Douglas Carswell

Britain's export enigma

British exports to the world aren't rising, but falling. In February sales of UK exports were down 1.6 percent to £23.5 Billion.

This is the lowest level since November 2010 – despite the fact that the world economy is 5 to 10 percent bigger now than it was then.

What has gone wrong?

Mainstream economists have struggled to account for this export enigma. Despite all the best efforts of government to rebalance the economy, and make the UK less reliant on domestic consumer growth, we are today more reliant on domestic demand than ever before.

In my recent paper on monetary policy, I hinted at one possible explanation.

Years of ultra easy money – low rates, QE, cheap credit – have created lots of "zombie firms". According to some estimates, 1 in 10 UK businesses is now a zombie firm, in that they have debts that they are able to service – while rates remain low. But have little chance of ever being able to pay the debt back.

Zombie firms are undead. They are able to keep on going. Serving existing customers, but not expanding into new markets – as exporters would need to. They can carry on doing what they do, but not adapt or change.

Normally an economic downturn means that economic resources – capital, plant, people – are reshuffled. The process in painful, but leads to restructuring that ultimately leaves everyone better off.

Low interest rates in recent years might have prevented this process from happening. Much of that malinvestment, made during the Brown boom, is still there in the system. Like cholesterol, it continues to clog up our economic arteries.

Britain last ran a current account surplus in the mid 1980s – at around the time we abandoned monetarism. The massive trade current account deficit that now looms seems to me to be a clear indication that we are, as a country, living far beyond our means.

Years of using cheap credit to engineer growth has given us lots of shopping malls. But fewer factories producing goods that foreigners want to buy. It has encouraged overconsumption, not export driven production.

It is not a coincidence, in my opinion, that countries that have maintained a sound approach to monetary matters, like Germany, tend to have done better as exporters.

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