Hamish McRae: Forget grandstanding, dear leaders, and just learn from your G8 friends

Economic View

G8 meetings ain't what they used to be. The first so-called economic summit took place in 1975 at the château at Rambouillet in France at the invitation of President Valéry Giscard d'Estaing.

The idea was to co-ordinate economic policy to counter what was then the worst recession since the Second World War. In economic terms we are pretty much at the same point in the cycle now in that things are probably no longer going down, or at least not by much, but the recovery is very uncertain.

But if the point of the cycle is similar, the players are very different. The original six nations (France, US, UK, Germany, Italy and Japan) were/are all developed countries with broadly similar economic policies and objectives. Canada, which joined later, is too. But Russia, number eight, is utterly different and its membership was a recognition of its political importance rather than a shared economic vision.

Now, however, as the G8 no longer reflected where power in the world economy really lay, it has been supplemented by a parallel meeting of a G5, made up of the most important emerging economies: Brazil, India, China, Mexico and South Africa. The global ranking of world economies as projected for next year by Goldman Sachs, shows how China will clearly have passed Japan to become the world's second-largest economy – it has probably passed Japan in size round about now. The others are still much smaller relative to the "old" developed economies, but the rankings are changing fast. For example, it looks as though India will pass the UK within 10 years and it seems likely to move into the number three slot behind China and the US within 20 years.

That shift of power has speeded up during the downturn. If you have the Chinese economy growing at about 7 per cent this year and Japan shrinking at about 5 per cent it does not take long for their relative positions to flip. But the huge issue is how has China (and indeed India) managed to come through this downturn in so much better shape than the rest of us. An economic summit between the major economies ought to be about learning from each other. I do not, at least from the stuff that has emerged, have much sensation that this sort of issue is even being talked about.

China's exports have been hit just as hard as everyone else's. They have been running negative right through this year, a much worse outcome than during the early 2000s dip. But China has gone on growing. How?

The simple answer is that it has been able to switch from export to domestic demand. In the first half of this year, for the first time ever, more cars were sold in China than in the US. There has been a boom in rolling out 3G telecom networks. Building has been boosted by releasing more land for homes and increasing lending for property development. In fact, the fiscal and monetary boost the Chinese authorities have pumped in is proportionately much more than that of the US or, indeed, as far as I can see (figures are opaque), any developed country.

We have to ask: how have they managed to do this? The answer comes in two halves. The first part is that they had a lot of leeway in the economy that enabled them to do so. The second is that this is still a command economy, not a pure market one.

China can boost consumer demand because demand was low to start with. Consumption has been bounding upwards, at least in the more developed parts of the country – the disparity between coast and centre, between east and west, is part of the reason why social tensions have been so strong. The central command is terrified by such unrest, witness the early return of China's President Hu Jintao from the summit before it even began. For politics-watchers, the summit has become a touch of Hamlet without the prince. But for economy-watchers, what will happen to Chinese growth in the months ahead is a bigger story. You see, Chinese consumption is only about 40 per cent of GDP; it is 70 per cent in the US, a little lower in Europe. So all the authorities have to do is figure out a way of persuading Chinese people to spend more. In the developed world, governments don't have that authority. In China there are enough levers to pull.

That is the second point. The banks can be urged to lend directly to consumers to enable them to buy products, and to companies to fund their expansion. The banks have, by and large, avoided the world's sub-prime meltdown. Local authorities own much of the land, so they can release more for development. And the state can fund big infrastructure projects, such as the expansion of the 3G networks.

This leads to two huge questions that other summit nations should surely be asking. One is whether there are elements of Chinese economic management that carry lessons for the rest of us. The other is whether the Chinese programme is sustainable.

I cannot pretend to have satisfactory answers to either. But on the first, it is worth noting that one of the reasons why China has been able to boost demand is because it has been a society that saves. If families have a habit of saving, which they have to do partly because social provision is poor, then they have the option of increasing their spending without having to borrow: they can simply save a little less. I would not for one moment suggest that the West thinks of returning to a command economy; that would be absurd. Nor am I suggesting we seek to cut consumption to 40 per cent of GDP. But maybe we have something to learn from the savings habit of Chinese families, the sense that people have a duty to provide for their own futures and, when they borrow, should do so for things like homes rather than services such as holidays.

And will it work? Well, so far it seems to have done so. It is impossible without travelling round China to get much feel for the distress that some parts of the country are undoubtedly experiencing, and you have to be very cautious about any figures that come out. But if China does come through this downturn without losing much of its economic momentum then the rest of us have some hard questions to ask about our economic management.

You see, this is what economic summits used to be about. They were not for political grandstanding or for announcing "initiatives" that could just as well be done via normal diplomatic interchange. They were for leaders to talk quietly and thoughtfully about whether they could manage the world economy more effectively. What could they learn from each other? Nothing much will come out of this event, I am afraid, that would not have happened anyway. We all know that. The most useful thing would be for Western leaders to learn a little from the leaders of countries doing rather better than their own. Is it too optimistic to hope that maybe something will rub off?

A slimmed-down General Motors offers hope as well as a warning

On Friday General Motors emerged from Chapter 11 bankruptcy, with the US government owning some 61 per cent of the company, the Canadian government the union's health care trust, and the bondholders owning the rest. But the project will work only if the company really does reorganise itself to be more competitive. And, in any case, there are serious losers from what has happened.

The losers include the shareholders of course, but also the workers who will lose their jobs, many of the dealers, some of the companies that entered into contracts with the old GM, and possibly the US taxpayer – though that will depend on how quickly the company can be floated off, as is the intention, and at what price.

We don't know yet what will happen to the Opel/Vauxhall division of GM, but two and possibly three bidders are still in negotiation to buy it, so it will certainly be sold. Ultimately, what will determine the success or failure of the operation will be what happens to GM in North America. Four main brands survive – Chevrolet, Cadillac, Buick and GMC – while other famous names including Pontiac now die.

The company plans to close around a third of its plants and lose about a quarter of its staff. It is savage stuff, but cutting bits that don't work is a necessary, but insufficient, condition of a return to secure profitability. The product line-up has not altered as a result of the financial reconstruction and we will have to see if the new and slimmed-down management can make the right choices over the next three years or so to rebuild the group.

I find three things astounding here. First, the pace of decline. Yes, people have been bad-mouthing GM for years, but two years ago it was still the largest car manufacturer in the world. Second, how narrow the gap is between success and failure: Fiat, about to go under five or six years ago, is now is strong enough to become the major owner of Chrysler.

And third? It is how firms in trouble often go back to a trusted oldie. Bob Lutz, 77, is not retiring after all. He's to take charge of "all creative elements of products and customer relationships". There is hope for us all.

Suggested Topics
News
people
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
PROMOTED VIDEO
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
ebooksAn unforgettable anthology of contemporary reportage
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
i100
Sport
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
boxing
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments