Rise and Fall

Here’s a series of facts for you. In 1997 UK GDP was $1.56 trillion (in 2021 US $). In the same year, India's GDP was $0.45 trillion (in 2021 US$) and China's GDP was $0.96 trillion (in 2021 US$). If my maths is correct, and I’m pretty sure it is, that means that the UK had a greater GDP than India and China combined in 1997. You can see the punchline coming, can’t you?

Fast forward to 2021. UK GDP is $3.12 trillion, the GDP of India is $3.15 trillion and the GDP of China is … wait for it, $17.8 trillion! 👀 There’s the punchline: in a quarter of a century, the UK economy has gone from being larger than the Indian and Chinese economies combined to smaller than both of them individually. A big round of applause for everyone at Westminster please.

Ah, okay, let’s at least look at GDP per capita numbers in current US $. In 1997, UK GDP per capita was $26,766, Chinese GDP per capita was $781 and Indian GDP per capita was $415. Fast forward to 2021, and UK GDP per capita was $48,866. Indian GDP per capita was $2,250, and Chinese GDP per capita was $12,617.  So, there’s no doubt that if you take the average individual in the UK, they are still wealthier and better off than the average individual in China or India.

But, the rate of change and economic development between the three nations is stark. The UK was an economic superpower, it can’t be described as one now, although it still leads in some areas such as finance. Then, China was not an economic superpower. Now, undoubtedly it is one of the duopoly of economic superpowers, the other being the US. The UK (along with much of Europe) seems out of ideas, bereft of direction and starved of growth. Meanwhile, India and China have gone from strength to strength. If you take a member of Generation X or even an early Millennial in India and China, they would have seen a better improvement in the quality of life than an equivalent person in the UK. 

Because that’s what economic growth is, or at least should be. It’s easy to dismiss it as numbers on a spreadsheet, driven by men in suits trading stocks. But when done well, it is the only mechanism we know to give the generation after us a better standard of living. Economic growth is what gives us better jobs, more jobs, higher wages, and the ability to build infrastructure like roads, railways and airports. It’s what enables us to vastly increase the productivity of land, literacy rates and childbirth survival rates. It’s what gives us health breakthroughs, new technology, greater customer choice and lower prices (some of these are reliant on other factors being true such as competitive markets). Economic growth is what has led to remarkable reductions in poverty.

The Oracle of Omaha once said “I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.” I like his thinking, so let me adapt it. We could achieve 5% economic growth next year: you just pass a law that says if you don’t achieve 5% economic growth per year over the course of a parliament, every MP is ineligible for reelection.

But this growth has brought about an unexpected cost: those turning their backs on what has helped deliver it: we’ve seen a reduction in outward-looking, market-based globalisation policies. Indeed, too much economic policy recently has been protectionist and what The Economist calls “homeland economics”, which sounds more like a TV spinoff show than a sound domestic policy. Given how intertwined and interconnected the global economy is now, overly protectionist domestic policies simply result in a loss for the customer, especially around higher prices and less growth.

But, I think any long-term decline of globalisation is overstated. In the Great Depression era, the United States and other nations turned to highly domestic policies. It wasn’t until after World War Two and the Swinging Sixties that globalisation policies began to return.

Now, of course, strong industrial policy has always been with us: from the Japanese and Korean economic miracles, Taiwan becoming the semiconductor island, the Chinese growth from the late 1990s to the present day, the reindustrialization in the then West Germany after World War Two, and more recently, in the USA with the CHIPS Act (sadly nothing to do with a McDonald's order). Strong industrial policy, well implemented can be a reassuringly good thing for the world.

Globalisation will continue its march, not smoothly or monotonically, but it will, because the world is interconnected. We can return to the Greek and Roman empires and see how important trade is. Venice became a key global city due to becoming a trade centre between the Byzantine Empire and the world. The economic realities of the world will, at some point, snap the people at Westminster and government economic departments across the globe back to their senses.

There are many unsolved problems in economics and other fields, but how to achieve sound economic growth isn’t one of them: we know how to build an economy. We’ve done enough tests of different policies: West versus East Germany. North Korea versus South Korea are the two most obvious, but there are others, such as Singapore versus Malaysia, and Venezuela versus most of South America. This is not an unsolved problem.

But for now, we’re stuck with economic growth cosplay, where we celebrate 0.5% growth. 

Let’s move that decimal point and aim for 5% growth, as China has done since 1997. If we do, we might just find that Gen Z and Gen Alpha thank us for it.