Tags: uk | britain | economy

UK Economy Dragged Down by Bloated Healthcare

Thursday, 11 Aug 2011 09:20 AM

By George Will

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The chancellor of the exchequer has a dry, sly sense of humor. George Osborne, 40, says Britain escaped the sort of housing bubble and crash that staggered America because, whereas America recklessly expanded its housing stock, "we were saved by the fact that you can't build anything in this country."

He exaggerates, somewhat, Britain's regulatory impediments to dynamism, just as he exaggerated, somewhat, his prediction, when he became chancellor 15 months ago, that in six months he would be Britain's most unpopular man.

His and Prime Minister David Cameron's wager is one that should interest Americans — the bet that Britain can simultaneously shrink the state and stimulate the economy.

Since growth resumed here in 2010, it has been a tepid 2.2 percent. In 2011's second quarter, it was 0.2 percent, worse than America's dismal 0.8 percent in the first half of this year.

Some say the royal wedding distracted British workers. Really. (Recent riots have incited dubious sociology, the theory that social-service reductions propel desperate mobs of young men to storm Nike shoe stores. But perhaps not everything is caused by politics.)

The shrinkage of government is supposed to be more severe here than in America, where the supposedly "savage," "draconian," etc., cuts recently agreed to mean that for a decade Washington must scrape by on $43.7 trillion rather than $46.1 trillion. Really.

The British state is morbidly obese. For a third consecutive year, government will spend more than half the gross domestic product — partly because half of all jobs created during the 13 years of Labour Party governance that ended in May 2010 were in the public sector.

Britain's debt, now 62 percent of GDP, is scheduled to rise to 71 percent in 2013-14 before declining. Government devours 47 percent of national income.

The five-year goal of reducing it to 40 percent will be difficult because Cameron has a tepid mandate. In 2010, Conservatives almost suffered a fourth consecutive defeat, and failed to win a majority against an exhausted and unpopular Labour government.

This may be one reason Cameron has flinched from seriously reforming the established religion. No, not the Church of England, the National Health Service. It is sometimes adequate regarding medicine but is a sensational jobs program: It is the world's sixth-largest employer (behind the Chinese army, Walmart, China National Petroleum, China State Grid Corporation, and Indian Railways).

Osborne says America's welfare reform of 1996 "helped change the debate over here." Perhaps, but almost 30 percent of public spending here is still for a welfare system under which an unemployed single mother with two children has more disposable income than a postal worker.

There is, Osborne says, considerable resentment among people who "go to work at 7 in the morning and the blinds are down next door." Almost a fifth of British households have no wage earner, while immigrants are 13 percent of the work force.

Fortunately, in Britain, as in much of the U.S., labor unions are fading forces. British unions have only 7 million members, down from 13 million 30 years ago. When, in June, leaders of a large public employees union engineered a one-day strike, the members were not enthusiastic and the public was not inconvenienced.

Almost half the Conservative members of parliament were first elected in 2010 and, like Republican members of the U.S. House first elected that year, these Conservatives have a tea party-like indifference to conventional pieties, the worst of which celebrate the European Union.

Such has been the leakage of Britain's sovereignty to Brussels, Cameron's ability to deregulate his nation's economy is significantly circumscribed. Only 22 percent of the British consider EU membership a "good thing," now that the EU is busy transferring wealth to those who do not create it.

With a wary eye on Greece, and a possible contagion from it to Italy, Spain, Portugal and others, Osborne fears a "sovereign debt rerun" of the financial crisis triggered by the September 2008 collapse of Lehman Brothers.

He also worries that Britain might be unfairly tainted by Asian and other investors deciding that "Europe is a basket case."

Well, yes. The Economist reports that three weeks ago, at an emergency meeting of eurozone leaders, Jean-Claude Trichet, president of the European Central Bank, distributed a ranking of countries deemed by markets most likely to default: "Greece, Portugal, and Ireland were at the top, riskier than Venezuela and Pakistan; Spain was less safe than revolutionary Egypt."

Next year may be cheerier. London will host the Olympics and the nation will celebrate the Queen's Diamond Jubilee — 60 years of her reign. This year, however, the refurbishing of Buckingham Palace and Windsor Castle has been deferred.


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