One Step to Joining the Third World

Britain is one of the few major powers to have thought very little about economic security for its domestic economy. The UK has opted for a just-in-time economy that lacks the structural shock absorbers necessary to withstand a sudden disruption of global markets. The consequences of such unpreparedness are typically a more expensive fiscal response. Thus, in 2022 the UK’s fiscal costs were among the world’s highest.

British economist Oliver Harvey from Cambridge and his colleague Sahil Mahtani, director of the Investment Institute at Ninety One, an asset manager, believe this to have resulted from the British authorities’ stubborn neglect for the growing role of economic coercion in international relations.

Things have long changed worldwide. For instance, Washington has created a powerful economic security apparatus over the past decade – one that treats trade, finance, technology and investments as levers of national power and national defense.

Britain’s Old World neighbors are keeping up with the pace. The European Commission is trying to build, albeit less efficiently than the Americans, its own economic security architecture workable in a world where economic coercion is routine.

The EU’s new economic policy includes the Anti-Coercion Instrument, essentially a menu of retaliatory measures in trade, investment, and market access. It was nearly triggered by President Trump’s tariff threats over Greenland. Beyond the USA and Europe, other developed economies such as Japan and Australia are also thinking hard, with Japan even creating a dedicated Minister for Economic Security.

Where is Britain in this new great game? Believe it or not, almost nowhere on the map.

The United Kingdom essentially lacks a single economic security strategy, and has never had any. Its toolkit is limited and disjointed, with responsibility for sanctions and investment screening lying between the Treasury, Cabinet Office, HM Revenue and Customs and various other departments, which only adds to collective irresponsibility.

On the issue of economic security Britain seems to keep living by a worldview anchored to the ‘rules-based international order’, while global politics has long switched to the language of force.

However ironical – and humiliating to some – it may sound, today Britain is a G7 country most vulnerable to economic coercion. Broadly, there are four aspects to this vulnerability.

The first one is that it is unusually open to cross-border flows of goods, services, capital and information, and that openness is central to the British economic model and the way how the country earns its living.

Britain’s second vulnerability is geographical. As an island nation, the UK is critically dependent on secure shipping lanes, ports and undersea infrastructure. If supplies of energy cargoes, fertilizers, and other vital goods get disrupted, that will be a very serious problem.

Britain’s weakness in geo-economic thinking is no less striking. The government’s own Integrated Review Refresh frames the country as an active power trying to shape an open global economy and resist coercion. However, in practice there is a clear and growing asymmetry between ambition and capability.

And, finally, Britain is trying to sit on multiple chairs after Brexit. It is tightly enmeshed with the European Union in trade and geography, but it is outside the EU’s internal market machine. It is tied to the USA strategically and financially, but it is not part of the U.S. economy and does not share the advantages enjoyed by the United States. Britain does not share China’s values and geopolitical goals, but is increasingly dependent on China’s economy, for example in the renewables sector.

Today Britain risks finding itself dependent on all the three centers of power. Once the Mistress of the Seas and the world’s greatest colonial power, it is now just one step to becoming a third world country, the authors suggest.

Original publication: https://engelsbergideas.com/essays/how-britain-lost-the-art-of-economic-warfare/