Sound the alarm of industrial hollowing out! Birmingham, the second largest city, went bankrupt, and Britain was worried about a chain reaction.
[Special correspondent of Global Times in the UK Ji Shuangcheng Global Times reporter Zhao Juekun] The decision of Birmingham local government to declare bankruptcy at the beginning of this month due to insolvency triggered continuous discussion. As one of the cradles of the industrial revolution and the second largest city in Britain after London, Birmingham’s economy has been hit by this, which has caused more and more people to worry about the economic situation in Britain. According to the local observation by the Global Times reporter, the urban bankruptcy has long been a sign and has been staged in many places in Britain. Many British people want to know, if the bankruptcy of local governments triggers a chain impact like a domino, how should the whole country respond?
Sound the alarm of industrial hollowing out
The apparent reason for the bankruptcy of Birmingham local government is that the local government was sentenced to pay 1.1 billion pounds in a lawsuit of "equal pay for equal work" for more than 10 years, and the payment has not been completed yet. Walking into this city, one of the birthplaces of the industrial revolution in the past, the Global Times reporter realized that the above reasons were only the last straw to crush local finance.
Akbar’s great-grandfather who is 64 years old this year immigrated to Birmingham. He told reporters that after graduating from high school, he went to work in a local factory, mainly engaged in the assembly line of radios and televisions. Similar to Akbar, middle-aged and elderly Birmingham residents have more or less worked in local factories. Now, Akbar, who has already been laid off by the factory and lives with his family by running a grocery store for vegetables and fruits, has become the representative of the current situation of this group. As the manufacturing industry has already declined and the service industry continues to slump, the regional economy can only rely on local universities to attract foreign students.
Some local media analysts believe that the main reason for the bankruptcy of Birmingham city government lies in the overall economic downturn in Britain. In recent years, Birmingham has experienced changes in industrial structure, shrinking manufacturing industry and enterprises moving out. After the COVID-19 epidemic, the global economic recession has put great pressure on Birmingham’s income. At the same time, the expenditure of local governments increased instead of decreased, which eventually led to the outbreak of the crisis.
Song Xiangqing, vice president of the Institute of Government Management of Beijing Normal University and an expert in industrial economics, told the Global Times reporter on the 11th that the bankruptcy of Birmingham city government has dealt a multifaceted blow to the city. Due to the serious damage to the reputation of the city government, there will be a high probability of capital flight, population outflow, relocation of factories and projects in the future, and urban shrinkage is inevitable. Historically, government bankruptcy mostly led to municipal stagnation, urban empty shell, industrial loss and other phenomena.
Dong Yifan, an assistant researcher at the European Institute of China Institute of Contemporary International Relations, told the Global Times reporter on the 11th that the bankruptcy of Birmingham local government would seriously disrupt its development process. Birmingham should have increased investment in infrastructure, making it a regional industrial center and economic hub. Now such a vision is likely to become a bubble.
Birmingham was not the first, and probably not the last.
Similar to Birmingham, there are many British cities with the same fate. The first city-level government in Britain declared bankruptcy, which was the local government in Northamptonshire, England. It declared bankruptcy after finding itself deeply in debt in 2018. Since then, more local governments have made the same decision. At the end of 2022, the local government of Thurlock declared bankruptcy because of the losses caused by its debt accumulation. Croydon local government in London and Slough local government in Berkshire outside London also declared bankruptcy in 2021 and 2022 respectively.
Dong Yifan believes that Britain has faced multiple crises in recent years and improper domestic and foreign policies have aggravated regional financial difficulties. On the one hand, the COVID-19 epidemic has led to a general increase in medical expenditure across the UK; On the other hand, the high inflation caused by energy costs and other issues has also made it necessary for local governments in Britain to pay more for maintaining existing public services, thus aggravating the deterioration of local financial health.
Jim O ‘Neill, an economist who used to be the Minister of Commerce of the Ministry of Finance of the British government, told reporters frankly that the economic development gap encountered before and after Brexit was unexpected by many locals. After getting rid of the EU market supervision and immigration policy, the British economy failed to develop its traditional expertise and open up a broad market in non-EU markets. In addition, the impact of the epidemic on the global economy has also hit Britain, which is heavily dependent on the global service industry and consulting industry.
At the end of August, CNN reported that Britain’s withdrawal from the EU added friction to Britain’s most important trade relations, devalued the pound and greatly increased the import cost, which led to sustained high inflation in Britain. A recent study by the London School of Economics found that since 2019, Brexit has been the direct trigger for about one-third of the increase in food prices in the UK, adding nearly $8.8 billion to the food bill in the UK. The inflation rate in Britain is the highest among the G-7 countries. Compared with a year ago, the consumer price index rose by 6.8% in July.
Britain should regain its economic and trade autonomy
According to the analysis of Qatar Al Jazeera, the Conservative government led by Sunak immediately chose to keep a distance from the crisis after the local government in Birmingham announced the bankruptcy news, which made many Birmingham people disappointed. Some analysts believe that some old industrial cities in Britain, such as Birmingham, are facing industrial hollowing out. In recent years, the emphasis on so-called security and protection in foreign trade and economic cooperation has also caused Britain to lose many opportunities, and many industries also lack the injection of new external power. In addition, if some major projects are forced to be postponed due to lack of funds, it is likely that the project expenditure will continue to expand.
According to Song Xiangqing’s analysis, the deep-seated reasons for the bankruptcy of Birmingham and other cities are directly related to the disordered and improper handling of British diplomacy and international economic and trade relations after Brexit, the lack of autonomy in foreign economic and trade policies, the close pace of the United States and the "ideological economy".
Song Xiangqing believes that what Britain needs to change most is to formulate industrial policies, financial policies and international economic and trade policies that are in line with its own interests, adhere to independent economic and trade principles, not blindly join the small circle of economic and trade protectionism formed by geopolitical confrontation, encourage and support the upgrading and transformation of urban industrial structure, and encourage and support enterprises to go out and seize the international market.