The Rise and Fall of the Great Powers

The Rise and Fall of the Great Powers — this is the title of a great book by Paul Kennedy that I read as an 18 year old when it came out in 1987. It left some lasting insights with me that are worthy of reflecting upon during this General Election week.

1. A solid economic capital base founded on savings provides Great Power ascendency over others. A society based on consumption alone will consume itself and decline.
2. Military ambitions “over-stretch” the nation and will ultimately consume the capital base of the economy, and terminal decline will set in. An activist military warfare / welfare state is thus a good warning sign that a state will shortly be in a process of collapse.

These things can happen over many generations. A savings ratio that has at times been negative in the last two decades means that capital on the whole has not been replaced, but just consumed. If we only consumed, we could never make large capital outlays for houses or cars, factories or land. Suicidal autophagy is well on its way in the British heartland.

Britain, from the First World War until the Thatcher revolution was in genteel decline. It had gone through the process of overextending itself militarily and consuming away, then Thatcherism addressed this by stopping the growth of the consumptive state that was working at the expense of the private sector. Temporarily freed from the all-consuming Leviathan, Britain did indeed grow and recover some of its former position in the world.

The new consensus of stable private sector driven growth lasted out the first Blair administration, and to a certain extent the second one, as John Redwood has demonstrated. However, once Brown had they keys to Number 10, the reverse started to happen almost straight away. Virtually all the gains of the last decade and a half have been squandered in the space of one Parliament. Public spending is now forecast to be 52% of the economy. The beast that sits on the back of the private productive sector has grown large. Too large, for a parasite cannot grow larger than its host, unless it intends to consume it entirely!

All labour governments in history have ended in the country going bust. By the end of this year we will have a trillion sterling national debt – whoever is in power this Friday. To put it in perspective, if you spent £1 million a day for 1 million days or 2,740 YEARS, you would spend a trillion pounds.

Or…..
Gordon Brown’s mishandling of the economy will cause the National Debt to rise to £1 trillion pounds this year. To put it in perspective, if you spent £20 billion a year for 50 YEARS, you would spend a trillion pounds.

Note in the chart above, the debt interest burden is £40.3 billion in this year. This is bigger than our defence budget, half the size of the education budget, and bigger than police and home affairs. What a colossal waste.

Also, look at the gigantic growth in social protection. It has moved from £145.3 billion in 2002/03 to £221.9 billion in this year. Also note that income tax itself will only generate £141.2 billion in this year. This implies that total income tax extraction from the people is only going to pay for 64% of the social protection budget this year!

There are 2.7 million people claiming Incapacity Benefit in this nation. I often wonder if after World War Two, did we have more than 2.7m incapacitated civilians on this island once the soldiers had all returned? I do not know for certain, but I suspect not. Suffice it to say, although 200-plus British Soldiers have paid the ultimate price in the conflict in Afghanistan, we are essentially a country at peace and thankfully have been for a long period of time. Not since the Second World War has the entire nation been involved in conflict. So why do we have so much incapacity? Have workplace injuries increased despite the avalanche of Health and Safety laws smothering businesses? Have the standards of our health service fallen so low over the last 60 years that more people than ever are incapacitated? I think not. The majority of these persons who claim incapacity are simply work shy. This is the big elephant in the room that nobody is prepared to talk about, for fear of being branded uncaring, or dangerously right wing.

How many of the 2.7m are genuine in their illness? Perhaps 100,000 or 200,000, but certainly not 2.7m. Even if it was a cool 1 million people, we would still have 1.7m people who are work shy and scamming the system.

It is inconceivable that the Founding Fathers of the welfare state would have wanted it to come to this. This year, it is worth saying again, the total income tax receipts will only be 2/3 of the money required to pay for our social protection. How are these and all the other demands on the public purse going to be funded?

You would think that an Honest Government would say to its electorate, “we wish to fund all these things we have promised you, but to pay for it, we need an extra £170 billion next year. So we are going to increase the income tax rate by a further 34%, is that OK with you?”

In the absence of the political will, and indeed public support for dramatic spending readjustments, further debasement of our currency will be a tempting option for whichever party forms the next government. Such a course risks Sterling collapse, which would seal our decline. Instead, they should consider radical solutions such as the one I have outlined here, which would allow us to clear the national debt in full, and still leave room for a large tax cut to help stimulate real wealth creation.

Repayment of the debt would free up £40.3 billion in interest payments. Our friends at the Taxpayers Alliance have suggested some £70 billion of costed reforms in their fine book “How to Cut Public Spending”.

Unilateral withdrawal from Common Agricultural Policy and Common Fisheries Policy could save £25 billion p.a. And much as we hate to advocate an increase in tax, withdrawal from the CAP and CFP would allow us to generate a further £18.75 billion through an interim import tax on foodstuffs.

For the longer term, though, we need reduce the spending requirements of our Leviathan state. A complete retesting of every one of the 2.7 million people on incapacity benefit should be ordered straight away. Coupled with modest growth, there should be no deficit one year post reform.

Such changes are possible, but they will not be easy. Any new government must find the political will to reverse our terminal decline.