After the recession-winners and losers

Every economic crisis creates its own winners and losers. At the level of any domestic economy a recession is often the last straw for an outmoded business, sometimes even whole industries can be swept away. This recession looks as if it might deal a grievous blow to the printed newspaper business as advertising revenue has dwindled. In the UK online advertising spend has overtaken tv advertising for the first time. The main benficiary in each of these cases case has been the digital industry and so the recession acts as a midwife to change. Such developments as these are seldom reversed.

It is important to remember that recessions only speed up developments which are already under way. We are only at the beginning of the process of change hastened by this recession. In fact, many of the actions taken by western governments have been attempts to prevent change, the propping up of the US car industry by the Obama regime being one example. It is also possible that western governments saving banks from bankruptcy may turn out to be a mistake in the longer term. As the IMF has pointed out, the empty hole at the centre of the financial system created by toxic debt has been painted over, not filled in. Trouble has been stored up for the future.

At a global level we can now also see how the recession has revealed a changing balance of power. The credit crunch has laid bare the dependence of the US economy on finance from China and other nations. It has also shown how undynamic most western economies currently are compared with these emerging nations. The emergence of the G20 as a body of international governance is an expression of these changes.

The UK is now in danger of being left behind. It appears increasingly marginalised from both its Atlantic and European allies. There is a measure of incompetence in the way foreign policy relations have been handled, for example over the Lockerbie affair which has annoyed the US. But the UK’s problems are based in the relative decline of its economy. It is  overdependent on the financial sector and an absence of any Plan B now that this source of growth has been threatened has created a biq question mark over its future. The movement of the headquarters of HSBC from London to Hong Kong may well be a straw in the wind, expressing both a shift  away from the UK as a leading financial centre and towards China and the east as its replacement.

The announcement of a new Franco German pact is a sign that the UK is seen as outside the mainstream of European developments. The UK faces a public spending deficit which threatens its  ability to stay at the top table internationally. Already Trident is being questioned and the UK’s willingness and ability to participate as a US ally in foreign wars is also being potentially undermined.

Does the UK’s relative decline matter? If other parts of the world are becoming more economically dynamic does it matter if this one part of it is in decline? Obviously it matters to us as citizens of this country if our living standards are to deteriorate. But I think there is also a greater issue at stake. Currently the most dynamic economies in the world are the least democratic. Perhaps this will change, perhaps it will not. Here in the UK we should recognise that the survival of democracy and its extension depend upon continued economic progress. A declining and stagnant economy tends to foster a declining and stagnant democracy.