Posts Tagged ‘tony blair’

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It was good news across most of the world yesterday – at least it was good news as far as manufacturing went. And for the UK, which really needs a recovery made of more than just rising house prices, the news was especially good. Nay, ignore that. It was spectacularly good. Can it last?

Do you remember the summer of 1994? In July a chap called Tony Blair became the new leader of the British Labour Party. In August the Provisional Irish Republican Army declared a cease-fire. In that summer Brian Lara scored the highest individual score by a batsman in first class cricket and Wet Wet Wet’s song ‘Love Is All Around” went to number one and stayed there for what seemed like forever.

Something else happened in 1994. The Purchasing Managers’ Index (PMI) tracking UK manufacturing saw its index for manufacturing output and another tracking new orders hit a peak. Neither of the indices has been higher since.

But in August 2013, according to the latest PMI for Markit/CIPS, the index tracking output rose to its highest levels since July 1994, and as for new orders, this hit its highest point since August 1994.

Not a bad set of results.

That does not mean, however, that the latest data was all good. According to the Markit/CIPS report, input prices rose at the highest rate for two years.

The overall PMI takes it all into account: new orders, output input prices and a number of other measures. The surge in input prices meant that overall the index scored 57.2. That was a two year and a half year high. To put the reading into perspective, any score over 50 is meant to suggest growth.

The truth is that the apparent recovery in manufacturing across these shores provides genuinely encouraging news on UK plc.

A recovery led by rising house prices and consumers running up debt would be worrisome. One led by manufacturing, investment and exports, especially if those exports are to emerging markets which are themselves growing, is more encouraging. Right now, there are signs that the UK is enjoying both.

But, sorry to introduce a niggle, the index tracking new export orders points to growth, but it has not risen for a while now. Some fret that this may be a sign that much of the UK recovery in UK manufacturing is being led by internal demand, which itself is coming off the back of leverage.

The hope is we will get a kind of virtuous upwards circle. Remember, at the moment wage rises are lagging behind inflation. If consumers are spending more on average, they are doing this by running up debts. But if as a result of this, manufacturing output rises, and we see a rise in construction – especially residential construction – then we may see the creation of more better-paid jobs. This may help to create a more sustainable recovery. The fear is that we are just re-running the noughties. Back then consumers ran up debts, they spent, and the UK economy became more and more imbalanced.

What we need is more investment. Alas the latest lending data points to more mortgage lending and less business lending. It is tempting to say that the UK has the same old weaknesses, and that despite a very severe recession, nothing has really changed.

It may be more accurate to say we have seen changes, but also that banks and their models have not changed much. Before 2008, it was they who loved providing mortgages, but were reluctant to provide what they saw as high risk business loans. They feel the same today.

© Investment & Business News 2013

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Facts don’t seem to be all that important. If you want to express an opinion on immigration, it appears what matters is who can shout the loudest, and who is best at riding the latest populist wave. Many people say that immigration is the most important issue concerning the UK today. How about this for a contrary view? It may be more accurate to say the way in which the topic of immigration is portrayed in the press poses the single biggest threat to the UK today.

Let us look at some of the arguments often bandied about. First off, the UK is swamped by immigrants. The OECD has taken look at data on immigration flow for 2011 (or for the latest year for which data is available) for 24 of the largest OECD countries. The country with the largest inflow of immigrants was Switzerland, followed by Norway, then New Zealand, Australia, Sweden, Spain, Ireland, Denmark, Canada, Belgium, Austria, the Netherlands, and then the UK. In fact, migration inflows into the UK were less than the OECD average.

Now look at the migrant population, which is to say the percentage of population for each country who were foreign born. In the case of Luxembourg, the number stands at around 40 per cent. The OECD average is around 13.1 per cent; it is 12 per cent for the UK. In fact across 32 OECD countries, 15 have a higher proportion of their population who are foreign born, while 16 have a lower proportion. In other words, the UK is below the mean average and just above the median average.

What many people forget when talking about immigration is the other side of the coin: emigration. Setting aside the fact that immigration into the UK is below the OECD average, what many overlook is that the UK also sees a high level of emigration. According to the ONS, “500,000 people immigrated to the UK in the year ending September 2012, which is significantly lower than the 581,000 who migrated the previous year…. 347,000 emigrants left the UK in the year ending September 2012, similar to the estimate of 339,000 in the year to September 2011.”

So why are people entering the UK? There are lots of reasons, of course. But according to the ONS, “Study remains the most common reason for migrating to the UK.” But if people enter the UK to study, this is unambiguously a good thing. Foreign students bring money into the UK. That this number is so high is testimony to the strength of our universities. This is to be applauded. But, according to the ONS, “In the year to March 2013, there were 206,814 visas issued for the purpose of study (excluding student visitors), a fall of 9 per cent compared with the previous 12 months.” This is surely disastrous news, but such is the attitude towards immigration in the popular press that this worrying trend is barely mentioned.

What about the drain on public finances? OECD data suggests immigration made a 0.46 per cent fiscal contribution to the UK in the most recent year for which data is available.

What about the argument that immigrants take our benefits? Take for example data on Polish Immigrants. It turns out that around 7,000 Poles receive job seekers’ allowance, when there are in the region of 500,000 Poles in the UK. Does that strike you as a high number?

According to the Department of Work and Pensions, “As at February 2011, 16.6 per cent of working age UK nationals were claiming a DWP working age benefit compared to 6.6 per cent of working age non-UK nationals.”

Then there is the rather old argument that immigrants take up hospital beds; that the NHS cannot cope. Well does this argument lack joined up thinking or what? Is it not the case that immigrants are an important source of labour for the NHS?

The truth is the UK has always been a country of immigrants. From the Anglo Saxons, to the Vikings, to refugees fleeing from the French revolution. Many of our kings and queens were immigrants too. Richard the Lionheart couldn’t speak English. King George I and II were German through and through. Prince Philip is Greek; Prince Albert was German.

Isambard Kingdom Brunel was the son of a Frenchman. The man who did more than anyone to define British classical music, Handel, was an immigrant. And coming up to date, perhaps the most important British innovation of the last decades was the discovery of graphene, by Andre Geim and Konstantin Novoselov at the University of Manchester. Both men were Russian born.

In the world of sport, where would British success have been in the last Olympics if it had not been for Jessica Ennis, whose father was a Jamaican born immigrant, and Mo Farah of Somalian birth?

Immigration is not always a good thing. The UK is small country and its capacity for accepting many more people is limited.

On the other hand, the UK, like much of Europe, faces a major demographic shock, as its indigenous population ages. Immigration may be all that stands between the UK experiencing a Japanese style lost two decades.

The real issue here, however, is that we rarely hear the pro-immigration arguments. Instead we send a van around East London, telling immigrants to go home. This is just plain nasty, not to mention utterly bizarre.

Many of the tabloid newspapers have become mouthpieces for the anti-immigration lobby.

David Cameron is courting the anti-immigration lobby, trying to score cheap points by saying: “We hate immigrants more than Labour.”

Our leaders are failing us. Mr Cameron is an intelligent and decent man, who is letting opinion polls dictate policy over his true beliefs. Tony Blair made the same error. At least that was one crime that we could never have accused Mrs Thatcher of committing.

Right now, our leaders should be leading, correcting myths, and promoting an objective discussion of this incredibly important topic. Instead they ride the surf created by an increasingly hysterical media, and it is very, very dangerous.

© Investment & Business News 2013

A lot of economists don’t get it. Why oh why, oh why? The UK economy has been contracting of late, but employment rising. In Q1 of this year UK labour productivity, measured as output per hour, fell by 1.3 per cent, and UK unit labour costs increased by 1.4 per cent. According to stats out last week, labour productivity in the UK was no less than 15 per cent below the G7 average.

The poor level of UK productivity is not news.  It has been a permanent problem for the UK for decades.

Since the start of the recession in 2007, growth of UK output per hour has trailed that of the US, and the UK’s  productivity has been lagging behind Germany, France and Italy for decades. Since the recession the gap has not grown, but it is still there.

If you give UK productivity per hour a score of 100, then US productivity is 127, French productivity is 125, German 122, Italy’s only marginally higher, Canada’s is the same, and Japan’s is less.

Then there is the riddle of how the UK’s employment rises while GDP falls. Some of the explanation lies in the rise in numbers of part-time workers, but on its own this explanation is insufficient.

Another theory, put forward by the Bank of England’s Ben Broadbent, is that financial markets are broken, and capital is being allocated inefficiently, and therefore business, starved of the necessary funding, is putting cash flow before investment. So rather than investing in new equipment that requires a big up front outlay, businesses are employing more staff. Extending that argument, maybe business lacks confidence. Its lack of certainty means it is reluctant to invest, and therefore hires more staff to meet outputs targets.

Martin Wolf took a look at these problems in the ‘FT’ a few days ago. He also speculated that falling wages may encourage businesses to take on staff, even when the extra productivity generated is not that great.

But then the issue of why the UK lags behind the other major economies has been troubling economists and politicians alike for years. Take this article in the ‘Economist’, from 1998:  The British disease revisited

You may recall that solving the UK’s poor productivity was considered to be something of a priority for the Blair government. One theory doing the rounds at the time when Tony Blair moved into number 10 was that the UK’s poor productivity was down to low investment, and that was down to the erratic nature of the UK economy, drifting from boom to bust. It is quite interesting to look back at Gordon Brown’s claim that he had put an end to boom and bust; it now seems daft. Indeed, his preoccupation with steady growth may have hidden underlying problems. It is just that in 1998, the idea made an awful lot of sense.

Here are some theories.

Part of the reason why labour productivity has fallen in recent years is down to the smaller slice given over to the City in the UK economic cake. You may argue that much of the City’s productivity was illusionary, but the fact is that, on paper at least, it is highly productive. As it cuts jobs, overall productivity falls.

As for why the UK lags behind most of the G7, maybe we need to rewind the clock back to 1997, and ask what the problems were then.

To an extent the comparison with France and Italy was clouded by the fact that employment is much lower in these two countries. Labour laws are so tough, that employers only take on more staff if the productivity gains that result are very significant. There is also anecdotal evidence that workers, and in particular management, work longer hours than they are declaring. So they have certain targets they wish to meet, but there is a limit to how many hours they are allowed to work, so they work longer to meet those targets and lie on their time sheets.

But that does not explain Germany and the US. German unemployment is lower than in the UK. Output per worker is higher. It doesn’t explain higher productivity in the US, where labour laws are of course much looser.

Well, in 1998 McKinsey came up with a theory. So, quoting the ‘Economist’ quoting McKinsey, ”[the problem partly] lies in the effect of regulations governing product markets and land use on competitive behaviour, investment and pricing.” The ‘Economist’ piece continued: “Although British food retailers are world leaders, says McKinsey, they would do better still if planning restrictions did not stop the building of stores on the scale of America and France. Hoteliers are hobbled, say the consultants, because not only are almost half of the country’s hotels more than 100 years old, compared with 3 per cent in America and 14 per cent in France, but they are constrained by planning restrictions. And until recently telecoms regulators kept call charges too high relative to line rentals, discouraging greater use of telecoms.”

And if that sounds like déjà vu, maybe there is a good reason. After all, David Cameron’s call for less dither, and to make it easier to build, is very much targeting this same issue.

It just goes to show that 15 years later, we have completed the longest ever run of economic growth, but we are in the midst of the worse downturn ever, and yet peek beneath the surface and some of the challenges haven’t changed at all.

©2012 Investment and Business News.

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