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The Curse of the UK Financial Sector?

Discussion in 'off topic' started by droodzilla, Mar 12, 2019.

  1. droodzilla

    droodzilla pfm Member

    An interesting study from a credible source estimates the cost of the UK's over-reliance on the finance sector for growth:

    http://speri.dept.shef.ac.uk/2018/10/05/uk-finance-curse-report/
    I've never seen this kind of analysis before but I don't believe the authors can be dismissed as cranks. If they're right, there's a pressing need to rebalance the UK economy away from its present over-reliance on the finance sector.
     
  2. h.g.

    h.g. pfm Member

    In what way does the UK rely on the finance sector? Finance is a bit like oil in an engine, it is a necessary parasitic loss but it doesn't actually create any wealth. As it started to grow beyond what was required to serve the wealth creating sectors of the UK economy in the 80s it became harmful. Examples are creating large amounts of money to drive up the price of existing houses and failing to provide sufficient loans to the wealth generating sectors of the economy which is a major factor in the falling productivity of the UK relative to the rest of the developed world. Apologies if I am repeating what is in the report but it is likely to be too gloomy reading for me at the moment.

    The UK is over reliant on the service sector which is fine in good times but when a squeeze comes it tends to rapidly shrink because much of it is cheap and easy to move abroad or shut down and start up as conditions change. This flexibility tends to be good for employers but less so for employees.
     
  3. droodzilla

    droodzilla pfm Member

    h.g. I haven't read the details but the claims are pretty much what you describe in your first paragraph:
    I think you're right to be gloomy. Sorry.
     
  4. dweezil

    dweezil pfm Member

    The way the finance sector is now getting out of UK shows that at least Brexit has one upside.

    Not quite sure how they plan to replace the tax income but at least property prices are falling in London at last.

    Is it a first to get three economists in agreement?
     
    Snufkin, domfjbrown and Darmok like this.
  5. wacko

    wacko pfm Member

    A bunch of academics who have never worked in the real world or finance have pronounced. Don't worry the UK is being rebalanced by Brexit as we speak.
     
  6. Seanm

    Seanm pfm Member

    Do NOT listen to experts.
     
    Gaycha likes this.
  7. droodzilla

    droodzilla pfm Member

    What an ignorant comment.
     
  8. Marky-Mark

    Marky-Mark pfm Member

    darrenyeats and Mike Reed like this.
  9. Jim Audiomisc

    Jim Audiomisc pfm Member

    It also tended to overlook details like:

    In my case I worked for some years in manufacturing (when the UK did that). Then, although I became an academic, a lot of my work was to support UK manufacturing or defence equipment.

    And I've long regarded the 'City' as being too large a portion of the UK economy, having detrimental effects on other sectors like manufacturing.
     
    domfjbrown and droodzilla like this.
  10. Seeker_UK

    Seeker_UK Waiting for the streetcar..

    I agree but rebalanced with what? Manufacturing is a non-starter - UK workforces cost a lot more than in other countries and so can never compete apart from in low-volume niche items that won;t account for huge chunks of GDP.

    I suppose we could go for tourism - set up the UK post March 29 as a Cormac McCarthy-themed post apocalyptic theme park, 'The Road World'.
     
    Snufkin and domfjbrown like this.
  11. Sue Pertwee-Tyr

    Sue Pertwee-Tyr pfm Member

    We can invite them to see Mad Macc; maybe Blaydon Runner.
     
  12. Seeker_UK

    Seeker_UK Waiting for the streetcar..

    The Hungerford Games?
     
    NeilR and Sue Pertwee-Tyr like this.
  13. martin clark

    martin clark pinko bodger

    Game of Thrones, if Wales and Scotland secede...
     
  14. Jim Audiomisc

    Jim Audiomisc pfm Member

    That may well change because it has to if we crash out of the EU. There are a few points to bear in mind.

    From the POV of the rest of the economy, the value of Sterling has been bloated by 'Finance' - often based on *funding manufacturing investments abroad*. Thus a two-pronged attack on manufacturing in the UK. Add to that the way banks have milked UK businesses - e.g. see how sections of big banks have shafted UK companies, driving them into bankruptcy to maximise the income for the *bank*.

    Note also how the main UK 'asset' beloved by finance has become *property and land*. And the distorting effects *that* has generated. Note how high a proportion of the income of people in the UK goes to pay for their housing costs. (And how much of our taxes pays indirectly for the high prices of land and property for things like schools, hospitals, etc.)

    In this 'environment', yes, the wages people need in the UK tend to outstrip the returns you'd get from a lot of manufacturing sectors.

    We've also have decades of 'North Sea' gas/oil bloating Sterling (and paying for unemployment and lack of investment under variously-named tory governments).

    But Brexit may change all that if and when it occurs. If the the 'City' can't carry on as usual, expect Sterling to fall. Property costs may also fall because people *outwith* the UK no longer see it as a reliable 'investment'.

    Hence in a bitterly ironic way Brexit may do something we've needed done for decades. Change the focus of the UK economy away from 'finance' based on property and *foriegn* investments in manufacturing, towards other sectors like *UK* manufacturing. If so, sadly, it will happen in a way that will do far more harm in the interim decade or more than having a government with a clue shift the economy in a well-planned way.
     
    Dave***t, Seeker_UK and Snufkin like this.
  15. Seanm

    Seanm pfm Member

    Labour's suggesting an industrial strategy based on green energy growth and high skilled jobs, making the most of the UK's existing competitive advantages and investing in areas of potential competitiveness. It looks like a smart, holistic approach, designed in part to encourage "re-shoring", which apparently is a thing. Read all about it:

    http://labour.org.uk/wp-content/upl...-Richer-Lives-Labours-Industrial-Strategy.pdf
     
    Seeker_UK likes this.
  16. h.g.

    h.g. pfm Member

    This is quite wrong. Diversity is essential and we have run down our industrial sector too far as we will find out in spades if we cut ourselves off from practical integration with Europe. If we compare with healthier developed nations in terms of structure it probably needs to be about 50-100% larger but building it up again having already knocked it down is going to be very expensive and require the will and strategic planning that has been absent over the last 4 decades. Do you think our current politicians are upto the task?

    Our labour costs are actually pretty low compared to other developed countries but the productivity of each worker is sufficiently poor that it is generally cheaper to use more expensive more productive labour. The reason for the low productivity has been low investment (e.g. old inefficient machines) and to some extent poor education (schools are about the worst in the developed world but our universities are a bit better). This is perhaps not surprising after 4 decades of "post industrial" thinking aggressively running down the sector in favour of other sectors like services and finance. The advantage of the latter is that they are flexible and easier to turn on in the good times, turn off in the bad times using the resources for something else or perhaps relocating to more favourable climes. This may be fine for the 1% but tends to be a lot less so for the UKs 99% as we are starting to see as brexit sours trading conditions in the UK.
     
    Seeker_UK and Snufkin like this.
  17. Steve Taylor

    Steve Taylor pfm Member

    Germany seems to do quite well and it's workers are generally rewarded satisfactorily. The Tories only value "the City" and London has become a black hole sucking in all the money. This makes London and the SE overpriced and a hell hole to get around and leaves much of our tiny island relatively impoverished, with huge reserves of talent wasted.

    Still the Tories don't care as long as they can de-regulate, short sell and profit.
     
    Snufkin likes this.
  18. russel

    russel ./_dazed_and_confused

    Apparently the UK has almost as many accountants as the rest of Europe, when the car industry took more workers to produce a far than our competitors it was a national scandal, over manning in the accountancy sector, different story. The top heavy representation of finance in boardrooms skews investment towards short termism, which will have to end PDQ with brexit, don't hold your breath, it will be skim off and fvck off from the finance industry.
     
  19. wacko

    wacko pfm Member

    You cannot really have 'overmanning' in accountancy/auditing. Do you have any idea what accountants/auditors do ? Every hour of their time is costed and charged for. In any case an accountancy qualification in the UK is like a (better) Business Studies degree: entry to many different management jobs across all sectors.
    Where there is a problem is that the very large auditing firms were allowed to merge and they should be broken up. I also think auditing should be strictly separated from consultancy.
     
    davidjt and Philim like this.
  20. richgilb

    richgilb Admonishtrator

    Didn't we already know this?
     

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