We are taking a sideways look at the economy today. China is rising, or is that risen? India is following in its wake. By 2050, PwC reckons the total GDP of the so-called E7, that’s Brazil, Russia, India, China, Indonesia, Mexico and Turkey, will be half as much again greater than the total GDP of the seven countries that currently make up what we call the G7. In such an environment, how will the UK possibly be able to compete?
Well, for once there are reasons for cheer, because here are some interesting theories to suggest that the UK could actually do rather well out of it all.
But first, let’s look at the one USP we are told the UK already possesses: the City of London. If the forecasts about how the global economy will grow over the next few decades are anywhere near right, then the global finance industry is set to boom. And if the City can remain one of the world’s most important financial hubs, then during the first half of this century this sector could bring in trillions to the UK economy. And this of course is the argument to support massive bankers’ bonuses: for the City to fulfil its potential it must attract the top people, and that means big pay packages.
But there are three problems with this. Firstly, if the City grows with the global economy, and then we face another banking crisis, the cost of a bailout may be too high for the UK government. Secondly, a booming City may push up the value of the pound, making it harder for other sectors to compete. (This is known as the Dutch disease, after North Sea oil exports once pushed up the price of the guilder, and as a result other Dutch exporters lost competitiveness.) The other problem relates to the whole issue of the fairness of bankers’ pay. The City may or may not prove to be an incredibly valuable asset for the UK, but if in making it a success we agree a kind of devil’s pact and sell the soul of the UK, then that maybe is a price that is just too high.
But actually, even if bankers’ bonuses are curbed, there is good reason to think that the City will still remain popular as a financial hub.
Steven Johnson explained it in his book Emergence, how cities can act like glue, see http://www.investmentandbusinessnews.co.uk/banking/sarkozy-says-to-banks-come-to-france-and-leave-that-dirty-city-of-london-behind/ for our explanation of Johnson’s idea. The City offers networking advantages to bankers that are just not going to disappear overnight. The latest thinking in networking theory suggests that each network is dominated by handful of hubs, and hubs tend to grow over time. Within the financial services industry, the City is one huge hub – and it is highly unlikely its growth will reverse.
Indeed, so great are the networking benefits provided by the City, that the UK exchequer could probably justify some kind of City tax.
But let’s put the City aside, what about the UK in general?
Will Hutton covered how countries such as the UK can compete in the globalised world in his new book, ‘Them and Us’. He said: “Firms are already increasing investment in their software, organisational development, non-scientific R&D, design, architecture, reputation and capacity to provide ongoing after-sale service. British investment in these ’intangibles’ now comfortably exceeds investment in the ‘tangibles’ of factories and machines, partly because it has risen at three times the latter rate for a generation. Firms have to be clever in what they do, how they do it, and how they present themselves to their markets. These injunctions already hold true in almost every area. At one level, the knowledge economy is laser surgery, personalised learning, and drought-resistant crops; at another it is EasyJet and Ryanair, GPS navigation systems and music downloads; at another it is Prêt, Jamie Oliver and Green and Black’s organic chocolate. It is cloud computing, which avoids the infrastructure capital costs of software applications by being accessed online by everyone as a utility. It is visiting the car factory to meet the team that customised your car. It is the immersive entertainment of Modern Warfare II and the iPlayer. Ian Brinkley director of the Work Foundation’s Knowledge Economy Programme, calculates that more than two-fifths of Britain’s workforce and value-added now comes from broadly defined knowledge-based industries and services of these types – double the levels of 1970 – and that the figure will consistently rise in the years ahead.”
So that’s the opportunity, how can the UK benefit?
Neal Gandhi, CEO at Quickstart Global and author of ‘Born Global: Successful Global Expansion From Those Who’ve Done It’, reckons he has managed to put his finger on what he sees as the UK’s unique assets.
First, there is the accident of geography, or GMT. The working day in Britain, and this is pretty unique, overlaps with the working day in both Japan and California. A massive benefit that people too easily forget.
Then there’s the popularity of the English language, well that’s a benefit that is pretty easy to understand. (Incidentally there is a theory we will eventually see the evolution of lots of versions of the English language as different countries incorporate their own unique cultural characteristics into the way they speak English. It is far from certain that the English language we speak in Britain will be the version of English that ultimately becomes the most widely spoken version.)
Then there’s the UK’s own cultural diversity. Mr Gandhi reckons that within London no less than 200 different languages are spoken. Within the popular media, immigration and the mix of different cultures in the UK is portrayed as a bad thing, but this diversity also gives the UK a pretty unprecedented understanding of other cultures, a potentially invaluable asset in a globalised world.
Then there’s design expertise. From the design of the iPhone, Formula One expertise (Red Bull, McLaren, Williams and Mercedes all base their Formula One outfits in the UK), and even companies such as ARM, the chip design company that is licensing its chip design for use in smartphones.
Another USP that Gandhi seems to think the UK possesses is what he calls stoicism – a kind of bloody mindedness. The UK just gets on with things. After the terrorist attacks of 2005, the Brits just carried on, unlike in the US where air travel plummeted after 9/11 – and bizarrely led to more deaths as a result as car travel is more dangerous than air travel. Maybe you can also describe this stoicism as a kind of spirit of the blitz-type mentality.
And so that’s the opportunities. Yes the world is getting more competitive. But then so are the opportunities to do business. And people who write off the UK, saying we are set to slide into economic ignominy, are being way too pessimistic.
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