There are some economists who believe this is no great problem. After all only around half of the countries in the world can run a surplus on exports every year as by definition the surpluses and the deficits must average out to zero. But this UK deficit has gone on for nearly two decades.
The reason is desperately simple to state. UK industry isn't making enough things that the rest of the world wants and our consumers find products from abroad to be a better buy. We have been paying for this in three different ways. The first is by selling more services than we buy. This ought to be no problem. It makes little difference whether people in other countries want to buy steel from you or to pay to download computer games or access a specialist insurance market. But, of course, if the service sector you rely on is itself vulnerable then the situation is very different. The UK has relied on a banking sector which has begun to develop a reputation for dodgy dealing and that doesn't represent the most secure way to plan the nation's future.
This weakness is further compounded by the second means we've been using to pay for the lack of attractiveness of too much of what we have to offer. We have been taking fossils out of the ground in large quantities and using a limited capital resource to cover a deficit on income and expenditure. North Sea Oil was supposed to have been a bonanza for the country but pushed the pound up artificially and contributed to a lack of competitiveness. It gave the illusion that the country was doing well when in fact we were failing to adapt to the future quickly enough and slipping behind. Now it is running out and many politicians are trying to get us to repeat the mistake by going for fracking. At a time when even the Saudis are trying to get themselves free of over dependency on fossils this also does not look like a very good long term solution.
The third way we've coped with the deficit is to draw money in from abroad. Every time there is a deficit on the country's current account it has to be paid for by a flow of money into the country. We have seen huge capital inflows into the UK over recent decades. A great deal of that money has gone into London to buy high end property. There have also been huge purchases of financial assets held in the UK - often from oil rich plutocrats or families and friends of corrupt dictators looking for a safe place to store the money they have extracted.
This comes at a heavy price. It has had a corrupting influence on the London financial markets. It also puts the price of London property up to staggeringly high levels. Already ordinary working people can't afford to buy a home in London from their salary because so much of the property there has ended up in foreign hands and the prices are now way beyond incomes. Perhaps most worryingly, it creates an enormous source of potential instability. If anything happened to cause foreign investors to worry about the value of their investments then the consequences of a mass move to get their money out of the UK could be a lot more dangerous than the negative impacts of it arriving. Any panic move to sell off assets would produce an even nastier re-run of 2008.
Britain therefore needs to get back to selling as much as it buys. If you listen to many EU out campaigners then the way to do this is simple. We get out of the EU and suddenly we'll magically start selling to the rest of the world. Why this would suddenly start to happen is usually not explained. After all there is nothing to stop us selling to the rest of the world right now and Germany certainly seems to be able to do it very well from within the EU. Those out campaigners who do attempt an explanation tell us that we will be able to get rid of all that pesky regulation and be more fleet of foot. Translated that means we'll be able to ditch workers rights, women's rights, paternity leave, environmental controls and health and safety legislation. We'll be cheaper because we'll be able to treat our employees worse and that will lower costs. Hardly a strategy for a successful high wage economy.
The truth is that the entire in out debate is pretty irrelevant to the fundamental problem. Britain needs to be better at producing the goods and providing the services that are going to be needed across the world in the next few decades. The ways to do this are simple to state:
1. Invest in future technology. We remain remarkably bad at taking new UK inventions like graphene and finding ways to exploit the full potential of those products. Manchester University didn't even take out a proper patent on graphene and the attempts to create new businesses based on it have been so poor that they have been the subject of a parliamentary committee enquiry. Meanwhile Germany is furiously investing in green technology companies whilst the UK government is pulling the plug on almost all green economic initiatives. The Paris climate change conference guarantees that moving to a low energy economy will be the main economic trend of the next decades. The UK needs to invest in being at the forefront of the green energy revolution.
2. Invest in a skilled workforce. I leave you to decide whether UK University fees represent good value for money and encourage skill acquisition. I also leave you to speculate on whether the UK attitude to the acquisition of manual skills is healthy or gives the impression that apprenticeships are a route only taken by the thick kids. Not an attitude you'd find in Germany. The world used to consist of a few highly skilled nations and a great mass of uneducated people. That is no longer the case. The relevance & quality of UK further and higher education is a critical issue for the future.
3. Support small businesses to grow and compete. UK banks are very good at finding a complex way to invest money obtained from a variety of hard to trace bank accounts. They are not good at supporting a company with a good idea with affordable finance. If the private sector continues to fail to do this then some of the remaining banks that had to be nationalised after the huge private sector failure of 2008 are going to need re-designing to do the job.
These things are simple to state but have proved remarkably hard to do. Mainly because we are following an ideology which says that we can leave it to the free market to transform our economy. This refusal to use all the tools at our disposal is not an approach taken by China, Japan or Germany all of which have done really well by combining the efforts of both state and private enterprise. Developing a strategy for doing to create a secure and sustainable basis for the UK economy is vital if we are going to get the country positioned successfully to respond to the future. That is the issue that the country should be furiously debating instead of wasting time and energy talking about how we best collaborate with our European neighbours.
The UK has a huge advantage of a highly educated workforce and some very imaginative small businesses. That competitive edge will only remain if we invest in the technology and skills of the future. That means getting serious about gearing up to take advantage of the Green Economy.