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With the UK economy recovering, must we skeptics say we are wrong? | Will Hutton

B.British capitalism seems to be on the rise. One million jobs were advertised in July, a new monthly record. Initial signs suggest that the end of the current vacation program will not lead to a sharp rise in unemployment.

Real estate prices are rising faster than they have been since 2004. Public borrowing halved in July compared to last July. Many new companies are founded. Company confidence increases. The recovery is so rapid that the threat of lockdown is lessening that the UK will return to pre-pandemic levels on average before the end of the year. The Chancellor, Rishi Sunak, can indulge his boss’s tantrums; his political position could hardly be stronger.

Skeptics, pretty much everyone, including myself, were confused. In fairness it has to be said that no one foresaw or could foresee the incredible development of effective vaccines and the rapid pace of adoption. Additionally, more than 7 million people have cascaded their vacation by using it as intended to save the economy from the havoc but get people back to paid work asap. Essentially, employers and employees adhered to the rules of the game for vacation and blocking rules. The largely right-wing expectations that nothing the state does on a large scale can work and that the British, as freedom-loving libertarians, believe that rules are meant to be broken, have proven to be unfounded.

quick start Guide

British private equity firm bids since the beginning of the Covid crisis

Demonstrate

The unsolicited – and quickly rejected – takeover approach of the US private equity group Clayton, Dubilier & Rice for the supermarket chain Morrisons is the latest in a spate of offers from private equity firms to British companies since the beginning of the pandemic.

Asda

Billionaire brothers Mohsin and Zuber Issa acquired a majority stake in the supermarket chain through a £ 6.8 billion leveraged buyout with TDR Capital.

UDG health service

Pharmaceutical industry services group FTSE 250 agreed to a £ 2.6 billion takeover bid from Clayton, Dubilier & Rice in May.

LV =

Originally known as Liverpool Victoria, the life insurer has agreed to sell to Bain Capital in a £ 530m deal.

John Laing

In May, KKR agreed to buy the UK infrastructure investor valued at around £ 2 billion.

St. Modwen

The real estate investment and development group has agreed to be acquired by Blackstone in a £ 1.2 billion deal.

McCarthy & Stone

The retirement home specialist accepted a takeover offer from Lone Star worth around £ 650 million in 2020.

Wolseley

CD&R completed the £ 308 million acquisition of the plumbing and heating company in February.

AA

The roadside assistance group agreed to a £ 219 million takeover offer from TowerBrook and Warburg Pincus, who also agreed to invest £ 380 million in their huge mountain of debt.

Aggreko

The utility accepted a £ 2.3 billion takeover offer from I Squared Capital and TDR Capital in March.

Vectura group

The British pharmaceutical company, which specializes in inhaled medicines, agreed to a £ 958 million takeover by global investment firm Carlyle Group in May … before tobacco company Philip Morris International made a counter offer.

Bourne Leisure

Even Butlins got caught up in the private equity craze when Blackstone acquired its owner, Bourne Leisure, earlier this year.
Graeme values

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But beware. British capitalism has not changed its position. The open questions are whether the government has learned from this success, understands the nature of recovery, and has a well-designed, flexible strategy to navigate the economy through a near-perfect storm of challenges. Based on the evidence so far, the answer is that it is not and is not – and is instead subject to wishful thinking.

First, a vaccination-induced jump back to a previously non-functioning economic structure is to be understood in exactly the same way. London and the South East have spearheaded the recovery, driven by high spending on construction and leisure, which are also the areas where most startups are sprouting, from nail salons to grocery stores, rather than technology, innovation and export. In addition, the rest of the country is lagging far behind. Studies by the National Institute for Economic and Social Research (NIESR) show that, for example, the northeast will only return to the level before the pandemic in 2024.

Worse, for all the might of the snapback, no part of the UK is returning to growth trends that were already weak before the pandemic broke out, according to the NIESR. We are caught in an economic trap with low growth, low skills, high regional inequality and low trade – Brexit severely affected trade with Europe and stifled our exporters in the service sector.

The double problem with politics is that Sunak and the Treasury Department look at the economy almost entirely in financial terms. Their main occupation, as befits a Treasury Department, is taking on credit and debts. Both are important, of course, but just as important is the economic behavior they drive. Britain needed large loans because of the pandemic; It will continue to have to borrow large amounts to reshape and stimulate the economy.

Britain needs a Department of Commerce and Trade, on an equal footing with the Treasury, to guide the country in its recovery. Instead, it has a business secretary, Kwasi Kwarteng, who has resigned despite the advice of some of its officials, to advocate a rejuvenated “free market” approach without realizing the structural weaknesses that the “free market” has created. Furthermore, he and the Chancellor collapse into the fiction that Brexit presents opportunities that trump its apparent costs. Denial of the truth in business as well as in defense and security makes good politics impossible.

Kwarteng and the Chancellor agree on the fiction that Brexit presents opportunities that trump its apparent costs

Must read in this context is the crucial UK Decade Report, the UK Economy 2030 project jointly launched by the LSE’s Center for Economic Performance and the Resolution Foundation. Reaching zero, it argues, but it has the ball and the chain around its Brexit economy and low productivity.

Yes, there are virtues – our universities, our academic base, and our language – but the extent of what lies ahead, combined with the wretchedness of current economic institutions and mindsets, is incredible. For example, one of the signs of a dynamic economy is switching from jobs with few prospects to those with better prospects, but the rate of job changes in the 2010s was the lowest since the 1930s. As for how to deal with change, Kwarteng should heed the report’s evidence that Thatcher supporters were an economic debacle in the 1980s that left long-lasting scars. And even if he does think about it, it is not clear, the authors explain, that the undermined British state has the capacity to act at the national and subnational levels after a decade of austerity.

To top it off, there’s the unprecedented invasion of Britain by private equity, which is taking over companies as diverse as the food retailer Morrisons and leading defense companies in record numbers, placating them with debt while reassuring worthless that they mean nothing but good. Britain faces major challenges not only with a hollowed-out state, but also with a hollowed-out private sector.

But there are opportunities for all of this. No one beyond those over 60s in the Tory constituency assemblies and a few twist-eyed members of right-wing think tanks believes that all of these problems can be solved by the private sector and the market on their own. Even the competition and market regulators have strong doubts and are calling for a proper investigation into whether the British high-tech jewel Arm from one careless owner, SoftBank (who should never have bought it at all), to another, even more careless and greedy, Nvidia.

We need more of this thinking and acting – much more. There are strengths to build on, but it means putting business before finance, prioritizing real economy needs over overheated sovereign debt worries, thinking honestly about addressing the obvious costs of Brexit, and really committing to it make a leveling and reach net zero. There are politicians, business leaders, officials and thinkers who understand all of this. We just need to have them in power – not sidelined by delusions.

Will Hutton is an Observer columnist

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