Stephen King: Britain could become the Huddersfield Town to China's Chelsea unless we raise our game

The West takes its high levels of prosperity for granted, but others cannot wallow in this complacency
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There's something very odd about the notion of competitiveness. According to my dictionary, to be competitive involves beating others. Thus, if the British economy is to be competitive, British industry should be trying to do something better than its rivals. More specifically - and I'm paraphrasing my dictionary here -we should be offering something that's attractive, that is manifestly superior to the alternatives and which offers good value.

On this definition, competitiveness is very much tied up with national pride. We, the British, have to demonstrate our better performance, our superior range of goods and services and our Olympian commitment to economic success. And, by doing so, our economy will do better than others. Gordon Brown, for one, likes to boast of British success. The "Made in Britain" seal of approval pervades many of his speeches, with our relative success revealed in a series of staccato statistical salvoes.

Because competitiveness is tied up with notions of national pride, it's never entirely clear whether our leaders are referring to competitiveness as a measure of economic efficiency or, instead, whether they are referring to competitiveness as a crude measure of our relative success against our peers.

If it's the first, all well and good. If it's the second, the story is a little less comforting: on this interpretation, we could take as much pride in others' failure as we might in our own success. After all, competitiveness typically deals in relativities, not absolutes.

The Chancellor of the Exchequer's pre-Budget report speech provides a good example: "For the fifth successive year running, British growth is higher than France, higher than Germany, higher than Italy, higher than the euro area, higher than the European Union." All absolutely true, of course, but the Chancellor forgot to mention the stronger growth rates recorded in the US, Japan, China and India. He also, of course, forgot to mention that, over his chosen period, the eurozone's performance has been unusually poor.

Competitiveness is also closely linked to protectionism. Protectionist manifestos tend to be associated with a desire for a "level playing field". But who defines what this field should look like? On Saturday, Chelsea played Huddersfield Town in the FA Cup. In a physical sense, the field was level but, financially, the imbalance was almost laughable.

Does this mean that the game should not have taken place? Or that some of Roman Abramovich's billions should have been siphoned off to Huddersfield Town so that they could have bought Thierry Henry? Presumably not. But it's this kind of argument that leads to unhelpful protectionist demands: workers in the West, for example, argue that workers in developing markets are "cheating" because they don't receive the pension, health and safety benefits - all of which add to Western labour costs - that we take for granted.

While it's undoubtedly the case that the world would be a better place if all workers had decent rights, the reality is that some rights are only likely to be available to those who can afford them. For the most part, that means the rich West. For other areas of the world, the most important thing is to get work, not to worry about the range of fringe benefits. Sadly, for many people in the developing world, the alternative to a low-paid job is starvation. We take our high levels of prosperity, and productivity, for granted but others can't wallow in this complacency. Were I to apply the same logic to my soccer analogy, the Western protectionist would presumably argue that a Huddersfield Town midfielder should receive the same weekly wage as Frank Lampard. Yes, in a perfect world, that would be very nice, but any attempt to do so would leave Huddersfield Town facing bankruptcy in next to no time.

Competitiveness matters, but only as a device by which resources are allocated efficiently within and across industries. In this sense, competitiveness, ironically, does not involve countries "beating the competition". The opening up of free trade between two countries leads to a better outcome for both, reflecting the beneficial effects of David Ricardo's comparative advantage. It's difficult to apply crude competitive notions to this process for the simple reason that both countries are absolute winners: the relative positions need not change at all.

If, however, a country starts to fall behind others on a wide range of measures of economic performance, it's possible that economic efficiency is being put at risk. Everyone talks about the US productivity miracle, referring to the wonders of modern technology. These technologies are easily available everywhere, however, so the puzzle is, perhaps, not so much America's productivity success but rather Britain's - and Europe's - productivity failure. Why, if the technologies are available to all, do some countries thrive and others seemingly falter?

It is in this area that the UK - and, for that matter, some of our European peers - should be feeling a little uneasy. The chart shows the development of exports of goods and services over the past three years. The US, Japan and Germany have done very well. The UK and France, in contrast, have been disappointing. Over the same period, UK productivity growth has appreciably slowed, suggesting that our limited progress on exports may have something to do with our inability to eke out the best in productivity performance.

The table reveals another side of the story. The big changes in trading patterns in recent years have been associated with the rise of developing economies - the impact, if you like, of globalisation. China, India, Mexico, Brazil, central and eastern Europe and the major oil producers have all played a part in this story. But the degree to which industrialised countries have engaged with these developments varies hugely. The US has played a major role: both its exports to and, more dramatically, its imports from developing markets have increased dramatically over the past 10 years. Japan has had a similar experience, although in Japan's case, the pain of adjustment has been considerably greater than America's: lifetime employment arrangements do not sit easily with the reallocation of resources that's required as trading patterns change.

For Europe, however, the numbers have hardly shifted. Europe seems to be disconnected from the really big changes taking place in the global economy. Internal economic barriers may have been dismantled as the single market has been completed, but the level of engagement with the rest of the world is remarkably limited. There are some exceptions: Germany's comparative advantage in capital goods production has certainly helped its export drive in recent months. But Germany's overall export success has also been driven by a relentless reduction in domestic labour costs - good for competitiveness, but less than encouraging for domestic consumption. Another example, perhaps, of the rather tenuous link between traditional measures of competitiveness and overall economic success.

There is no easy way to allocate resources efficiently. But countries that fail to come to terms with widespread economic change are the least likely to do well. The arrival of China and India on the global economic stage has led to a series of seismic economic shocks, most notably major shifts in comparative advantage. Those who adjust to these new realities may benefit. Those who choose not to, or whose markets are too inflexible, will almost certainly lose out. Slower productivity growth and weak exports are two indications that the UK, like some other European countries, has not yet grasped the opportunities that may lie within reach.

Stephen King is managing director of economics at HSBC