Friday, 13 May 2011 06:04
The focus on growth vs. balance of payments.
The focus on growth vs. balance of payments.
The UK Coalition Government has partially woken up to the need to export our way out of the recession. That’s what happens when you let kids run the country – they get it eventually!
The Obama administration is paying similar attention to exports which thankfully for the US are on the up – all be it in no small part to the depressed dollar helping export prices. Nonetheless, the US benefits from a strong enterprise culture that seems to have weathered the recent storms quite well even if unemployment is around 9% still. General Motors are about to overtake Toyota again as the world’s largest producer of cars; this is quite a turnaround from chapter 11 protection.
It is shameful that the UK government’s focus on exports came 10 months after being elected. How could they be so slow? How could they miss the vital yet simple truth that the UK is a business, and one that needs to re-balance its imports and experts just as it needs to re-balance its sovereign debt? The two are of course closely connected.
At some time in the 1980s the media shifted its focus from economic reporting on the balance of payments news to growth. I well remember the 1970s and before, when the news would be about ‘last month’s balance of payments….’ rather than the inflation and GDP growth figures that we now hear so much about. The fact of the matter is that until relatively recently, the UK maintained a proud legacy of the lost Empire with its regard for making and exporting goods around the world.
The UK balance of payments was invariably positive in the 1950s and 1960s though this started to slip back in the 1970s, largely because other nations such as Japan were starting to beat us at our own game.
In the case of cars and motorcycles the Japanese virtually wiped out our industries. Carbon based energy costs threatened to ruin us until the discovery of North Sea gas and old threw us a massive lifeline. One might argue that this opportunity has been squandered.
In the 1970s we should have paid far more attention to the trend of export decline and in the 1980s when we were wealthy we should have really invested in an export infrastructure.
What actually happened is that financial de-regulation meant that the UK economy enjoyed growth on the back of the growth of the City whilst our industrial and export base continued to lag behind.
Most crucially the media got excited about growth and all but stopped reporting the balance of payments. This did not matter so much in the booming 1980s, however, by the 2000s this did start to matter, the rot had set in and now we see that legacy of neglect and its effects.
Additionally, between 1997 and 2010 under the New Labour government our manufacturing as a part of GDP fell from 25% to 12%. This has savaged our ability to export. Services have not grown enough to replace them. Financial services are now around the same size as a part of GDP as manufacturing. This is a shocking state of affairs and one of the greatest tragedies of the last government – that it did so little to foster growth in the manufacturing sector.
And with this significant problem as a background we still had time for squabbling over whether or not Prince Andrew is a respectable foreign trade envoy! This is akin to ‘moving the deck chairs on the Titanic’ in its death throes. The UK has become paradoxically insular in its business affairs and the government damagingly so.
We still have the expertise to be inventive, create value and wealth through investment and employment. Yes, many parts of the world enjoy lower labour costs but these are not so relevant to a vast range of industries. (On shore manufacturing also has benefits for the home market as it will lead to smaller levels of imports).
Every UK business should be offered free export training and UKTI support services. This needs to be done aggressively to re-introduce a culture of export and indeed the opening up of opportunities for many struggling businesses that they did not realise were open to them.
This is a massive ‘win-win’ opportunity and it will be a particular tragedy if this conservative led coalition missies it.
So I look forward to the news reporting the balance of payments (as good news) so that the state is spurred into further helping the country export and take its place in the world as the creative people that we are.
Just remember, GDP growth does not equate exactly to balance of payments surpluses. But balance of payments surpluses will always feed into GDP.
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