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July 11, 2007

Theodore Dalrymple is persuaded that Britain's current prosperity is an illusion built on debt - but is not convinced that protectionism is the answer: Fantasy Island - Larry Elliott and Dan Atkinson

Posted by Theodore Dalrymple

Fantasy Island: Waking up to the Incredible Economic, Political and Social Illusions of the Blair Legacy
by Larry Elliott and Dan Atkinson
London: Constable and Robinson, 2007
Paperback, 7.99

The British economy has long seemed to me to resemble a rotting fish that shines by moonlight. It is true that so far the light has been somewhat stronger than the smell, at least for most of us, but all that may be about to change. I have been expecting and predicting disaster, wrongly, for a long time, and I can only hope that I continue to be wrong.

My sense of doom was deepened, however, when I read a book by two financial journalists, Larry Elliott and Dan Atkinson, just published, called Fantasy Island (Constable). There are no prizes for guessing the name of the island referred to, even if you have not read the subtitle: Waking up to the Incredible Economic, Political and Social Illusions of the Blair Legacy.

We have deluded ourselves that we are prosperous when actually we are only indebted. British private debt is by far the largest per capita in Europe, twice as large as our nearest competitor in this regard: we spend like children, as if there were no tomorrow, and as if we had only to consider the next five minutes. To use an alternative metaphor, it is as though we had blown our savings on the holiday of a lifetime, only to have to return home penniless at some time in the near future to our rather run-down dwelling, paying for our glorious spree by years of penury.

Moreover, public debt is rising as well as private, and quite a lot of the obligations do not even appear on the books. Investment in public services, so-called, has been little more than the maintenance and improvement in the standard of living of the ever-larger numbers of people who are employed in those services, and for whose current comforts future generations will have to pay. Improvements in the services, if any, have been marginal, despite the vast sums expended, and in any case the ways of measuring improvements have been so comprehensively corrupted (for example, by grade inflation in education) that no one knows quite what to believe any longer.

The authors of Fantasy Island point to the Blairite illusion that we can reconcile the irreconcilable, not only by paying ourselves more than we earn, but by posing as a military power while simultaneously cutting expenditure on our armed forces. Thus we fight distant wars while shelving half our navy at a stroke, a policy that could only lead to national humiliation, as it did when Iran took our marines captive. Mr Blair did not exactly cut a Palmerstonian figure then, for the very simple reason that he had not the wherewithal to do so (even assuming he had the other necessary attributes). Aggression combined with impotence is rarely a recipe for success, and only those who live in a fantasy world think that it might be.

But we cannot blame our leaders entirely for our situation, for two reasons: the first is that we elected them, albeit without much enthusiasm, and second because, though you can take a man to the bank, you can't make him borrow. Improvident government does not by itself make a people improvident, though it may encourage, sanction and even sanctify improvidence. Nowadays, we have representational government not only in the sense that we all elect our representatives to parliament, but in the sense that the faults and shortcomings of our representatives and leaders are our own faults and shortcomings, from sentimentality to imprudence, from improvidence to untruthfulness. Mr Blair, whom the authors believe to be shallow and lacking in seriousness (though not in earnestness, which is quite another thing), did not arrive in Britain from outer space. Mr Blair is us.

I am not an economist or an historian, and so my understanding of the expansion of credit for the purposes of consumption, that seems so painless until there is a crash, may be deficient. Perhaps this is not a bubble like other bubbles. Perhaps it is possible that people will accept our IOUs forever, even if we forever consume more in value than we produce. But somehow I doubt it.

The situation of America is very different from ours, though America is as good as we at indebting itself, both publicly and privately. First, America is much more productive and inventive than we, especially in the newest technologies; this means it really is a military power. Second, it is much less dependent on trade than we; and finally America issues the world's reserve currency, and therefore has bound creditors with hoops of mutual dependence. This is an advantage we do not have.

The authors argue for much more regulation of credit, and even for protection of our remaining industries while they recover from their catastrophic decline. I do not think this would answer Britain's problems or avert a crisis, rather the reverse. It is not that I think that protection is wrong in any absolute moral or economic sense, at least from a purely national point of view; there are no doubt examples of protectionism in history that allowed countries a breathing space to build up or rebuild competitive advantage. Of course, a protectionist country has to be so strong and important that it can afford to offend other countries, or so weak and insignificant that its protectionism makes no difference to anyone: and Britain, it seems to me falls precisely between these two stools. But let that pass for the moment.

Taking advantage of protectionism requires some degree of integrity both on the part of the government and the industries that are granted temporary respite from foreign competition. And integrity, or a sense of purpose beyond advantage in the most immediate future, is precisely the quality that is so conspicuously lacking in British life today.

In other words, our problem is fundamentally a moral and cultural one. We don't believe in our own future, or for that matter in our own past, and so treat the present moment as all-important. I am not sure that I have the answer, but I certainly don't believe that greater regulatory power for the government is part of it. So I both agree and disagree with the authors of this depressing, but essential, book.

Theodore Dalrymple is a writer and worked for many years as an inner city and prison doctor.

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