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Roddy Graham's blog: 22nd October 2010 - What goes around comes around
Date: 22 October 2010
As a period of unprecedented austerity beckons following this week's Comprehensive Spending Review, it's worth putting the whole thing into a broader global economic context. We may have one of the highest running deficits relative to GDP in the world but other developed countries have too. And some have a worst demographic profile than the UK with a more aging population leading to a smaller workforce and higher number of pensioners. So it's not just us in the UK that are affected, it's virtually the whole developed world.
And nobody is arguing that cuts need to be made. The only real argument is over the timing and depth of those £81bn cuts. I've long held the view that the former Labour Chancellor, Gordon Brown, who astoundingly went on to briefly lead the country, will go down in history as the worst Chancellor of the Exchequer ever. We can blame the banks for our current economic dilemma but we should also blame the last Labour government and, more specifically, its loose spending and loose regulating Chancellor for the current mess we are in.
Looking specifically at transport, the Department for Transport will have to work with 21% less money overall and there will be an 11 per cent reduction in road building and maintenance. Those pot holes will only get bigger and more numerous! On the plus side, £30bn will be spent on the transport infrastructure of this country over the next four years, more than was spent in the last four years, and monies will go to projects providing the highest economic returns. While the high speed rail link will inevitably be delayed, it has at least not been canned and the London Crossrail project will go ahead without cuts but a lower Budget. Those fleet companies with a high proportion of public sector customers will inevitably feel the chill of the falling axe. For the rest of us, it's a tough road ahead.
However, while we start to adjust to the new bleaker financial climate, in the UK, we ought to also start adjusting to the new global economic backdrop and more specifically the power swing from west to east. History can always teach us a thing or two and if you cared to look back to the early part of the 19th Century you might be astonished to discover that in 1820 the largest economy was China followed by India and that these two economies accounted for two-thirds of world trade. How what goes around comes around!
Here in the western world we are just recovering from the worst recession since the Second World War. Not so in China and India, which saw respective growth rates last year of eight and six per cent respectively. And, by contrast with the western world, their workforces are growing too and their total debt - government and non-government - is much lower too. China's total debt is just 150% of GDP compared to the 450% of GDP in the UK. As the emerging markets continue to grow faster, the relative levels of debt burden will widen further.
China is the second biggest economy, having just overtaken Japan, and is expected to be number one before 2030. It is the world's largest car market, the largest mobile market and boasts the largest banks. It invests more in Africa than all the western powers. Meanwhile, India is expected to overtake Japan in the same time frame. India's Tata is the UK's largest manufacturer. Again, by 2030, the value of shares in the emerging markets will be more than the total value of the developed world and thus the pendulum of the economic balance of power will have swung from west to east.
Hand in hand with the economic shift, will be a change in political and social influence, something the US will probably find the most difficult to handle. What we will all need to get used to are the lessons to be learned will not be just one-way anymore but two-way. We will need to swallow our national pride and start, in turn, to benchmark emerging market best practices and apply them to what we do here in the UK.
As I said, what goes around come around!
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