Britain is learning a painful lesson: what happens in ‘emerging markets’ could also happen here

<span>Photograph: WPA/Getty Images</span>
Photograph: WPA/Getty Images

It has become fashionable among experts to compare Britain’s economy, once a global superpower, to that of an “emerging market”. The former US treasury secretary Larry Summers recently argued that the UK is “behaving a bit like an emerging market”. The Dutch bank ING stated the trading volatility of the pound mirrored what “you would expect during an emerging market currency crisis” . The American billionaire investor Ray Dalio has described the administration of the new prime minister, Liz Truss, as operating “like the government of an emerging country”.

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For those who live in Britain, it can be shocking to hear such labels applied to a “developed” country like our own. It runs counter to the history we were taught and the belief we were raised with: that as Britain was the birthplace of industrial capitalism, parliamentary democracy and the rule of law, it sits at the forefront of a linear path of development. Over the last two centuries, political thinkers from Karl Marx to Adam Smith shared the view that political and economic shifts first occurred in Britain and that the rest of the world would follow.

Innovation, invention and forward motion became fundamental elements of our national character, and not just in the Tory imagination. At his first Labour party conference after being elected prime minister, Tony Blair proclaimed to his audience, “We are one of the great innovative peoples … we are by our nature and tradition innovators, adventurers, pioneers.” As these parts of our history crystallised into a national identity, so did confidence in Britain’s developmental primacy.

The legacy of this way of thinking about Britain and its position in the world is a political conversation that has largely ignored how capitalism operated in “developing” or “emerging” markets. After all, these places were just passing through stages of history that Britain had already completed. But what does it mean to be described in the language of an emerging market? While it is acceptable for a few, select nations to be described as “advanced”, no longer do we contrast them, as we may have done in the language of the 19th century, with “backward” people. Instead, the 21st century is a world of “advanced” and “emerging” economies, an optimistic, even teleological framing that allows us to paper over the deep inequalities that still mark our world.

It is a double-sided metaphor. On face value, the descriptor of being an emerging market seems to be a compliment – you are emerging, realising your potential, one for the future. In reality, the label of “emerging” is a shorthand for volatility and political instability. Ten years ago, emerging markets were “developing” nations; 30 years before that, they were “third world” nations. Now, instead of talking about civilisational hierarchies, different countries have instead been grouped together and rechristened by economists in the bloodless language of “emerging markets”. It provides a hopeful narrative of history as a one-way road for all of humanity towards a happy destination.

With the optimism came ignorance about what is happening in the places that are always emerging but never quite emerged. This ignorance even extended to countries that were still under British colonial rule until a few decades ago. The language of linear development allowed us to dismiss the inequality of India, sovereign debt of Jamaica or extractive capitalism of Nigeria as simply the consequences of countries just “emerging” into a particular model of future stability, and that model was us.

These assumptions have been upturned of late. Across the country, communities have seen their living standards collapse beyond the point they assumed was possible in a “developed” country like Britain. In the midst of this economic crisis, Liz Truss and Kwasi Kwarteng embarked on a fiscal gamble that rested on their belief that Britain still possessed an inherent trustworthiness in the eyes of global investors.

They thought this would protect it from the kind of volatility that emerging markets might suffer in the face of such reckless policies. Cutting taxes and issuing more debt, all without the oversight of Britain’s independent auditor, the Office for Budget Responsibility, are the kind of brazen mistakes that governments in emerging markets often get punished for. Now, we have seen that global capitalism will treat Britain with the same ruthlessness it visited on our former colonies in the “developing” world, if given cause.

Of course, there remain deep structural differences that separate Britain from the kind of vulnerability that emerging markets are exposed to. We issue the currency in which we borrow our money, therefore making default on debt unlikely. The history of the sterling area and the fact that the pound was the global reserve currency just a century ago means that the pound is unlikely to ever succumb to the same depths reached by the Zimbabwean dollar in 2008 or the Mexican peso in 1994. The government will not have to enforce controls on capital movements across borders in order to stop people moving their money out of the country.

Even so, cracks are beginning to appear in the illusion that financial markets will always have an appetite for British assets on account of them being British; that hyper-mobile global capital will move in alignment with the narrative of the British government, regardless of how much turmoil and upheaval has plagued politics in the UK over the past decade.

In recent years, anyone advocating for “decolonising” our perspective and perhaps expanding our analysis of the world to accommodate countries outside of the west has been attacked by government ministers for engaging in a “woke psychodrama” or of “doing Britain down”. They repeatedly insist that the history of capitalism in Britain’s colonial hinterland – places like Ghana, Argentina or Bangladesh – has no relevance to anything happening in this country in 2022.

But now expert commentators are looking at just these types of countries to anticipate the best steps that the British government can take to stop its spiral. This week, their first response has been to panic and agree to a U-turn on top rate tax cuts. This might calm markets in the immediacy, but it could also amplify fears of weak governance in the long-term. Truss has even threatened to end central bank independence and engage in more ideologically driven fiscal policies. This will only accelerate the notion that Britain can no longer be trusted and should be looked at a little more like our former colonies.

However, despite receiving a pummelling from the markets and even criticism from the IMF recently, it is still hyperbolic to categorise the UK an emerging market – and can actually be considered dismissive of the structural divisions that still mark our world. Yet the backlash that the government received this week should force us all to pay more attention to the operation of capitalism in truly emerging markets. While we aren’t there yet, we can no longer assume that such nations are “developing” into us. Instead, it might be the other way around.

  • Dr Kojo Koram teaches at the School of Law at Birkbeck, University of London