A recent survey by KPMG Peat Marwick, the accountants and management consultants, showed that more than a third of business managers do not understand company balance sheets, or such concepts as depreciation. So it is safe to assume that few people have any idea what such esoteric economic aggregates as GDP consist of, how their elements interlock, how they go up or down, or what has grown when they do go up. We know only that, like culture, GDP growth is supposed to be good for us.
There is also confusion about growth, wealth creation and standard of living. And, even as unemployment grew during the booming Eighties, we still somehow conceived that a growth economy ought nevertheless to mean more jobs.
Many people befuddled by the economy's complexity forget the unremitting double-entry law of all economic activities. The very act of creating income (wages or profit of any kind) for any individual, business or public organisation simultaneously and equally cuts the wealth or increases the borrowing of some other individual, firm or body somewhere else in the economy.
These offsets cross borders between countries, between public and private sectors, between different parts of a sector. No one can tell exactly where in the economy the ripples created by each of these transactions might end. But about international activities there are some indisputable home truths.
Suppose the UK had only domestic activity - rather like imagining what would happen in ICI if its divisions each used only each other's resources, traded only with each other, and sold goods only to its own employees and their dependants.
Without any profit-making 'exports', ICI would create employment and income, that is wealth, but the wealth would be consumed, not preserved and expanded.
The same applies to UK companies without external inflows. However profitably they are performing, however well wage-earners, financiers, entrepreneurs, landlords or anyone else are doing, however much GDP (income) has risen, however fair the standards of living and shares of the cake, UK wealth would be static. UK plc would, in other words, have broken even and its net assets be unmoved.
But break-even is no more adequate for countries than companies. The UK must import some things, and like companies, must set some profit aside for growth and against downturns. External inflows are therefore utterly critical. Presented as a mathematical truth, the politician's exhortation 'exporting is fun' becomes stark (though 'shun imports' is no less a factor in the international equation).
Yet despite 40 years of being urged, and despite some improvements recently, our exports lag so far behind the front-runners that our international trade levels look frankly amateurish. For example, Western Germany's per capita exports to Benelux countries are twice as high as ours, even with Benelux traditionally leaning in friendship towards us. And from 1982 to 1988 (a buoyant period), the UK's balance of payments improved by a mere dollars 10m, compared with Germany's dollars 260m or the Netherlands' dollars 43m.
How far lack of government support or management failure is to blame for this is arguable. That sterling has steadily fallen from DM12 in 30 years is hardly surprising.
But what about those other incantations of politicians: innovation, capital investment, productivity? How much do they help wealth and growth?
New products or businesses (in which Thatcherites put so much faith) will boost income (GDP), wealth and employment, provided their input is domestic and they more than make up for any competition they replace by creating genuinely additional markets and spending here or abroad. But the overwhelming majority of start-ups merely cannibalise existing spending. These are me-too factories, shops or services, creating nothing original but offering more of the same choice. They characteristically import heavily but export little.
That kind of 'innovation' redistributes income but does not create wealth. That is not to denigrate it: it is the process by which a market economy germinates the one or two that do prove genuine wealth creators.
Assuming that capital investment is not imported, it is economically sounder than consumption, because the employment and income or wealth created are also preserved in balance-sheet terms. But of course plant, buildings and the like are consumed year by year, in depreciation. Hence, allowing the UK's infrastructure to erode is eroding national wealth.
Moreover, some revenue spending - export credits or training, for instance - might be healthier than some investment. In the final analysis, what counts is whether each project, capital or revenue, gives the right return; how far, in rippling out into the economy, it contributes to income, wealth, balance of payments, employment and standards of living.
What does labour productivity do for growth? Once again, if gains are not at least ultimately used to boost exports or cut imports, or to go into genuinely additional investment or new businesses, the domestic effects are paradoxical. If the gains are passed on to consumers, GDP actually falls by that amount. Living standards rise for those not made redundant by the productivity increase.
If, however, productivity benefits are retained in the business or distributed to shareholders, GDP is unchanged. Whether these benefits ultimately boost GDP and wealth depends again on whether the additional consumer spending power or reinvestment of profits eventually leads to international trade benefits or genuine new business.
As for personal standards of living, it becomes clear that they do not necessarily rise with wealth or GDP, because that depends on how national income is shared, how much of UK spending is on consumer goods, housing or durables, and how much people save.
Maurice Alberge is a management consultant.
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