Britain Will Be Third World Economy by 2014

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By: Liza Jansen, special to CNBC.com

Using analogies of famous English football teams, soccer to those in America, authors Larry Elliott and Dan Atkinson draw a picture of Britain in decline.

'The U.K.’s economy is like Aston Villa, the English football club from Birmingham: the club was great once but is great no longer', Elliott and Atkinson write in their book 'Going South: Why Britain Will Have A Third World Economy by 2014'.

According to the book, 'public policy in the U.K. (in the past 100 years) has been conducted like the economy is a Manchester United or an Arsenal, but it isn’t'.

'Not only will 2014 mark 100 years since the start of the First World War, it will also be a century since we were last an undisputed economic leader and superpower', the authors write. 'Britain is an undeveloping economy, a submerging rather than emerging market'.

Elliott and Atkinson, both journalists, argue that the past 100 years have seen 'quick fix after quick fix for the U.K. economy'.

The only hope for the U.K. to get out of the recession it is currently in is by 'confronting the truth', they say.

The two writers previously authored Fantasy Island (2007), describing the legacy of former U.K. prime minister Tony Blair, and The Gods That Failed (2008), which focuses on 'delusional, faith-based' market thinking.

The book does not suggest that the U.K. will get a third-world status because its gross domestic product (GDP) (explain this) per head will dive to sub-Saharan levels, but because 'public and commercial services work badly, the average person is becoming poorer rather than richer, the economy has been pulled out of shape and government in the widest sense is dysfunctional'.

The book points out that Britain last ran a current-account surplus in 1983 and has been in deficit since then, borrowing money from countries like China and selling commercial assets to foreigners.

Overseas investors currently possess nearly 200 billion pounds ($320 billion) more of British assets than British investors own overseas, the book says.

Britain’s decline since its imperial age has been well documented by various authors, including Harvard University Historian Niall Ferguson in his book Empire: How Britain Made the Modern World published in 2004.

But Britain has been facing a host of newer challenges since the economic crisis, including rising debt levels and a 13 percent decline in real national incomes since 2008. Yet, the British pound and British government bonds have rallied as investors have sought safe havens and as Britain’s economy has done better than its euro zone peers.

According to a recent poll conducted by Ipsos-MORI on behalf of The Economist, 52 percent of Britons still consider the economy to be among the most important issues facing Britain today, but that was a 9 percent drop since August and the lowest level of concern in 16 months.

Responding to the authors of the book, Alastair Newton, senior political analyst at Nomura International told CNBC that 'decline-ism is very much in fashion and one can always find statistics which support the thesis'.

'The U.K. feels — and is — a very different and better place than it was in the 1960 and 1970s [when the U.K. economy was struggling to grow as well]. As, indeed, is much of the so-called third world', Newton said.

But Nicholas Spiro, managing director of Spiro Sovereign Strategy, told CNBC that the crisis currently facing the U.K. economy will be 'far-reaching, and requires a new growth model'.

Spiro expects that the 'dichotomy' currently facing the U.K. economy — 'an overleveraged economy that's flat on its back and struggling to transition to export-led growth and an extremely resilient bond market that is still perceived as a safe haven' — is likely to 'persist for some time given the scant prospect for meaningful growth and the risk that the euro zone crisis will flare up again'.

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Source - CNBC.com