Comparisons to Germany don't tell the whole story
A chart from the Financial Times’s chief data reporter John Burn-Murdoch, comparing the GDP of UK cities and regions with those in other countries, received a great deal of attention over the weekend.
Because the two countries are roughly the same size, the comparison with Germany is especially relevant — and dispiriting. It’s not just that the UK is poorer on average, but that if the richest area is removed from each country (in Britain’s case, London) then it is much poorer. As Burn-Murdoch puts it: “Britain is a poor country with one wealthy region.”
Another chart, this one created by John Handley using OECD data, makes a similar point. It compares per capita household income in each of the UK and German regions. Four UK regions, all of them in southern England, collectively do perfectly fine. However, the other eight UK regions take the eight lowest places in the Anglo-German league table — i.e. they’re all poorer than the poorest Germany region. It is true that London is richer than even the richest German region, but that’s of scant comfort to the people of the Midlands, Northern England, Scotland, Wales and Northern Ireland.
But before we buy too deeply into the idea that Britain is a poor country (apart from London) a couple of points should be taken on board.
First, it should be no surprise that the Germans are richer, given their remarkable success in getting other countries to pay for their stuff. For instance, the country’s defence is kindly provided by the Americans — and, to a lesser extent, by the not completely hopeless British and French armed forces. Characteristically, Germany is already going soft on its promise to harden up its own defences.
Then there’s the contribution made by other member states to German industrial policy. The EU budget provides regional development funds for upgrading infrastructure in Central and Eastern Europe — i.e. the export market on Germany’s doorstep and the low wage labour pool for outsourced German-owned industry. German exports are further subsidised by the distortions of the single currency, which has locked in a favourable exchange rate for the country and a disastrous one for Italy. And let’s not forget all that nice cheap energy from the Russians — secured at the cost of Europe’s security.
The second point is that on comparing Britain to the other similarly-sized European economies — i.e. France, Italy and Spain — it doesn’t look like such a poor country after all. Handley’s charts, which take local purchasing power into account, are especially interesting. For instance, though Scotland is poorer than every Germany region, it is richer than all but three French regions.
None of this means that the UK doesn’t need to address its structural weaknesses. We absolutely must sort out the housing crisis in the South and the productivity crisis in the North. But if complacency is an obstacle to progress, then so is self-indulgent despair. By the standards that really matter, Britain is a rich nation, with the potential to be richer still.