In recent months, the great ongoing debate about Britain's place in Europe has taken a couple of new twists. Go back a year or two and the received wisdom was that it was overwhelmingly in Britain's self-interest to have as close an economic relationship as possible. Nearly 60 per cent of our exports went to other members of the European Union, giving a powerful prima facie case, for example, for Britain signing up to a single European currency, should the rest of Europe go ahead with the plan. People talked of the "slow lane" and the "fast lane" of Europe, of the "core" and the "periphery".
That debate has now shifted somewhat, with two main counter-arguments increasingly being heard. One is that continental Europe is and will increasingly become a slow-growth market. Its economic performance will be hampered, it is argued, partly by demography and partly by the burden of its over- expensive welfare systems. It has been noted that Britain's exports to such regions as East Asia are growing much faster than those to continental Europe, with the result that the proportion of our exports going to the EU, although still over 50 per cent, is now shrinking.
We also seem to be doing rather well in these new export markets: it was noted a couple of weeks ago that we have moved into surplus with East Asia, whereas we are in deficit with the rest of the EU.
The second counter-argument is that if one looks at our investments worldwide, they are overwhelmingly in countries outside the EU - half our visible trade may be with Europe, but 85 per cent of our investments are in the rest of the world. It is also becoming clear that we are a very successful international investor. We have just passed Germany to become the second largest recipient of net income from overseas investments in the world - second, that is, to Japan (as the graph on the left shows). In the future, this argument runs, being a good international investor will become an increasingly important comparative advantage.
Together these arguments have shifted the balance of the debate. It would be absurd to pretend the present direction of our physical trade did not matter, but the idea that it should dominate our economic policy- making has been scotched. The argument "Why don't we go all out for the growth markets instead of being lumbered with ageing ones?" has powerful resonance.
There is, however, a third strand to this debate which you can pick up anecdotally by talking to many British industrialists but which has not been thoroughly researched. It is that quite aside from growing rapidly, these "new" markets are very profitable. Talk with our captains of industry and they wax lyrical about the profits they are making in Hong Kong, or how demand has suddenly surged in Argentina.
Figures show the European market is extremely unprofitable compared with other export markets such as North America and East Asia. British companies do an enormous amount of business on the Continent, but they make less profit than they do from either North America or East Asia.
The figures behind this conclusion, compiled by Julian Chaffey and published in the journal Breaking the Mould, deserve a wider audience. Chaffey took the published accounts of the FT 100 companies, and examined their turnover and profit by region. These are 1993/4 figures, but there is no reason to suppose 1994/5 ones will be radically different, for the 1992/3 ones show broadly the same pattern.
They are summarised in the right-hand chart. The total turnover was pounds 379bn, total profits pounds 43.8bn. UK turnover was pounds 179bn and profits were pounds 26bn, a ratio of 14.5 per cent. Turnover in the rest of Europe was pounds 72bn, and profits were pounds 4.2bn, only 5.8 per cent of turnover in the region. Turnover in the Americas was pounds 81bn, profits pounds 8.4bn(10.4 per cent). By far the two most profitable regions were Asia-Pacific (turnover pounds 18.8bn, profits pounds 5.2bn or 27.6 per cent); and Africa and Middle East (turnover pounds 2.8bn, profits pounds 0.7bn or 26.3 per cent). The breakdown of the rest of the turnover and profit could not be deduced from the published accounts, but would be somewhere outside the UK.
The conclusion is pretty stark. For all the supposed importance of the continental European market, it contributes less than 10 per cent of the profits of the top 100 companies, much less than they make from either the Americas or the Asia-Pacific region.
Now of course these are pretty crude figures. They are a bit out of date and may therefore reflect the Continental recession, which ran two years behind that of the English-speaking world. It may be that companies can, to some extent at least, choose to show profits where they want to, so this breakdown may in some measure be driven by tax and other considerations. The FT 100 companies are of course untypical of British commerce as a whole in that they are largely, extraordinarily, international. No less than 45 per cent of their employees are based abroad.
But remember that this list includes many of the British public utilities, most of which (aside from being very profitable) are still predominantly domestic businesses. Take them out and the balance of turnover and profit would be even more international.
This research is clearly terribly important, but what conclusions might stem from it? First and foremost, we need to know more facts. We need to know why Europe is the most unprofitable region for our giant companies. Are they doing something wrong? Is it just a difficult region in which to operate? Are there hidden barriers to British companies? Or is it simply that our most profitable companies happen for historical and cultural reasons to have the bulk of their business in other markets?
Without more work, it is hard to do more than guess the answers to those questions. But I am quite sure that the source of the profitability of our giant companies is a matter of national self-interest.
Of course national interest is not identical to the interests of the FT 100 companies by any means. But the financial health of those companies does matter very much. So their interest should surely rank pretty high in any assessment.
That would suggest a reorientation of our diplomatic efforts away from Europe and towards the Americas and Asia-Pacific. It would suggest the burning EU issues, such as a single European currency, are not very important from a commercial point of view. It would suggest that improving our trade relations with such countries as India and China ought to be of the highest priority. And it suggests that we should remember that the Americas should be uprated in any assessment of our financial interest, and Europe correspondingly downgraded.
Surely we should seek to reinforce success, and encourage our business links with the parts of the world where they do best, rather than focus all our attention on the region where they are finding it hardest to make a decent living.