A seismic shift to the east

Economics
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The Independent Online
IF, AS the Government would maintain, we have been improving our relative performance in the economic league tables, how come we have slipped from 13th in the league table of gross domestic product per head in 1979 to 18th in 1993? This slippage was cited in an advertisement placed by the Labour party in the Times last Wednesday as evidence of the failure of Tory economic management. If true, this would appear to be good prima facie evidence if not of failure, certainly of a rather poorer perform- ance than successive Tory governments have claimed.

But is it true? Michael Heseltine immediately noted that the problem was one of a 100-year-long decline, while elsewhere the rapid rise in product- ivity in the UK in the 1980s was cited as evidence that this was misleading. Certainly, whenever politicians (or indeed journalists with strong political sympathies) start to use economic statistics, you should beware. So where does the truth really lie?

Factually, Labour is nearly correct. It is not quite accurate, because it gives the source as the OECD and two of the countries that have supposedly passed the UK - Singapore and Hong Kong - are not members and so do not appear in their tables. But I cross-checked with World Bank data (which uses gross national product instead of GDP), and we have indeed been passed by Singapore, though we were level with Hong Kong.

Do things change if you take 1994 instead of 1993, for we had very good growth last year? No, the ranking remains the same: we narrowed the gap slightly, but not by enough to change the ranking. Do things change if you take GNP instead of GDP, remembering that GNP includes our strong earnings from investments abroad? Not really, for though the order is slightly different, we still come out in 18th place.

A fudge on exchange rates? No, the OECD uses purchasing power parity, which is the best measure for the purpose of comparing living standards.

If there is no fudge as far as the league table is concerned, is the table itself misleading? Here, I think there are some genuine concerns. Six countries have supposedly passed us since 1979: Japan, Norway, Germany, Italy, Singapore and Hong Kong. And we have passed Sweden.

Japan saw very rapid growth through to the late 1980s, and while it is now stagnating, that surge of growth has put it far enough ahead for it to need several years of faster growth here to come close to catching up.

Norway obviously has been helped by the phenomenon of North Sea oil, which is proportionately much larger for it than it is for us: their production is nearly as large as ours and there are only 4.3 million of them to spend the royalties.

The inclusion of Germany might seem odd, for most people would have assumed that it was already richer than the UK in 1979. West Germany was, but if you count the whole of present Germany (the former East Germany as well as West), that would have been behind us in 1979 and now is ahead. As for Italy, it passed Britain in the middle 1980s, because it decided to include the black economy as part of its GDP, with the result that on paper the country was suddenly 10 per cent richer than it had been before.

Ask a slightly different question of these figures: how has the Brit- ish economy performed in relation to the rest of the OECD countries, and the answer is that our position has changed remarkably little. In 1979, our GDP per head was 97 per cent of the average; in 1993, it was 95 per cent. I expect last year's good growth will have brought us back to the 97 per cent point.

Surely the interesting thing here is not that we have slipped, but rather how little - at least as far as the figures are concerned - has changed for Britain. One could argue that the dynamics are in our favour: whereas for most of the post-war period we had been clearly losing ground, since the early 1980s we have been holding our own.

This general judgement would be confirmed by other measures of performance, such as industrial productivity. UK productivity did indeed rise very fast in the 1980s, but it is still generally a bit lower than that of Germany and France, and much lower than that of Japan and the US. We have narrowed the gap, but we have not closed it.

I would project this forward and argue that the balance of probability is that in another generation we will have pulled up alongside France, Germany and Italy, maybe a little ahead of them. We are helped, among other things, by our demography, for Britain is ageing more slowly than the rest of Europe. It is unfashionable to argue this, but I believe, irrespective of whichever party is in government, the UK economy faces a generation of modest success.

There is, however, a bigger story buried in these figures, which a simple league table does not show. It is that if European countries as a group are in much in the same relative positions as they were in 1979, North America and East Asia are not: the US and Canada are both significantly down (the US from 143 per cent of the average to 136 per cent, Canada from 118 per cent to 108 per cent), while Japan is up. If the OECD included other east Asian economies, the eastward tilt would be even greater.

This trend will, in all probability continue, for you have to postulate some economic catastrophe in the region for it to stop growing much faster than the mature economies of Europe and North America. What will be the consequences of this? Have a look at the other league tables, for a different OECD study, in the graphs. At some stage in the next 20 years, China will become the world's largest economy. In income per head, it will of course remain well behind North America, Europe and Japan, but thanks to the size of the population the overall size of the economy will pass the US.

But as the left-hand graph shows, this was the position of China in the early years of the last century. India, that other populous giant, was an economic powerhouse, too. The right-hand side of the illustration shows where we are now, and it does not take a great burst of imagination to see how this particular league table might develop over the next generation. China and, rather later, India will again be the great economies of the world. We will still be richer in per capita terms, but we will matter less in terms of economic influence.

And that, surely, was the ringing message of the league table featured in the Labour advertisement. We have slipped a little on those figures, but the radical gains are those of the two fabulous Chinese-speaking city- states: Hong Kong and Singapore. If a tiny British colony and a tiny ex- colony can become richer than us in little more than a generation, think what the rest of the region can achieve. And it will.

Are not British politics curiously parochial, when set against these seismic economic shifts on the other side of the world?

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