Hamish McRae: Queen's ancestors can't be too dismayed by us

Economic View

Sixty years are two generations so it would be pretty surprising if things had not changed a great deal during that time.

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But to set this festive weekend in context let's start by thinking about the changes that had taken place during the 60 years running up to the previous Diamond Jubilee, that of Queen Victoria in 1897. I suggest that – for all this talk of everything happening more quickly – the changes that took place during those 60 years were actually greater than during the past 60.

Start with technology. In 1837, at the beginning of Queen Victoria's reign, London was not linked to the rest of the country by rail. The railways were planned and had started to be built, but the London to Birmingham railway opened in 1838. By 1897 the entire network was complete, and actually more extensive than it is now.

In 1837, steamships were rudimentary: you crossed the Atlantic by sail. There was no electric light, no telephone or telegraph, no anaesthetics, and of course no cars – all evident in one form or another by the end of the 19th century. It is true there were no aircraft, radio or television in 1897, but when you set the scale of technical change of the 19th century alongside that since 1952 what has happened during the past 60 years is surely more modest.

After all, with one exception most of the technology that shapes our daily lives today was available in 1952. Cars, aircraft, television, phones, washing machines, tape recorders, antibiotics, and so on were all available in the early Fifties, though they were more expensive in relative terms and as a result a smaller proportion of the population had access to them. The only really huge change has been the technologies we lump together as the communications revolution – the personal computer, mobile telephony, the internet and so on – the social and economic consequences of which we still can barely glimpse.

If you turn from technology to the even larger issue of economic power, the past 60 years do start to resemble the period from 1837 to 1897 – but in reverse! Have a look at the graph. It comes from a study by the late Angus Maddison, an economic historian who did a lot of work estimating the size of the different parts of the world economy over the past 1,000 years. The figures show the largest economies both in population and GDP in 1820, the year after Queen Victoria was born.

As you can see – and this was still true at the start of her reign – by far the world's largest economy was China and by far the second largest was India. France was the largest European nation, followed by Britain, while Russia was No 5. Of course GDP per head was higher in Western Europe but in terms of absolute size, to use the current jargon, three of the top five economies in 1820 were Brics.

By the end of the 19th century this position was reversed, with the US and the newly united Germany becoming one and two, having passed the UK and leaving China and India behind. The world had shifted from the Brics to the G7. That pecking order – if you combine West and East Germany – was probably still correct in 1952, though you have to be careful about GDP figures when distorted by wartime mobilisation or destruction. The USSR's GDP figures are dodgy for the same reason: the economy produced a huge amount of stuff but much of its output was not saleable on a free market and so was hard to value.

At any rate, back in 1952 and indeed about 15 years ago, we lived in a world economy dominated by the G7: the US, Japan, Germany, France, the UK, Italy and Canada. That is no longer so. China is indubitably the world's second-largest economy after the US, and the projections for when it passes it to become the largest vary from 2020 to sometime in the 2040s. India is projected to become the third largest sometime in the 2020s. The precise pecking order depends not just on different growth rates but also on the exchange rate you take. Since market rates swing around so much that it is probably better to take a purchasing power parity rate, the rate at which prices in different countries are more or less the same. If you do that, China could overtake the US before 2020.

You could, if you wanted to look on the negative side, contrast the two 60-year reigns of the British monarchs as ones that saw the inexorable rise of the economic importance of the country while the other saw an equally inexorable decline, at least in relative terms. Factually that is absolutely right. Even if you push aside the issue of empire and just focus on what happened within the UK, the two periods are something of a mirror to each other. But there is another and I feel more interesting way of looking at the two periods: to see them in global terms.

Because the UK, then Western Europe and North America, were the pioneers of the Industrial Revolution, it was inevitable that they should leap ahead in economic wealth, size and influence. But that gain was always unsustainable. At some stage the rest of the world was bound to apply that knowledge and technology, and start, first to close the gap and then overtake. Only the US, with its huge population and land mass, was ever likely to remain a major power. Even were Europe considered as a single entity, its declining population would push it down the league table.

If you see the world in those terms, what is happening is not so much a decline but more a reversion to normality. It was the 19th century that was abnormal. Our own progress during the past 60 years has been uneven.

We faced a strong headwind from the debts accumulated in fighting two world wars, but there are some aspects of the UK today that the young Victoria would have been intrigued to note. One is that London is the most visited city on earth: more people fly in through its airports than any other place on the planet. Another is that we publish more books than anywhere else – the English language has gained ground, not lost it. Still another is that we have two universities in the world's top 10, the rest all being American.

Viewed from 1837 our situation does not look too bad.

Take the long weekend to relax – the road ahead is bumpy

It is a good time to get away for a long weekend. On Friday there was a sharp deterioration in the world's economic outlook.

It has been clear for some time that several Spanish banks need to be rescued but it has only been in the past few days that the gravity of their situation has become fully evident.

There clearly will have to be some sort of rescue quite quickly for a run on several banks appears to have begun. The response of the Spanish authorities has been weak and confused, and seems likely to continue to be so. The only issue is the shape and timing of the bailout.

Unfortunately, the problem is not just Europe. The recovery in the US seems to have slowed, with only a small rise in employment and an increase in the unemployment rate. This may just be a rogue number but it has unsettled the markets. Meanwhile, here in the UK there was a sharp drop in confidence among manufacturers – understandable, but still coming at a bad time.

So what happens? It is hard to see the detail but it looks as though the authorities in Europe, the US and here may well have to find ways of pumping up the economy, probably though easier monetary policy.

Things do not yet feel as fragile as they did just before Christmas, and, viewed globally, the world economy is still growing reasonably swiftly.

But the next few weeks will, I am afraid, be difficult – particularly in Europe.