Hamish McRae: Whether we like it or not, the Royal Family is our strongest global brand

Economic View

It is an odd weekend, isn't it? The fairy tale of the royal wedding is counterbalanced by the backdrop of major economic and political concerns.

We have had something like two billion people around the world watching the wedding: with the possible exception of the funeral of Diana, the largest television audience ever. Yet we worry – I think rightly – not just about the current troubles of our economy but more generally about our place in the world.

So maybe it is a good time to reflect on that. We have this amazing global brand, which we have grown up with and regard as normal. But it is not normal at all, for when the brand puts on a show, one-third of the world's population chooses to watch it. In an ever more globally competitive world, the tough question every country has to ask itself is: what can we do that others can't do just as well or better? Is this our place? Are we principally selling ourselves as a fairy tale, a Disneyland? If so, what of the other endeavours that we feel define us just as importantly: our skilled manufacturing, our great universities, our service exports and so on?

There are more questions than answers, but one thing is sure. How we present ourselves to the world is not within our control. However much we might wish to shout about our modernity, it is tradition that pulls in the punters. The task for the country surely is to pursue excellence in every aspect of economic life, recognising that tradition is an integral part of our role in the world.

So where might the country be in another generation or two – the country of which, presumably, William will be king? I have been looking at various bits of research about the way this country might perform, and the charts come from one of these, a booklet called The World in 2050 by PricewaterhouseCoopers (PwC). They show, on the left, the order of world economies in 2009, with currencies converted at purchasing power parity rather than current exchange rates. On this measure, the US remains the world's largest economy, with China number two and India jumping up to fourth place. Britain slips down to seventh. (If you use current exchange rates, India's economy remains smaller than that of the UK.)

Now look at the other graph, the projections for 2050. The most obvious point is the way in which the large emerging economies have outpaced the developed countries, but it is also interesting to see how the UK is expected to fare. We slip down, of course, but only to number 10. There is a warning for the UK, for PwC argues that it risks "playing in the slow lane of history" if it continues to focus on markets in North America and Western Europe rather than the fast-growing ones in Asia and elsewhere.

That does seem a very real risk, and I have always worried about our dependence on slow-growing European markets, but there is no magic wand that redirects exports from one region to another. Or rather, in so far as there might be a policy tool, it is encouraging inward investment from the emerging world. The best example of that has been the investment from India, with Tata not just saving Jaguar and Land Rover but also helping redirect their output towards India.

The other point to make is that we should not overly focus on physical exports but also look at invisible or service earnings. Most of our merchandise exports do go to Europe, as you might expect given the physical proximity of the Continent. But most of our service exports go to the rest of the world. The UK is the second largest exporter of services, after the US, whereas it is only the sixth or seventh largest exporter of goods. Our huge surplus on services offsets most of the deficit on physical trade. One branch of our service exports, that of banking, is currently under a cloud and most of us expect it will remain in convalescence for a while yet. But other aspects of financial services, such as securities markets, fund management and insurance, can be expected to carry on growing strongly. That leads to an intriguing question. To what extent might the branding of Britain play to our strength in services rather than our manufacturing?

There is one particular area of services where the brand helps directly, – tourism. London, in particular, has become a great urban resort, the place where the world's rich spend their money. It is an aspect of economic life that sometimes makes the place more difficult for us Britons, as we have to pay global prices out of our UK-taxed incomes, but foreign money has undoubtedly been a huge help in enabling the London economy to scramble through the recession.

Beyond that, I suspect that the impact of brand is marginal but positive. In education, fashion, cultural activities and the like, what matters is how good you are. Oxford University does not directly benefit from the sense of historical continuity that the monarchy represents, any more than Cambridge will benefit from having a duke and duchess named after it. But in a world where much wealth is new, there is a lure of the old. To put the point slightly differently, one of the characteristics of the new rich everywhere is that they want to buy top-of-the-market goods and services. All economic competition is at the margin and brand helps.

A final point. One of the lessons of this weekend is that the UK brand is remarkably strong, stronger perhaps than many of us in Britain appreciate. The wedding is part of that, not the most important part by any means, but a useful way of getting other aspects of the country noticed. Were we to try to trade simply on heritage we would be doomed to play in the slow lane, as PwC warns in that report.

If, on the other hand, we recognise the things that are special about this country, and set those in the balance alongside the things we need to fix, then maybe we can live more comfortably with ourselves in the years to come. I personally find the present questioning mood far more healthy than the swagger of five or ten years ago, but along with the questioning we are surely allowed to celebrate, too.

How can we break the cycle of war that keeps poor countries poor?

The World Development Report, published each year by the World Bank, received less attention when it came out earlier this month than it usually does, perhaps because its main theme – the damage done to human and economic progress by conflict – has been overtaken by the daily reports from North Africa and the Middle East.

That is a pity, because most people are not aware how widespread human conflict is. The chilling statistic it cites is that 1.5 billion people live in countries affected by violent conflict. They may not be directly involved in the fighting but their lives are profoundly affected for the simple reason that conflict makes it impossible for economic progress to be made.

Introducing the report, Robert Zoellick, the World Bank's president, makes five simple points that deserve a wider airing. The first is that national institutions have to be legitimate – obvious, except that in many countries they are not. Second, people need jobs, order and security, with the private sector being the key to employment. Third, foreign institutions working in the developing world need to change: in particular they need to co-ordinate their efforts and accept a larger element of risk. Fourth, partners need to operate at local as well as national levels, what he called a layered approach. And finally, everyone involved in international aid needs to be aware of the rebalancing taking place in the world, with middle income states becoming more important in the development process.

The great difficulty is how to break the cycle of war destroying wealth and job opportunities and that destruction leading to more war. The report does have a number of suggestions but its main achievement may just be to detail the destruction. There is no magic path by which a poor country can suddenly become rich but there is an absolutely certain one that will mean they remain poor.

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