The Crisis has a Silver Lining
(published in Dziennik, Poland, 10th February, 2009)
On 2nd February 2009 England awoke to 15 centimetres of snow. That was enough to block all bus services in London, Europe or even the world’s mightiest economic centre. Most schools were shut. People didn’t go to work. Fifteen centimetres of snow brought London to a standstill in a way unseen since the Second World War. The last proper snowfall was seen here in February 1991 and then again London transformed into something between an abandoned battlefield and a playground.
Something similar happened some 15 months ago when for the first time since Victorian times England saw a run on a bank. On 14th September 2007 thousands of customers of Northern Rock, one of the largest mortgage lenders, rushed to take their savings out. They lost confidence in their bank. Millions of savers across the country started shivering. Eventually Northern Rock was nationalised. A year later, on 15th September 2008, when the confident employees of one of the largest global investment banks, Lehman Brothers, arrived at their offices, they discovered that their bank was melting in front of their eyes like a London snowflake. Between Northern Rock and Lehman Brothers several other banks were knocked down. A storm of a different magnitude had started. The shock caused panic, disbelief, gloating and even suicides. It stunned the country like the snow, but it will last longer. Much, much longer.
Northern Rock and Lehman Brothers have been followed by many other banks rescued by competitors or put on life support machines with taxpayers’ money. The financial casualties in the City and on Wall Street are going to change our lives. Not just in London, not just in England, but in the whole of Europe and around the world. It seems that snow and recessions go hand in hand in London. And it seems they can be equally surprising and, for most of us, equally unpredictable. Those in Europe who think that the economic crisis will be just a temporary discomfort after which we can continue in our old ways, are probably wrong. It will hit the whole of Europe hard, including Poland. We will have to change, our views, our ambitions and our dreams. How? And why?
First of all there will be less money around. And the way we manage it will have to change. We will have to move back from the world of fantasy and optimism into a world of common sense and reality. In the UK easy credit made us feel rich, if you needed a house, you could borrow more than 100% of the value of a property and get your furniture as well, every high street store offered instant credit for everything from essential electrical goods to fashion, you could drive home a car on the basis of a telephone credit check and without even paying a deposit. Cheap and easy credit allowed millions of people to enjoy a lifestyle that they could not otherwise afford on their incomes. Purchasing power fed through to inflated house prices and the bubble burst leaving a nation with high debts, declining assets and no job security.
Today’s reality in Britain is that hundreds of thousands of manufacturing workers, shop assistants, manual workers and domestic helpers are losing their jobs. Small businesses around Britain have seen their banking facilities withdrawn so they cannot buy stock or pay wages, large customers are squeezing their suppliers by demanding longer payment terms and cheaper deliveries. Unemployment is expected to reach 3 million by the end of the year, and that does not count the hundreds and thousands of bankers, lawyers and consultants who are losing their jobs but fall outside the statistics because they do not claim unemployment benefits. Retired people have seen their savings evaporate as share prices and deposit rates collapse. Every 10 minutes in the UK, a home is repossessed. Restaurants are getting emptier and closing down. A nation of foreign holiday-makers is drastically reducing its foreign trips, causing chaos for the holiday and airlines industries. Private schools are having to close as parents cannot afford the fees. Perhaps only the high-quality television-set industry is doing well – people are buying high definition screens in anticipation of many months, probably years that they will spend at home, away from restaurants, theatres, and other expensive entertainment.
Britain is particularly exposed to the economic crisis for a number of reasons. Since the 1980s, economic growth has been increasingly focused on financial services as London’s financial markets deregulated and attracted investors from around the globe. British banks, now mostly owned by the tax-payer, have grown globally with an asset base larger than the British economy and corresponding exposure to financial shocks in the US, Russia, Iceland and the Far East. Britain’s major industries embraced globalisation with a vengeance both in terms of encouraging foreign ownership and in relocating manufacturing to cheaper locations in the Far East. The Government was confident that strong growth, low inflation and low unemployment were here to stay. This confidence fed into an unprecedented binge of public spending as the State sector swelled. Indeed in a phenomenon known as “Soviet Britain”, there are large parts of Northern England and Wales where state employment accounts for more than 60% of total jobs. Even the private sector became increasingly dependent on large state building, consultancy and IT contracts. Tony Blair used to call this “the third way” – not socialism, not capitalism, but something else. Now people realise that it was not a third way, it was the well-known old way – collect and redistribute. Unfortunately there is not enough now to collect and therefore not enough to redistribute. It is estimated that from job losses in the financial industry alone the government will lose some £30-£40 billion in tax revenue. The impact is already clear as all around the country, local government councils are being asked to identify savings and job cuts.
In the new economic equation there is something else – family. Britain’s is a lonely culture. People are rarely supported by their immediate, let alone extended, family. Half of the couples living together are not married. Half a million elderly people live in old peoples’ homes. The country spends 1% of its GDP on care for the elderly. Poland, where family support is stronger, spends 3 times less. According to Eurostat, 24% of women and 29% of men in UK over the age of 65 are at risk of poverty. These numbers for Poland are respectively 5% and 9%. In the UK, 21% of women live by themselves, compared to only 9% in Poland. The economic crisis will hit the old. The charity Help the Aged estimates that every year 25,000 people die prematurely in England as a result of fuel poverty. In simple words these are people who live alone and who cannot afford to heat their homes properly and as result fall ill and die. Diminishing tax revenues will exacerbate the problem. Loneliness is expensive. England is an expensive country with expensive habits and deep social and income gaps. It is a strange irony that the economic downturn will be felt much harder in UK than in many other poorer countries that have not yet developed the state supported welfare structures that come with long-term prosperity, countries where families and neighbourhoods are stronger.
Fear in crisis Britain today is reinforced daily by press and television coverage with documentaries and commentators drawing parallels with the 1929 crash and the subsequent Great Depression. Even Gordon Brown, the prime minister, mentioned the dreadful ‘D’ word in Parliament. People panicked. He corrected himself. Apparently it was a lapsus linguae. He meant recession. The reality will be less devastating - we will not sleep on the streets or be forced to send our children to orphanages to avoid starvation, the social safety nets which have developed since the 1930s will avert humanitarian disaster. The question is whether, when we emerge from survival mode, we continue to chase the dreams of prosperity and consumerism which have driven us since the Second World War, or whether we will change our goals to achieving sustainability in a world of reasonable and economic use of domestic and state resources. This will be a world of saving, of efficiency, a world where you boil only 200 ml of water if you want a cup of coffee and not a full kettle and where you walk to the shops rather than taking the car.
But if Britain’s material survival is guaranteed, what about our spirit, our openness and tolerance? At the end of January, workers at the Lindsey Oil Refinery started a strike in protest against the employment of foreign workers. Across the country, strikes broke out in support. Compromise was reached and, happily, the Trade Unions firmly stamped on efforts by the fascist British National Party to hijack the cause. But as jobs disappear, the trend could spread.
Like everything in Britain, however, attitudes to foreigners are not that simple. One of the first signs of the crisis was the turning tide of Polish economic immigrants starting to return home. The British have a special soft spot for Poles, the nation of brave pilots who helped repel the Luftwaffe in the Battle of Britain. In recent times the Poles again came to the rescue in the battle between householders and exploitative local domestic engineers. The much loved and now missed “Polish plumber” appeared in Britain. Indeed the influx of hard-working, educated, civilised and competent builders, plumbers, drivers, au pairs, hotel managers, barmen and waitresses from Central Europe transformed the experience of services in Britain. In middle class Britain people quietly admit that immigration from Eastern Europe brought a breath of fresh air to the country. Last year, when national statistics showed that more Poles left the country than arrived, there was a quiet panic. London suddenly realised that it might not be able to build its 2012 Olympic village. Last year the Chairman of the Skills Council for the construction industry expressed his worry about the departing Poles being replaced by other workers: “They don't seem to be as well trained or have the same work ethic as the Poles, that's what employers are telling us.” Xenophobia will be concentrated in the poorer sections of British society, which have been marginalized politically over the past 20 years as political and cultural leaders and opinion formers in Britain have gravitated to the centre ground.
The crisis has also its silver lining. People will work harder and compete harder, they will become more flexible and at the end they will return to previous economic growth. Britiain’s workforce is already much smarter and more flexible than it was after the decline of its industrial power in the 1970s. The question of strong, inspiring and moral political leadership will, however, become crucial. It is in these times that you need convincing voices, strong personalities, resolute and responsible speech. You also need moral guidance and reassurance to help keep at bay the spectres of populism, xenophobia, and mindless nationalism. In the twentieth century we have seen both. We have seen Churchill and de Gaulle, and we have seen Hitler and Stalin. How a nation reacts to a crisis can define its future more than the crisis itself.
England has survived many wars and many recessions; it has lived through riots and decades of domestic terrorism. It will survive again. After the initial shock, as after the snow on 2nd February, it will readjust. There will be losses and casualties. And life will be different. On the principle of “what doesn’t kill me makes me stronger” it might re-emerge wiser and, if not economically, then at least morally, stronger. And it will give the rest of the world an important lesson in how not to gamble with borrowed money.
Julian Popov
