How far the UK has fallen when it fears becoming poorer than Romania

Jeremy Warner

The Office for National Statistics doesn’t record how many Romanians live and work in Whitby, North Yorkshire, but according to Bram Stoker’s, Dracula, this is where Nosferatu, arguably Romania’s most famous persona – albeit a fictional one – berthed his plague ship on leaving his ancestral home in Transylvania.
These days he wouldn’t bother. Instead he would stay at home, for according to Labour Party analysis, Britain will be poorer than Romania by 2040 on present trends, and is therefore a rather more attractive proposition than Whitby. For the pedants among you, at the time Stoker wrote his novel, Transylvania was in fact part of Hungary, which still to this day yearns after its former province. It was only later ceded to Romania.
But no matter. If Sir Keir Starmer is to be believed, this once impoverished, if stunningly beautiful, backwater of Europe, will soon be richer than Britain, birthplace of the industrial revolution and much that we associate with economic modernity. The same goes for Poland and Bulgaria, both of which, Sir Keir says, are set to overtake Britain in terms of income per head if things carry on as they are.
Much like Starmer’s goal of making Britain the fastest growing economy in the G7, the projection is largely meaningless. On the goal of superior growth, Starmer has no control over how other economies perform, so whatever success or otherwise he achieves on these shores, should he get the chance, he is powerless to influence such an outcome. The projections for Bulgaria, Poland and Romania are equally spurious, since all three only relatively recently emerged from the yoke of Communist rule. Once freed from these shackles, stellar growth was virtually inevitable, boosted by fast track entry into the EU and not a little help from the strong ties Eastern Europe developed with Britain via mass migration. If you start at the bottom, you are almost bound to climb faster than those at the top.
Taking Poland by way of example, GDP rose by more than 150pc between the fall of the Berlin Wall in 1989 and the start of the pandemic, which is more than any other country in Europe. The Eurozone, by contrast, grew by less than 40 percent in the same period. Growth in per capita income has been more impressive still. In 1991, during the recession that followed the chaotic dismantling of communism, income per head fell to less than a quarter of the German average. Today, it is more than two thirds of the Eurozone norm, and is indeed fast catching up with Britain. Like the tiger economies of the Far East, this is a story of rags to relative riches in just one generation.
In his book, Europe’s New Growth Champion, Marcin Piatkowski attributes Poland’s success mainly to good policy, including the establishment of strong institutions, foreign debt restructuring, a demanding education system, and an open and transparent privatisation process, which – unlike most other former communist states – did not produce oligarchs. The details need not concern us too much here, suffice it to say that, though prospects for the Polish economy continue to look good, growth is almost bound to slow from here on in. The further up the ladder you climb, the harder it gets.
It is fair to say that Poland has probably already escaped the so-called “Middle Income Trap”, where growth gets stuck at a mediocre level and the country struggles to attain advanced economy status. The same may not yet be true of Bulgaria and Romania. Yet despite the advantages Eastern European states have of beginning with a clean slate, in contrast to the debilitating legacy of past political choices that Britain contends with, the UK would have to do something very wrong indeed for Starmer’s prophecy to come true.
Serious relative decline does happen over time. Just look at Argentina, once one of the richest countries in the world. But it’s far from common in the post war era. Examples of successful catchup with the economic powerhouses of the US and Europe, moreover, are even rarer. Smaller countries generally stand a better chance than big ones. There are areas of China, admittedly, which are already as high income as Italy, but across the country as a whole, China is still firmly marooned in middle income territory.
Big regional differences also apply to Britain. London is the richest place in Europe. But there are other areas which are among the poorest. What is more, it appears to be true that even America’s poorest state – Mississippi – is richer in per capita terms than the UK. In any case, simply extrapolating from current growth rates doesn’t tell you an awful lot about the future.
The wider point that Starmer was trying to make – that Britain is stuck in a low growth rut – is however undoubtedly true, if also only a statement of the blindingly obvious. This has been the case ever since the financial crisis. Sir Keir’s claim that the public finances would be £40bn a year better off had the growth achieved by New Labour before the crisis persisted, is almost as ridiculous as his extrapolation of growth in Poland and Romania. The crisis was the culmination of more than a decade of delusional, economic manipulation. There was bound to be a price to pay for the candyfloss growth that had preceded it.
Nonetheless, something plainly has to be done to break free from Britain’s growing sense of malaise. It is quite something when the big battalions of business start suggesting that Labour has better answers than a notionally Conservative Government, but this is what the likes of John Allan, chairman of Tesco, now repeatedly say. Personally, I struggle to see the difference. Beyond the schmoozing of business lobbies and a rather more determined approach to net zero, which in itself is likely to be hugely costly, Labour’s plan for growth is otherwise just a list of motherhood and apple pie aspirations and worthless platitudes.
After the tragi-comedy of the last seven years, there is something to be said for the sense of grown up, pragmatically-minded, technocratic government that now emanates from Downing Street. In seemingly defusing the standoff with Europe over the Irish Protocol, Rishi Sunak has made a promising start in righting the ship. But it is not enough to turn things around. The Government needs much more actively to engage with business concerns; it must radically reform our struggling education and health systems, and it must bulldoze its way through the vested interest and planning constraints that stand in the way of growth.
There’s another Budget next month, and as luck would have it, the fiscal constraints on the Chancellor’s room for action seem to have eased somewhat. He must act decisively, or Romania’s unlikely “il sorpasso” – the term used by Italian commentators when Italy’s GDP per head briefly exceeded that of Britain – may indeed become a reality.
The Telegraph