Why do England lose at football? Blame the market

Likewise, the England football manager carries the weight of expectation of the nation, and his failures seem to have turned the mood, in England at least, far more than the draconian budget of two weeks ago.

As the co-author of Why England Lose, I was struck by the fragility of belief over the last week. To Simon Kuper and I, it has always seemed self-evident that England produces respectable but not world-beating teams. They seldom lose to minnows but rarely beat the big sides.

Last week's 4-1 defeat by Germany was a freak result — not dissimilar to the 5-1 victory in Munich in 2001. Over the last decade, England have played Germany six times, winning three and losing three. If the disallowed goal had been allowed, who knows what might have happened?

Yet for England fans, the team has gone from being potential World Champions to a national disgrace. This is not to say that England performed well — just that the beliefs of most fans seem to swing from one unrealistic extreme to another despite plenty of evidence for a more mundane reality somewhere in the middle.

We observe the same phenomenon in financial markets, most notably in the banking boom and bust of recent years. In the upswing everyone convinced themselves that this time it would be different, and that valuations that in previous eras would have been considered unsustainable were in fact evidence of a new reality; in the downswing, investors have been unwilling to trust in anyone and have hoarded their cash.

At least football sentiment is likely to recover quickly — a few good wins against minnows in qualification for Euro 2012 will make us forget 2010 and, assuming we qualify, I firmly predict that England will be hyped as possible, if not probable, European champions. If only financial market sentiment could be revived as easily.

An explanation for England's failure, peddled by German footballing legend Franz Beckenbauer among others, is that there are too few Englishmen in the Premier League and not enough opportunities to develop talent for the national team.

It should only take a few moments' thought to see that this is an absurd argument. First, the early exit of the French and Italians demonstrates that failure is not the preserve of the English.

Second, prior to 1996, when England had relatively few foreigners, the performance of the national team was dismal. Third, surely playing alongside the world's best in the Premier League can only be a good thing for Englishmen who play in the national side?

How much have England players learned from their team-mates over the years? It's clear that some basic facts have been absorbed — notably the reduction in alcohol consumption, which used to play such a role in footballers' lives, and the significant improvement in the quality of diving.

But what about technique and tactics generally? It was striking how often the England players have been criticised for looking clumsy and naïve compared with the other World Cup teams.

The market for players at club levels works remarkably efficiently. If we compare pay and performance, clubs get almost exactly what they pay for if we look at the whole team, and it's hard to believe that the likes of Frank Lampard, Steven Gerrard and Ashley Cole are being carried by their foreign team mates.

However, there may be a bandwagon effect — maybe when playing alongside foreigners the English are more disciplined, and lose their coherence when playing with their compatriots. One of the sources of the relative improvement of the insular English over recent years has been a greater openness to foreign influence, since most good ideas in football come from abroad. So if I were to worry about the England team of the future, I would be concerned not about the number of foreigners in the Premier League, but about the destination of those Englishmen not good enough to get into it.

There is also a parallel with the UK economy. Following the financial crash, sterling fell significantly, reflecting both a belief that the UK financial services sector was less productive and an opportunity for UK producers to sell exports at competitive prices — an opportunity that British businesses need to take advantage of if the UK economy is to grow.

In an efficient market, I would expect the second-best English players to move into the lesser leagues of Europe — the Dutch, the French or even Belgian. After all, for a Londoner this would be closer than moving to Sunderland. In such leagues, the English would assimilate more from the best practice abroad.

Why doesn't that happen? One obstacle may be that even teams in England's second-tier Championship can pay more than these leagues have to offer. The other may be the remnants of insularity. After all, if we were able to convince ourselves that this England team were potential world champions, we clearly have some problems seeing beyond the end of our own noses.

Stefan Szymanski is an England supporter and Professor of Economics at Cass Business School