A year that proved the world is mov­ing East

There has been mod­er­ate growth, some­thing around 1.8 per cent, which is well up on ex­pec­ta­tions -not just at the be­gin­ning of the year but as late as in the sum­mer Bud­get.

The Pak Banker - - Editorial - Hamish McRae

As we near its end, it is time to take stock. Think­ing back to the grim out­look a year ago, it seems that 2010 has not been such a dread­ful year for the econ­omy af­ter all. There has been mod­er­ate growth, some­thing around 1.8 per cent, which is well up on ex­pec­ta­tions -not just at the be­gin­ning of the year but as late as in the sum­mer Bud­get. Un­em­ploy­ment is lower than ex­pected. The world econ­omy is clearly grow­ing again, at some­thing be­tween 4 and 5 per cent a year, so that helps.

Our large com­pa­nies are ben­e­fit­ing from that global growth, a point re­flected by the stock mar­ket, which is de­cently up on the year, with the FTSE 100 in­dex close to 6,000 - the high­est point for the year. And all this is de­spite Bri­tain hav­ing the largest fis­cal deficit of any ma­jor econ­omy - a deficit that, not­with­stand­ing all the stuff about "the cuts", ac­tu­ally has yet to be cut at all.

So what should we gather from all this, aside per­haps from re­tain­ing our healthy dis­trust of all eco­nomic pre­dic­tions? I sug­gest the first and over­rid­ing les­son is that the global eco­nomic cy­cle is ex­tremely pow­er­ful. It would be great if we knew how to iron out the booms and slumps so that the world grew in a steady and sus­tain­able way, but we are not clever enough to do that. As a re­sult of the ex­cesses that we in the West tol­er­ated and ac­tu­ally en­cour­aged, the slump was deeper than it need have been. But we are where we are and at least the march back up the hill has be­gun. It has be­gun for us in the UK but also for the whole of the de­vel­oped world, in­clud­ing its most bat­tered mem­bers, such as Ire­land and Greece.

The sec­ond les­son stems from this. It is that if you ac­cept that there is a pow­er­ful eco­nomic cy­cle, it fol­lows that there will now be an as­sured eco­nomic re­cov­ery. The world econ­omy is es­sen­tially self­heal­ing. It can do self-harm too and half of the world has done so. But if the global eco­nomic cy­cle has clearly turned up - and I don't think there is any doubt about that what­so­ever - then coun­tries have to do pretty badly not to get some share in that growth. That leads to a third point. It is that while we in Bri­tain, or Europe or the US, think and talk of a global re­ces­sion, ac­tu­ally what has hap­pened is very much a North At­lantic re­ces­sion. There was no re­ces­sion in China. There was no re­ces­sion in In­dia. In­deed in the emerg­ing world, taken as a whole, there was no re­ces­sion, only a dip in the growth rate. This has so­cial, in­tel­lec­tual and po­lit­i­cal con­se­quences, not just eco­nomic ones.

A visit to In­dia 10 days ago brought home to me how lit­tle cred­i­bil­ity is now given to the eco­nomic ideas of the West. In­dian growth is run­ning at just un­der 9 per cent a year. No bank has had to be res­cued. Why on earth should they pay any at­ten­tion to us? Of course, it is true that there are se­ri­ous so­cial and eco­nomic prob­lems in In­dia, as there are in China and through­out the emerg­ing world. It is true, too, that liv­ing stan­dards in the emerg­ing world re­main far be­low those of the West, and will con­tinue to do so for an­other gen­er­a­tion or more. But at a macro-eco­nomic level the game has been trans­formed. The in­tel­lec­tual lead­er­ship of the West has been lost.

But be­fore you al­low your­self to be too de­pressed by that, con­sider this: the world econ­omy is more in­te­grated that at any stage in its his­tory, much more so than at the end of the last great burst of glob­al­i­sa­tion at the end of the 19th cen­tury. So the growth of this more bal­anced world ac­crues to all. That is why the FTSE 100 in­dex is do­ing rea­son­ably well, for some­thing like two-thirds of the earn­ings of these large quoted com­pa­nies come from out­side the UK, ei­ther in the form of ex­ports or of the prof­its of over­seas sub­sidiaries. Even­tu­ally that wealth, or at least a fair part of it, spreads t hrough t he coun­try, ei­ther in em­ploy­ment or through the rise in the value of pen­sion funds and so on.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.