Impressions of Britain

Gareth MorganEconomics


Having been in the UK for the last 6 weeks one can't help but notice the contrast between life there and here.

Certainly their economy is performing pretty well with unemployment now below 5% and job ads appearing in every third or fourth shop front – almost across the country. And employers are having to compete for labour against the super-charged Irish economy as it mounts major recruiting drives for labour in British towns. Rather like the prospect of the South Island sucking labour out of Auckland.

But casual observation would suggest the British worker is not particularly hard-working, certainly efficiency on building sites, in hotels, and in offices does not leave a Kiwi feeling inferior. Indeed the large numbers of New Zealanders working in the UK have a very good reputation for their work ethic and employers are very keen to employ them. Talking to these New Zealanders one is struck by the virtually unanimous view they hold of British workers being lazy and totally rigid in their work practices. Customer service remains an anathema to workplace culture.

Another impression is the extent the poorer, more isolated regions of the UK are now rejuvenating. Places like the north and west of Scotland, and most of Wales are all enjoying an economic renaissance. The source of this is the EU-based system of regional transfers where contributions to the European budget are re-directed to regions seen as in need. In essence while the UK is a net contributor to the budget that contribution really comes from England with other Home Countries being beneficiaries. Against this experience it is not hard to see why further integration with Europe has become quite popular in the regions – they are getting a better deal from Europe than they got from Westminster.

Indeed the European debate within the UK is at crescendo currently with the Conservatives arguing it spells the end of the United Kingdom and the harder-up Scots and Welsh not really caring.

So the obvious question then is how does the place maintain the standard of living it does, the low-balance of payments imbalance, and low-inflation economic growth? Why isn't it suffering an ever-widening income disparity against major economies as New Zealand has been for decades? Probably the answer is because it is still an economy of significant scale, with a capital stock built up over centuries, and secures benefits from having a major trading bloc on its doorstep. It boasts a population of 60 million, some globally competitive industries in areas of high value – for instance, the financial City of London – and a stock of accumulated wealth per capita that shadows New Zealand's.

All this illustrates is that the economic recipe appropriate to raising living standards in New Zealand is vastly different to that the UK might employ. For instance, the UK and rest of the EU all have tax burdens higher than those of New Zealand. Yet a coherent rationale for raising tax as a means to greater economic prosperity is hard to construct. Rather, their higher tax transfers are possible only because of more robust economies. It is incongruous then to hear politicians on the Left in New Zealand arguing that tax rises are okay because other, wealthier countries have them. Greater wealth-generating capability enables the higher tax not the other way round.

New Zealand clearly has to find its own recipe to reduce the gap in living standard between others and us. If not, we will continue to contribute to a major ex-pat population in Europe and Australia. On this the Irish experience is interesting. For years they exported people and now having found their own growth recipe – German and Irish-American capital inflows provided by the EU and tax breaks respectively – their large ex-pat population is returning home, further boosting growth. Only so long as that capital is being applied to endeavours that are competitively sustainable will Ireland's boom not bust when the EU favours dry up in a few years. Otherwise it can be viewed as a "Think Big" phase.

And what of New Zealand then – distant from major markets, a small domestic market, no EU sugar daddy, and no massive accumulated capital stock. Clearly our formula cannot be a carbon-copy of the UK's or of Ireland. Rather it needs to be coherently built up from first principles applicable to our circumstances. Grasping at elements of the policy mix of others is likely to produce a mish-mash of policy incoherence that simply worsens the widening gap. Unfortunately the election rhetoric smacks loudly of just that.


Impressions of Britain was last modified: December 15th, 2015 by Gareth Morgan
About the Author

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.