In a foreboding article by Matthew Lynn, which compares the UK’s medium to long-term decline with that of Italy, he says “that the promise of Brexit has been squandered – we must prepare for a zero-growth, high tax, stagnant economy although the two countries look very different”.
If you start to look at some of the statistics in more detail, there are alarming parallels between the two nations. In reality, we have been “turning Italian” for a long time. The trend is now starting to accelerate.
In terms of long-term GDP, regional economic disparity and demography the similarities are alarming.
And now, with six Prime Ministers in as many years and four Chancellors in four months the UK appears to be aping the Italian political system as well.
It was a rare moment of national pride, on a par with the country's beloved Azzurris lifting the World Cup.
In 1987, thanks in part to a statistical tweak that brought its massive black economy into the official figures for the first time, Italy’s GDP overtook Britain’s, making it the fifth largest in the world. “Il sorpasso”, or the overtaking, was celebrated by Italian newspapers and politicians as a moment when the country finally started to live up to its potential.
In that year, it was easy to predict that Italy would have one of the most successful economies in the world. Leading technology and media companies such as Olivetti and Finvest, run by a young Silvio Berlusconi, were pushing out into the world. The currency was strengthening and a chaotic political system was at last stabilising. Italy was taking its place among the world's leaders.
After decades of sclerotic growth, Italians may well look back on that brief sunlit period as a moment of pride before a fall. The tragedy for Britain is that it now risks going the same way. Instead of Italy becoming the new Britain decades ago, it turns out that Britain is now the new Italy, except without the sunshine or the pasta.
The UK is increasingly ungovernable, with governments lasting little more than a few embarrassing weeks before they start to fall apart. Growth has ground to a halt. Our demographics are terrible, with an ageing population and a declining birth rate. Our infrastructure is crumbling, and it is impossible to build anything. The North and South are pitted against one another, and so are the young and the old.
The markets treat the country with suspicion, and often rightly so. Illegal immigration is out of control. The stock market is stuck in decline. And of course, debt keeps rising inexorably no matter what anyone does. The list goes on and on.
When the UK voted to leave the European Union, the purpose may have been to stop itself turning into the next Italy. It was hailed by supporters of Brexit as a chance to break free and forge a new path.
Now that that has clearly failed, the important lesson to learn from our southern neighbour is this. Countries that once had bright prospects can turn into basket cases very quickly. No one would have predicted that fate for Italy at the moment of “Il sorpasso”, but it is what happened, and it can happen to the UK as well.
And once a country sets itself down that path, the outlook is very bleak, with growth stalled, technocrats struggling to keep control, and angry extremists such as the incoming Italian Prime Minister Giorgia Meloni rising to power. It doesn’t sound very British – but the dismal truth is that this now appears to be the UK's future.
On the surface, Italy and the UK may look like very different countries. We were the first parliamentary democracy, we were the first industrial nation, we have a long record of political stability, we have a respected, independent central bank, and, in sterling, a currency that is still one of the few to be globally important. And that is before anyone even mentions the weather, the dress sense, the food, the coffee and the beaches kissed by sunshine.
And yet, if you start to look at some of the statistics in more detail, there are alarming parallels between the two nations. In reality, we have been “turning Italian” for a long time. The trend is now starting to accelerate.
Start with the growth rate. According to figures from the World Bank, per capita GDP for Italy measured in 2010 dollars to allow for inflation hit an all time high of $34,000 back in 2007. Since then it has been in steady decline, dropping to less than $30,000 last year – back to the levels of the mid-1990s. In effect, Italy has been a zero growth country for more than 20 years.
And yet the UK is not much better. Using the same series of standardised statistics, we hit $44,000 per capita in 2007, and we are now at $46,000. We have grown only a miniscule amount over the last 15 years. With constantly rising taxes, stifling regulations, and a shrinking active labour force, it now looks inevitable that we will match Italy’s growth rate, and even that will take some luck. By the end of the decade, it will be impossible to tell the growth rates of the two countries apart.
Italy has a litany of infrastructure problems. Bridges collapse, the roads are chaotic, the national airline goes in and out of bankruptcy, and while it has a couple of shiny new high speed rail lines it is a difficult country to get around.
A report from the World Economic Forum (WEF) ranked Italy at only 27th in the world for the quality of its infrastructure, despite the fact that Italy ranks seventh in the world for the percentage of GDP accounted for by government spending. The state controls half the nation’s income, but has very little to show for it in terms of the stuff it is meant to be building for the public.
This may sound familiar. The UK still ranks slightly better than Italy for the quality of our infrastructure – the WEF ranks us 11th in the world, behind key competitors such as Germany, France, Spain and the Netherlands – but we are steadily slipping even as the Government takes a larger and larger share of national income.
Does anyone think we will be building a new airport in London any time soon, or a railway connecting Leeds and Manchester or Oxford and Cambridge? In truth, we probably won’t even be widening the M6 or the M25. Countries stuck with permanently low growth cut back on infrastructure projects because that is the easiest thing to do. But the long term impact is that they become less and less attractive as a place to do business.
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