point out that, while appreciating your concern, but they are quite well off, thank you.
We’ve certainly become poor*er*, but to state that the UK is outright poor is obviously silly. We don’t need to resort to hyperbole to address the deep issues affecting the country.
I hate articles like this. “Even Eastern Europe” betrays the authors false sense of British superiority. We voted for this so lap it up.
5 comments
Even eastern Europe is catching up with our sluggish GDP. Our politicians have been slow to act, but economists say there’s still reason for hope
**by Sam Bowman**
In 1991, during the depths of the post-communist recession, Poles were poorer than citizens of Suriname and Gabon. Thirty years later, Poland has grown so rapidly that, by the end of this decade, Poles may earn more than Britons.
Poland is a remarkable success story. But it is not alone in catching up with Britain. South Korea and Slovenia are both set to overtake us in terms of GDP per capita too, as early as next year.
On the other side of the Atlantic, Americans earn so much more than us that, collectively, they could stop working in late September and still earn more than Britons continuing to work for the rest of the year.
Productivity — how much we produce each hour we work — has increased by just 5 per cent in Britain over the 15 years since the start of 2008. That is about 0.3 per cent per year. Two per cent is considered to be normal.
If we had managed to recover to our pre-crisis growth trend, productivity and wages could be 20 per cent higher today, according to Stian Westlake, executive chair of the Economic and Social Research Council. Britain would be a much richer place.
Other western European countries that have struggled started from a higher level. At $69 (£53.60) per hour, French and German productivity is closer to the United States’s $74 per hour than it is to Britain’s $54.
America’s economy has also proved more robust in the face of inflation. US consumer prices rose by 2.9 per cent over the past 12 months, compared with 7.9 per cent in Britain. If the UK was a US state, it would be the poorest in the country: Mississippi wages, with Californian housing prices. How, then, did we get so poor? And what can we do to fix things?
One reason it has taken Britain so long to face up to this longstanding problem is that our insular political and media class has been slow to take an interest.
Consequently, our politicians are rarely serious about anything except managing public opinion; they have let every trivial concern take priority over the biggest one of all, economic growth. During her brief stint in office, Liz Truss did at least bring a sense of radical focus to this issue — though many of her proposed solutions were flawed.
But the scale of the problems we have faced since 2008 goes far deeper. The post-financial crisis recovery was slower than many economists had hoped, in part because of poor handling by the Bank of England.
“The policy stance of the Bank of England was too contractionary in 2008 and not sufficiently expansionary during the subsequent recovery,” says Scott Sumner, author of The Money Illusion, a recent history of the financial crisis and subsequent recession. “This led to very weak growth in nominal GDP and a slow recovery in the real economy.”
Austerity may have made this worse, by cutting spending on infrastructure and research and development. Financial regulation designed to avoid another crisis probably came at the cost of a slower recovery as well.
Then came Brexit. The Bank of England projects that Brexit will reduce UK productivity by about 3.25 per cent in the long run. Earlier this year, it noted that trade volumes with the EU had been worse than it had forecast.
The Covid recession and debt burden both mean that, according to the Office for Budget Responsibility, inflation-adjusted disposable incomes will not return to 2021 levels until 2027.
But even without these calamities, the UK was in weak shape. Capital investment has been lower compared with our international peers for decades. While many argue that this means we need a new industrial strategy, we aren’t even getting the basics right.
Our corporation tax regime has for decades penalised investment in machinery and buildings relative to spending on things such as rent or pens and paper.
Energy prices, a huge share of many manufacturers’ costs, have spiralled. The industrial price of electricity tripled between 2004 and 2021. Even before Russia’s invasion of Ukraine, UK businesses were paying double for electricity what they would pay in the US.
As historic industries have declined since the 1970s, we’ve done nothing to make it easier for people to access the industries growing most rapidly, especially around our leading universities.
London house prices are seven times higher than they were in 1992, while English wages are only three times higher. According to the Centre for Cities think tank, we have built four million too few houses, relative to our population, compared with the rest of Europe — and this gap grows every year. Even our successful sectors, such as biotech in Cambridge, struggle to grow because of the shortage of staff and lab space.
It has become extraordinarily difficult to build infrastructure in Britain. New onshore wind turbines have been in effect banned since 2015. An electricity interconnector with France that could supply 5 per cent of the country’s electricity needs was blocked because it would spoil residents’ views.
Nuclear power — a source of reliable, zero-carbon energy — is vastly more expensive than it could be. Electricity produced by Sizewell C, a new nuclear power station being built on the Suffolk coast, will cost six times per megawatt more than South Korea’s national energy company, Kepco, manages for its output. According to Sam Dumitriu, of the campaign group Britain Remade, Sizewell C has had to produce 44,260 pages of environmental documentation to win approval.
The Lower Thames Crossing, a tunnel project to connect Kent with Essex under the Thames estuary, has held five consultations since 2017 and still does not have permission to build. To date, more than a quarter of a billion pounds have been spent on the planning application — more, Dumitriu tells me, than it cost to build the Laerdal tunnel in Norway, the longest road tunnel in the world.
It’s worth comparing our situation with France’s. Many Brits think of France as a country of high taxes, high unemployment, boozy two-hour lunch breaks and early retirement. But France has seven million more homes than Britain, and builds about 400,000 a year to our 250,000. Because of this, housing is cheaper and homes are bigger. Childcare is nearly half the price, in part because it requires fewer staff per child. France’s 1980s nuclear power investments have kept energy prices relatively low in recent years, and it emits a fraction of the carbon that our own electricity generation does. France can (just about) afford to have the welfare state and early retirement culture that it does because it is fundamentally better at getting stuff built.
This is not a happy picture. But it is also not cause for despair. Most of what I’ve laid out here should be cause for hope, because the problems we need to solve are clear. What would be truly worrying would be if we were getting things such as housing and energy supply basically right, and still stagnating.
On the upside, things are so bad that even our dawdling politicians realise serious action is necessary. Both main parties say they want to get more houses built, even if they are vague about how. The recent debate over net zero and the cost of living has highlighted that cutting emissions by rationing energy use is likely to be costly and painful, when we could instead opt for cheap, abundant clean energy by making it easier to build new renewables and nuclear power.
The UK has a huge amount of economic “potential energy” that should make us optimistic for the future. There is massive pent-up demand to live in London, Oxford and Cambridge. Some parts of the economy are genuinely world class, including biotech, fintech, AI, and some advanced manufacturing, as well as film, music and literature. These industries are still admired around the world.
As Tyler Cowen, author of The Great Stagnation says, the south of England is “one of the few places where you can really birth and execute a new idea”, pointing to the AstraZeneca Covid-19 vaccine and DeepMind as recent examples. Open our most successful cities to more people, and we may thrive. Make it easier to build clean energy, roads and railways, and the rest of the country can start to grow too.
Poland, the US, Slovenia and South Korea all have their problems as well. We don’t need to get everything right to start growing healthily again. We don’t need to panic or despair. We just need to focus on the biggest problems we have, and get real about fixing them.
We haven’t we are one of the richest countries in the world and now other places are catching up our lack of a lead is being seen as a decline.
Everywhere has its ups and downs but we’ve consistently been one of the best of countries in all possible areas for the entire modern era and it’d take something pretty drastic to change that.
The government would like to point out that, while appreciating your concern, but they are quite well off, thank you.
We’ve certainly become poor*er*, but to state that the UK is outright poor is obviously silly. We don’t need to resort to hyperbole to address the deep issues affecting the country.
I hate articles like this. “Even Eastern Europe” betrays the authors false sense of British superiority. We voted for this so lap it up.