Despite the urge, this is no time for us Brits to indulge in masochism

Anthony Hilton
05.06.09

An Indian businessman who travels the world asked a pointed question at a meeting this week. He wanted to know why the people in Britain were so much more depressed than the people in all the other countries he visited. Why is it that business confidence here is shot through, although Britain's economy is nowhere near as badly hit in this recession as many of the other countries?

The fact is that the British economy thus far is weathering the storm much better than most. We are faring much better for example than Germany, where output fell by almost 4% in the first quarter of this year, or Japan, which is declining similarly fast or Eastern Europe, where some smaller countries such as Latvia are looking at declines of 18%. Yet nowhere did he sense as much gloom as in the UK.

His question is clearly important because depression becomes self-fulfilling and self-feeding. If indeed we are more gloomy here than elsewhere, it could well feed back into a negative loop which will make the economy much worse than it need otherwise have been.

Part of the problem has to be political rather than economic. As is made clear by the local election results today, and no doubt the European results when they come out at the weekend, Government has lost the support of the people while unfortunately what the abysmal turnout, or more accurately the number of abstainers suggests, is that people thus far have little faith that the opposition would be much better.

What this means is that people know we are in a mess, and they are looking to politicians to bring us out of it. First, people want a leader they can believe in. Then they want that leader to come up with a strategy that is credible. But it does not work the other way round. A strategy, however coherent, won't lift the spirits if we do not have the leadership that persuades people it will be implemented coherently.

So that is part of our problem. America has Obama, Germany has Merkel, France has Sarkozy. Each is unpopular with large segments of their electorate — but none is held in such low esteem by their electorate as our Prime Minister. We are depressed, not because we are in a hole but because we don't trust Government to get us out of it.

The second reason is a shock to our amour propre. From some time in the mid-Eighties, and certainly in the Nineties and massively after 2000, the perception of the UK economy was transformed. From being the strike-torn industrial laggard that had seemed to be in terminal decline, we had re-invented ourselves as the epitome of the modern services-driven economy, with a growth rate which the rest of Western Europe could only dream about. Or so it seemed.

Unfortunately the collapse of the banking system has punctured the myth. What we flaunted as growth turns out to have been debt, and it is rather embarrassing to have strutted quite as much as we did.

The wealth creation turns out to have been wealth transfer, a slicing and dicing of what was already there, not the creation of something genuinely new, worthwhile and lasting. As a result we have taken out the mortgage, spent the money but don't even have the house to show for it.

The third reason perhaps is that for the first time this economic slowdown started at our own front doors. Normally a credit crunch is a problem for companies, and is brought on when the Government tries to cool an over-heating economy by raising interest rates. This time, though, the indebtedness is in the personal sector — and Government — and that makes it very up close and personal. Somehow the debt has to be paid off and people begin to save again, just at a time when the one asset of value they possess, their house, is crumbling in worth and adding to their problems.

Finally there's the media. Because we had gone 17 years without a downturn, few people under 40 had any real memory of what it was like, how to react, nor what to expect. But in struggling to come to terms with the new world, they were not helped by a media for the most part remorselessly and unremittingly negative but which at the same time underestimated the seriousness of the situation by treating it as a stick with which to beat the Government. Even now the debate and the coverage rarely rises above the level of adversarial politics.

Now the problem is that all these seem good enough reasons to be fed up, but the harsh economic truth is that we can't afford to be. The sooner we begin to believe, and the sooner confidence returns, the better our prospects will become. But it is more than that. The rest of the world is watching, and trying to work out what is going on here, and whether the country continues to be a rewarding place to invest. If we behave like losers, they will believe that that is what we are and take their business elsewhere.

Which is why, much as the British enjoy their masochism, this is absolutely not the time to indulge it.