HAMISH MCRAE: We should be aware of our vulnerability

There will, in economic terms, be winners and losers from the Covid-19 nightmare at every level. Inevitably the tally of losers will be longer than that of the winners. But the danger for the UK is that we will come more slowly out of this recession than most – and as a result find it harder to sustain growth in the years ahead. 

There has been huge focus on the economy as a whole. The International Monetary Fund last week forecast that the UK economy would be down by 10 per cent this year. That would be worse than the US and Germany at minus 8 per cent, and it is small comfort that France, Italy and Spain are all expected to decline by more than 12 per cent.

The Chinese economy is actually projected to grow by 1 per cent this year. If China turns out in relative terms at least to be the big winner from all this, expect a lot of soul-searching in the West about its relationship with what is now the world’s second largest economy. 

There has also been focus on the sectoral damage to the economy and what can be done about that. There are some parts that were already in trouble before the lockdown. Big shopping malls were under pressure, for the struggles of Intu go back a long way. You can’t do much about that. 

The oil giants were facing weak demand even before the transport industry’s turmoil. But they are solid enough to pull through. 

However, there were other sectors when the blow came out of the blue, the airlines being the most extreme example. You can quarrel with the detail, but the principle that governments should support airlines is understandable and right. Efforts to help small and medium-sized enterprises deserve support too. So by and large the Government – and the Bank of England – are doing the right things: preserve jobs, pump money into the system, maybe have a temporary cut in VAT to boost demand as the economy is allowed to open up. We’ll learn about that last idea soon. 

But governments are by their very nature top-down institutions. The problems are bottom-up. This is particularly serious for an open, service-orientated economy such as the UK. 

In any normal world, the UK’s entertainments industry would be a shining jewel. But if you cannot open the theatres and concert halls, or get American visitors to come to the country at all, then this wonderful chunk of the economy faces a nightmare to fight its way back. 

That is an extreme example that we know about because it is high profile. We know too about the pressures on universities from falling applications from foreign students. We know about celebrity chefs shutting restaurants. But there are parts of the economy that are below the radar – businesses that will shut forever. We won’t know what we have lost until we have lost it. 

There is a further twist. From a global perspective, the UK is bargain-basement at the moment. The negative publicity about the economy and the future relationship with Europe has depressed sterling. In addition, shares of large UK companies have failed to recover as fast as those of other major markets. This is just the time for foreign investors with a long perspective to zip in and buy UK assets on the cheap. 

I don’t think we should be paranoid about this. The UK is probably the most open large economy in the world and foreign investment brings managerial acumen as well as hard cash. But we should be aware of our vulnerability and resist losing national control of enterprises that are important to our society.

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Critics of the UK and US model of market capitalism who looked enviously across the Channel to the Continent’s more statist models should heed the lesson from the collapse of the German financial services company Wirecard. 

When a couple of years back it was challenged by journalists and investors in London and New York who shorted its stock, the reaction of the German authorities was to prosecute the journalists and ban short-selling. That proved to be not one own goal, but two. 

This is not to jeer. A lot of German investors lost a lot of money. We have had failures of accounting standards in the US and UK. It is simply to observe the rough justice of the financial markets is a protection for savers and not a threat to well-run enterprises. The world needs regulation to keep it sweet, but it needs open markets too.