Britain’s place in the global economy

February 17, 2012 3:00 pm

The pressure Britain is facing from a transforming global economy brings many tough challenges but also clear opportunities. By playing to its strengths in the financial sector, aerospace and pharmaceuticals and developing expertise in new areas, such as tourism and biotechnology, Britain can benefit hugely from ‘the rise of the rest’.

Britain’s growth performance has been sluggish for a year at best. In November the independent Office for Budget Responsibility reported that growth would be just 0.9% in 2011 and an even lower 0.7% in 2012. But now, even those pessimistic assessments feel like the good old days, with the latest figures showing the UK economy shrank by 0.2% in the final quarter of 2011.

While there is a huge debate about the pace and depth of cuts, everyone agrees that part of the solution to Britain’s growth problem is increasing our exports. At first glance this strategy seems fanciful given that the European Union, our biggest market, is expected to have an even worse time of it in 2012. But the world economy is changing rapidly and so too must Britain’s international growth strategy.

With a combined GDP of $8.7 trillion in 2010, Brazil, Russia, India and China – the so-called BRIC economies – accounted for 45% of global growth since the beginning of the financial crisis. China alone creates new economic activity every four months equivalent to the size of Greece. By 2020, the growth of eight countries, which include the BRICs plus Korea, Turkey, Indonesia and Mexico, will make up 35% of world GDP, according to Goldman Sachs. And although projections this far out are notoriously tricky, Goldman Sachs believe that by 2050 the United States will be the only one of the current G7 in the world’s top five economies. The timings may prove wrong but the direction of travel is absolutely clear. The next 40 years will see huge changes in the composition of the global economy.

Against this backdrop, it is unsurprising that people wonder whether, as economies in the east and south emerge, those in the west will become ‘submerged’. New academic evidence tells us that although increases in global trade help bring down consumer prices and improve the productivity and ingenuity of our firms, it can also lead to job losses and pressure on wages. Workers in Britain have rarely felt so insecure about their economic prospects.

But Britons have much to feel positive about too. Despite the huge advances in the BRIC countries and elsewhere, just 31% of people in Central and South America earn between $10 and $100 per day (the OECD’s definition of middle class). In Asia, the figure is just 13% while in Sub-Saharan Africa it’s only 4%. As these countries become richer overall, it is likely that millions more will be lifted out of poverty and, in time, into the middle classes. As this happens they will come to demand more and more goods and services. Much of this, like food, oil and household appliances will not come from the UK. But there are many other areas where Britain is world-class.

Britain has long known of its comparative advantages in financial services, aerospace and pharmaceuticals. But added to these industries are a growing list of sectors where there is potential for future growth. As countries improve their educational attainment, demand for our higher education institutions and educational services will become ever greater. The clusters of courses associated with our best universities mean that we have become world-class in medical devices and biotechnology – essential to meet the rising demand for healthcare in developing countries. As people become richer, they will become more likely to travel abroad, thus presenting opportunities for our tourism sector. If we can crack problems with piracy and intellectual property theft, our fashion, music and film industries will expand. Meanwhile new businesses in these countries will demand better legal and business advice and architectural services, all areas where we excel. Looking to the future, our emerging comparative advantage in offshore wind and car batteries for electric and hybrid cars could be a real boon too.

As this transformation takes place it will be essential to ensure that as many people as possible benefit. We already know that there is a premium on educational attainment and this is likely to increase. But we must also ensure that the skills already in the economy are being properly utilised by businesses and that those in lower skilled sectors have ‘good’ jobs with opportunities for progression and development. Here we should encourage a deal with business where public funding for training is tied to a commitment to continuous workforce development for employees. We must also recognise the important role that high skilled migration can play in plugging short-term skills gaps in the economy. The political debate has skewed policy by making it harder for the most economically valuable migrants and overseas students to enter the country, rather than recognising the reality that migration patterns are becoming increasingly temporary.

Finally, we must be honest that some people will lose out as a result of globalisation and do everything we can to support them. In conditions of fiscal constraint, there are no easy options for welfare reform. For those who can return to work quickly, one way to solve the problem of low unemployment benefits would be to introduce a national salary insurance scheme. This system would provide people with higher levels of benefits than they are currently entitled to if they lose their job, but would also require this support to be repaid when they return to employment. There is also a strong case for ensuring that anyone facing long-term unemployment of more than 12 months is guaranteed a job. In these circumstances, the third sector and local government can act as ‘employers of last resort’ by providing jobs of social value with a requirement for jobseekers to take up work or lose their benefits.

Given the blizzard caused by the government’s austerity programme and the headwinds from the eurozone, it will take some time yet for Britain to weather the current economic storm. The changes in the global economy need to be carefully managed but if done wisely the ‘rise of the rest’ will present enormous opportunities for Britain’s economy in the future.

This is an essay from the latest Fabian Society pamphlet “The Economic Alternative”, posted here as part of our “Economic Alternative Day”. You can download the pamphlet in full here.

  • Quiet_Sceptic

    “For those who can return to work quickly, one way to solve the problem
    of low unemployment benefits would be to introduce a national salary
    insurance scheme.”

    Someone had a similar idea some years ago…. ‘Beveridge’ that was the man! Yes that was it, the National Insurance scheme; to provide working men and women with an allowance sufficient for subsistence in the event of loss of employment.

    Given that government is still collecting the premiums but the coverage has been greatly reduced, I’m not that keen to buy yet another insurance policy off that particular seller.

     

    • Jeff_Harvey

      Bollocks.

      • Quiet_Sceptic

        Care to elaborate?

        • Jeff_Harvey

          No.

  • Suey2y

    Has Lab suddenly decided on a “yes we can” message? If so, I’m delighted. If coincidence, I like several articles I’ve read today, including this by Mr Straw :)

  • Suey2y

    Oh arse. I take it all back. I see the UNUM/IPPR/Byrne salary insurance option snuck in at the end. FFS – until you define what would happen to those ineligible, this is just utter pandering to corporate “bandits” who planned all this 20 years ago. Nice work. How VERY depressing to see.

    In fact a link I was doing my best to ignore. IPPR/Purnell/UNUM/Will – hoped Will was just naively out of the loop rather than complicit. 

  • JoeDM

    Well we are not going to improve our place in the global economy without developing a much more efficient, deregulated, and flexible labour market.

    • Dave Postles

       Serfdom should do it.

      • TomFairfax

        I don’t think it will ;o)

        I think I remember you asking about some dodgy Japanese car maker.

        FYI Nissan had a record year last year globally, and in Europe.

        Key factors were the sales increases in emerging countries. Groundwork was laid down over a decade ago.

        We have production in India, China, Brazil, and Russia, as well as these markets taking large volumes of imports.

        Key factors are thinking strategically and making sure there are local people onboard to ensure the products are suitable for the markets expectations. Diversity is king if you want to succeed globally, because you can’t expect management drawn from a single country and class to understand other markets priorities and people.

        Anybody thinking they can sell something overseas the same as they do at home is living in cloud cuckoo land, unless they are the only supplier globally of that type of product.

        For instance, Saudi’s don’t like a womans voice for navigation systems. American’s expect to be able to telephone someone about anything as first option, but the majority of western Europeans will use the internet as a first recourse, and also don’t expect the navi to work better than local knolwedge garnered over years.

        Russian’s want studded Nokian tyres for the winter regardless of whether they improve traction on a modern vehicle or not.

        Even the USA is a completely different market at a detailed level. The same GUI for car info systems will not work for Europe and the USA without going the lowest common denominator and customer irritation route.

  • AlanGiles


    Finally, we must be honest that some people will lose out as a result of globalisation and do everything we can to support them. In conditions of fiscal constraint, there are no easy options for welfare reform. For those who can return to work quickly, one way to solve the problem of low unemployment benefits would be to introduce a national salary insurance scheme. This system would provide people with higher levels of benefits than they are currently entitled to if they lose their job, but would also require this support to be repaid when they return to employment. There is also a strong case for ensuring that anyone facing long-term unemployment of more than 12 months is guaranteed a job. In these circumstances, the third sector and local government can act as ‘employers of last resort’ by providing jobs of social value with a requirement for jobseekers to take up work or lose their benefits.”.

    Like father, like son, a whole lot of windy rhetoric – New Labour rhetoric at that – how can you guarantee jobs that don’t exist?. Unemployment is the highest it’s been in 17 years, there’s bits of Purnell and Duncan-Twit in there too.

    I think it’s time you got out of politics and into a job yourself, Will.

    • Jeff_Harvey

      “…  providing jobs of social value with a requirement for jobseekers to take up work or lose their benefits…”

      No mention of wages, Alan, and so I think Straw junior’s “job guarantee” is actually nothing more than a Labour flavoured version of Freudian “workfare”. If this isn’t the case perhaps the author of this article will be so kind as to correct me. 

      Where there’s a Will there’s a way.

      As they say.

      • TomFairfax

        Left foot forward was a good idea screwed up royally by inept implementation. Anybody remember who was responsible.

    • TomFairfax

      Hi Alan,
      Don’t know where to start with Mr Straw’s tosh.
      But let’s start somewhere:
      1) We can promise fluffy toys to all kids and jobs for life, but nobody will take any notice whilst council leaders in London Boroughs are miraculously jumping council waiting lists. Hopefully Mr L. Smith or Barking and Dagenham knows what I’m talking about.

      2) BRIC markets. err yes, about 10 years late on the uptake. Who does he think Jag and co are selling cars to?

      3) As for insurance of any type. My wife has been told she needs some dental work to the tune of £2500. Fine, we can afford it. Most can’t. But if I’d taken out dental insurance when originally offered, at a reduced rate, at work fourteen years ago I’d have have paid out £4000 in that time plus tax on it as benefit. Doh! Private insurance companies working to make a profit. Of course they are. That’s the point of the business. But to suggest we force the least well off to bolster the profits of these companies, when a not for profit organisation (let’s call it the state) can provide the same for less, who is he trying to kid. (Assuming he isn’t a brainwashed moron repeating the toss he’s been told is gospel truth by dad and Tony.)

      4) I’d like to see just one of these useless, silver spoon fed, morons like Will, actually do a real days work in a manufacturing plant where we generate wealth for the nation and spout this tripe to his co-workers. (Ideally in a car plant in the north east where he’d find out the meaning of ‘a hard days work’, assuming he hadn’t been dum enough  to be sent for ‘a long weight’ in the first five minutes.)

      5) The list of our leading industries according to the book of Will is instructive, . If he’d actually checked on the leading exports by value it would have been different. Medical devices is laughable. It’s mechanical, electronics, and software engineering that is the key to those, and a whole lot more than that as well. The IMechE, IET, and NMI would be disappointed. As for the rest. Science and engineering covers it all, but where’s the recognition of those skills and knowledge as the foundation?

      P.S. A little birdie in B&D mentioned your thought’s on the inexperienced ones.

      Will’s article above pretty well sums it up. Never make up ‘facts’, and never dilute the communication by adding some unrelated and contentious at the end. A sure lesson in how to kill your own message. Simples.

      Will like D. Milliband, couldn’t explain something persuasively to anyone if his life depended on it.

      I actually like to think of myself as on the right of the party, but the sheer number of  parrot taught, totally self serving, oxygen thieves, thinking that ‘me too’ copy cat policies is the way to be a distinctive vote catcher just makes me livid with rage. I end up supporting the lefties on most of these threads because most of them have an IQ that registers as average or higher and some bloody integrity.

      • Peter Barnard

        @ Thomas F,
         
        A few months ago, Martin Wolf wrote an article for the FT (Google Martin Wolf low hanging fruit).
         
        For me, that article encapsulates the problem facing mature western democracies ; the “low hanging fruit” (auto, aero, electrical, gas, water and engineering in all its disciplines) with mass employment in manufacturing and production is there no longer.
         
        I don’t think that Labour, Conservative, Liberal Democrat and, indeed, Scottish Nationalists appreciate the tectonic shift facing our economy, ie it’s not only “China,” it’s a lot deeper than that.
         
        All this talk about “enterprise” and “entrepreneurs” is hogwash ; the internet and the cowboys therein are not the answer.

        • TomFairfax

           Hi Peter,
          You are correct. There is nothing there that no one else can do.

          The only advantage at the moment generally now is experience and supplier infrastructure. Experience can be acquired or gained in all those areas. The suppliers set up where the business is.

          There are some very specialised areas, which are effectively niche industries for niche markets where we can keep an advantage in the long term, but they won’t generate mass employment.

          A Chinese electronics factory can now often have better equipment that a European one in many cases, so their advantage is in investment as well as labour costs.

          Intellectual Property and it’s protection are essential for the short and medium term. The Google model beloved of government, where Google ignore the rights of the owners of any intellectual property, disincentivising the generation of such works, and acts as a brake on innovation.

          Somehow this is considered OK if it generates more advertising revenue for Google. Apple’s approach of working with content providers promotes growth and investment. Apple wan’ts to protect it’s own property and sees that others want to as well.

          In the long term it becomes tricky because if the Chinese government doesn’t play according to the existing rules on patents and copyright, the rest of the world is flooded with Chinese copies.

          What we do have an advantage with, is that we know our own market, intuitively. What we mustn’t do is shrink that home market to just the UK and not the whole of the EU.

          The lessons are: to make something that is customised for the market but could equally simply be customised for others as well, and make sure innovation is protected rigorously so as to safeguard jobs and fute innovation.

          Alternatively get a job as a solicitor because no one else has our laws.

  • robertcp

    I actually think that the national salary insurance scheme and the guaranteed job after twelve months are good ideas worth considering.  Of course, the guaranteed jobs would need to pay at least the minimum wage.  At least Will is suggesting something positive rather than just moaning or waffling.

  • Daniel Speight

    Is this really it? Are the Fabians now just the home of apparatchiks and party princelings  like Will waiting in the wings for their chance to join the gravy chain?

    Thatcher de-industrialized Britain and empowered the City. Blair and New Labour made no attempt to what we know call rebalancing the economy and allowed what was left of British industry to whither and die.  Was there a choice? Well Germany and France seemed to think so which is why you see their goods in foreign markets but so very little from Britain.

  • JoeDM

    Of course, in our globalised world economy the UK will only benefit if we can produce goods and services efficiently.    This means freeing up our labour markets and encouraging flexibility and removing the over regulation that has prevented growth in production  in recent years.

    The State has to get out of the way and let the wealth producing sectors of the economy create income and jobs.

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