Sunday, 15 May 2011

The most important economic story of our time?

You may have heard of the BRICS, and the acronym may even have passed your lips, but do you really know what it means?

Brazil, Russia, India, China, and South Africa are the biggest and fastest growing emerging markets in the world, and China is set to outpace the US at some point between 2018-2040 (depending on which estimate you use).

On Friday evening at the Nuffield College Media and Politics seminar, Hamish McRae (associate editor of the Independent and prize winning financial journalist) declared that this shift of power to the emerging world is the most important economic story of our time.

Economics is all-pervasive and the effects can already be seen here in the UK. For example, India is now the second largest foreign investor in the UK (just behind the US), and the largest manufacturing firm in the UK is Indian firm Tata, who recently rescued Jaguar Land Rover. Injections of investment by India, who is not suffering from a recession, are very helpful for UK recovery now, but we might end up suffering from the impacts of these rising powers if we don't adapt to the changes. 

It is easy to have a narrow domestic view when our own economy is suffering and tough policies are being implemented. If we don't take a global and longer term perspective, however, we risk jeopardising future prosperity. To make sure the UK (similarly for other Western countries) can adapt to the changing economic landscape, investments need to be made now to encourage innovation and productivity in sectors the UK has a competitive advantage in, like science, education and culture (this is something I have written about before). Exporting these to the growing pool of consumers could really boost our economy. On the other hand, if our changing position in the global economy is neglected, then other countries will take up these opportunities and we will lag behind (this means lower foreign investment, fewer exports, more unemployment...)

The repercussions aren't just economic; economic power often proceeds political power. It is likely that we will see a change in the composition of our global institutions. Already the G7 has become the G20. When is India going to get a seat on the Security Council? Should the UK remain on it? Further, just as American culture spread throughout the world, could the BRICS bring cultural and societal change to us with their uprising?

I was particularly interested in Hamish McRae's emphasis of another aspect of the phenomenon. He stressed that with humble and open minds we need to look out and enquire why these countries are doing so well. Perhaps there are lessons to be learnt from these rising powers?! For example, Hong Kong's health system which provides better health outcomes than the UK might be of interest to the minister of health, Andrew Lansley. China and India certainly understand that the West might not have all the answers. Mervyn King, I am told, was recently talking at lunch about how Chinese and Indian officials no longer ask for his help to design banking regulation! I wonder if he has looked into their banking models.

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