As of September 5th 2011, the FTSE 100 was worth £49 Billion less after trading as it fell 189.45 to close at 5,102.58 points, whilst the rest of the country whom were not wearing a pinstripe suit at the time looked a bit bewildered and stammered “Bwhu?” at the news. To understand why this happened, what the heck it means and what we’ve got to look forward to, I’m going to do the popular thing and blame Thatcher.
Back in the 80’s the U.K. was doing its utmost to pretend it was still a major military and economic world power. But like the quinquagenarian still trying to bump and grind with those new happening vicenarians on the dancefloor, it wasn’t really working. The U.K’s main industry of coal at the time was easily being undercut by the cheaper, more abundant and better quality coal pouring out of Australia. The miner’s patriotic rejoinder to the rest of the country to “Buy British!” was a little harder to support when most of them were seen to be driving the cheaper, more abundant and better quality Japanese cars instead of showing solidarity to the U.K’s sagging car industry. To try to ensure their future job security and higher wages (amongst the highest in the country) the miners with their strong union began to strike. The country was brought to a slow standstill, with things like secondary picketing still being allowed; wherein it was legal for a union group to picket and disrupt businesses and industries that weren’t their own, from shops to hospitals.*1
The miner’s strike is a complicated issue fraught with emotion and brutality, but whatever your allegiances are it was a clearly unsustainable situation. Britain’s steel and manufacturing was in pretty bad shape too, and a strong leader was needed to bring some order to these struggling industries in the face of a global market that Britain no longer controlled. Instead we got Thatcher, who rather than prune the trees ran through them with a bulldozer.
Thatcher envisioned Britain as a service industry, and set out with very monetarist aims in mind to structure the economy around the country’s Banking, Financial and Insurance areas. The stock market was really taking hold at the time, with plenty of noveau rich being created almost daily; a new social class best summarised by Harry Enfield shouting “LOADSA MONEY” through the nation’s Television screens. Thatcher was enchanted by the idea of Britain as a service industry, where the country could excel and be based upon the commodity of skills rather than finite raw goods or manufactured product.
Now to cut back rather abruptly to the situation today. After the Thatcher years the U.K’s manufacture and raw materials industry was brutally massacred rather than gradually re-trained, with about 1/3 being wiped out. The service industry which 3/4 of the U.K. economy is now based upon has failed to grow as imagined, as the Markit/CIPS services purchasing managers’ index (PIPS) fell to 51.1 in August from the already low 55.4 in July. For those that like me see (PIPS) as either an annoyance in grapes or yet another random assembly of marketing initials that they’re ignorant of, it is a basic indication of the activity/health of the service industry. So if that number falls it means less people are buying and using services, which is very bad news when three quarters of an economy are based on people doing just that.
Something which Thatcher had failed to do was move Britain into focusing on more skilled manufacture, like the German and Japanese did which isn’t easy to replicate or outsource. Seeming as India can offer the same services as Britain but at only 1/4 of the price it would cost to hire an equivalent employee in the EU/US it means the country now struggles massively to be competitive, and has little physical product to back the economy in light of such struggles.
The failsafe most countries have in an effort to guarantee that the value of their tender/money and economies themselves remain stable in such a downturn is to back up the worth with gold; a product which is finite, has no practical use and is valuable. Only, the U.K under Gordon Brown sold the gold reserves to keep the price of gold artificially low, as the government and the U.K banks were taking a massive gamble on the price of gold falling instead of rising. This seems especially foolish now, as the price of gold has risen to an incredible $1900 per ounce as more and more people seek to invest their money in what is seen as a stable asset, something which the U.K now no longer has. Oh bugger.
Still, the banks must have a stable worth! Oh wait no, HSBC, Barclays and the Royal Bank of Scotland are being sued by the U.S for flogging off rather dodgily £25.8 billion worth of sub-prime Mortgage debts in the prelude to the financial crisis we’re now in.
It’s a combination of all these factors that have helped contribute to the FTSE falling so drastically, combining to losing £82 billion over the past two trading sessions. The hope that it might pick up again is rather undermined by the fact that the price of gold is remaining so high, which indicates people aren’t confident it’ll recover any time soon. The plan to counter this is more quantative easing, which translated out of fancy bullshit terms means artificially pumping more money into the economy to pretend for a little bit longer that it all isn’t happening.
It looks like a second, harder recession is imminent for the U.K, and the global situation with the Euro and U.S Dollar looking fit to collapse more drastically than a heavily obese Icarus shows that things don’t look much better for the future elsewhere. I’m too inexperienced in matters of business and politics right now to be taken seriously if I fight or make grand change, but I’m hoping that there’s somebody out there that is brave enough to push for the global financial reform that is needed as well as re-shape the sickly U.K economy. If there isn’t, it’s probably best to get your riot gear ready.
*1 This may seem unfairly biased against the the miners, so before anybody comes round to kick my teeth in I should explain their side a bit better as many miners were generally positive community members that held their area together. There’s plenty of instances of the National Union of Mineworkers (NUM) coming to the aid of their fellows, and rather unfairly at the time there was a sneering attitude from the people who dwelt in the cities. But as someone that’s grown up around mining towns I feel it’s important to say that not all were brave coal-faced industrial heroes. Though the work was dangerous and frankly shitty, when their wages were amongst the highest in the country after successful previous strikes holding the rest of the country to hostage again can make even the most sympathetic think “Bloody hell, what a bunch of self-serving greedy bastards”.