“Dirty” Russian money has polluted British democracy. The Conservatives have taken donations from Vladimir Putin’s friends without asking enough questions about where the cash is coming from. Londongrad is the home of the oligarchs.
Russian money is just a part of an annual flow of foreign finance that enables Britain to run permanent and massive trade deficits, where imports of goods and services are higher than exports.
Source: https://www.aa.com.tr
There was a time – many decades ago – when Britain’s trade deficits were a big deal. Politicians used to worry about them. They were front-page news. A bad set of trade figures was supposed to have cost Labour the 1970 general election. But since the early 1980s, Britain’s trade deficit has got bigger and the worry is less. Why? Many of the leading football clubs have foreign owners. Many of the utility companies are no longer in British hands. That helps balance of payments.
The Government’s pink book provides an in-depth account of Britain’s balance of payments, which divides things up into a current account – which includes imports and exports of goods such as cars and computers, and trade in services such as banking or management consultancy – and a financial account that simply measures flows of money itself in and out of the country.
Countries such as the UK that run permanent trade deficits have to sell assets to foreign buyers to raise the cash to balance the books. Over time, Britain has run a cumulative trade deficit in goods and services of £1.3tn. But in the pink book (a government explanatory book) that outflow has been matched by financial surpluses – cash – of the same amount. Money from selling British assets to foreign buyers balances the “books”.
But oligarch money was also part of this process. Russians who had got rich from the privatisation of state-owned assets during the 1990s found a home for their money in the London property market. Financially, this was a smart move for them. Russian money – like Middle Eastern oil money – has also found its way into the Premier League. For those football fans wondering why their club used to be owned by local businessmen in the 1970s but is now in the hands of foreign owners, the pink book has the answer.
Mark Carney, when he was governor of the Bank of England, said the UK relied on the kindness of strangers to finance its trade deficit and he was quite right. But many of these strangers were pretty dodgy characters.
For decades Britons have consumed more than they have produced. And over the past 40 years the economy’s centre of gravity has shifted from manufacturing to financial and business services, centred on the City. London’s role as one of the world’s financial hubs has made it easy to attract foreign capital.
So while making life as awkward as possible for Putin’s cronies might be a moral necessity given what is happening in Ukraine, two issues need to be addressed. The first is whether the UK should hand back any sequestered assets to any Russian people from whom they were stolen. The second is that even if London ceases to be the destination of choice for mafia bosses and drug dealers, a means will have to be found to balance the books.
This can only be done in a number of ways. The UK can strengthen its manufacturing sector so that goods exports go up. It can do even better in those parts of the service sector where it already performs well, such as management consultancy, financial services and architecture. If it does neither of these things, the import bill can be cut by consuming less. Or Britain continue as before and accept that large chunks of prime London real estate will forever remain in foreign ownership.
For Malaysia, trade deficits are not the issue. We have surpluses on our trade account. But services section (of the balance of payment) is where we struggle, especially trade (transportation and remittances). To offset, we could strengthen those import items that could be manufactured or cultivated (agriculture) here. And do we have a plan for that?
Reference:
Why are oligarchs so necessary in Britain? Because we love living beyond our means, Larry Elliot, The Guardian, 10 March 2022 (https://www.theguardian.com)
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