Seven Conservative MPs have teamed up with the Centre for Policy Studies and ConHome to propose ideas to turbo charge the UK economy. Yesterday, Claire Perry hailed the government's planning reforms as a way to help Britain's crumbling infrastructure receive new investment.
Jo Johnson is the Member of Parliament for Orpington.
In a two-speed world, in which the south and east power ahead while the old Euro-Atlantic world slumps back into recession, there is no nothing to dictate that Britain must stay in the slow lane of economic recovery. That’s why, although by instinct suspicious of the Heseltinian tradition of herding businessmen onto aeroplanes bound for faraway countries, George Osborne and David Cameron have spearheaded the new commercial diplomacy, leading high profile trade delegations to India, Japan and Turkey, establishing the new Trade and Investment cabinet subcommittee, chaired by Lord Green, and giving commerce greater prominence in the FCO.
But, as September’s data underline, if exports are to play their designated role as a motor for recovery, we need to work harder to re-orient our fossilised trade patterns, which have been shaped by centuries of history, geography and culture, and galvanise risk-averse SMEs into rising to the challenge of competing in overseas markets. The overall trade deficit hit an 11-month high, while the trade in goods deficit was the largest on record. With eurozone demand in freefall, surveys unsurprisingly point to further falls in exports over coming months.
Resurrecting the hope of export-led growth will be a considerable challenge, for many reasons.
First, the UK’s track record of achieving economic growth through the trade channel is strikingly poor. The UK has run a current account deficit in 94 out of the last hundred years. The last time the country managed to record a surplus was in 1984, and only then thanks to North Sea oil exports. In other words, far from being a source of growth for the economy, international trade has pretty consistently been a net drag on growth.
Second, over the past 60 years, the UK has becoming steadily less competitive in international markets, which are the real test of a country’s business strength. The UK has steadily lost market share in global exports, not just to competitive low-cost exporters from the developing world, such as China, but also to other developed world competitors. Other developed economies share in global exports has fallen to 59% in 2009 from 73% in 1950. The UK’s has plunged to under 3% from 10%.
Third, the base of our engagement with the big, fast-growing emerging economies is still too small to provide a quick fix for our growth dilemma. China accounted for about 1.5% of total UK current account credits in 2009, India and Russia for barely 1.1% each, and Brazil for 0.7%. The UK, it has been lamented, notches up more credits with Ireland than with the four BRICs, Indonesia and Mexico combined.
Taking India as an example, it is clear that not all has been well in recent years with the countries on whom we now depend for export-led growth. The UK has steadily slipped down the ranks of India’s trading partners over the last decade, falling from 2nd place in 1999 to 22nd place in 2009. We have been overtaken even by Belgium. The UK has been ineffective at persuading India to open up the sectors of its economy where we are most competitive. Retail is shut to the likes of Tesco; financial services liberalization is proceeding at a glacial pace, with banks struggling to open up branches in any meaningful scale across India; and foreign law firms are frozen out altogether.
The government has made considerable progress in renewing the bilateral relationship, not least thanks to the decision to make India David Cameron’s first big overseas visit, in July 2010.
But much more must now be done to boost trade ties with India.
First, we must strain every sinew to rescue the struggling negotiations over the long-awaited EU India Free Trade Agreement, which would help open the Indian services sector and put Britain back on track to meet its target of doubling trade with India by 2015.
Second, we must re-educate and embolden UK SMEs, who are statistically less likely to export than those of our European competitors, and reform the Export Credit Guarantee Department to help them rise to the challenges of an undeniably difficult market.
Third, we must exploit our potential to export education services more savvily, so that we tap top-flight global talent. If the UK signals that it is no longer ‘open for business’, by closing off the option value of post-study work, the best Indian students will quickly choose countries they think are.
Fourth, with Heathrow at 99% capacity, we must start now with the planning for a new UK hub airport, possibly in the Thames Estuary, to capitalise on the commercial opportunities presented by India and other fast-growing emerging markets.
These are often extremely difficult markets for British entrepreneurs, in which commercial decisions are often taken for political reasons, in which there may rarely be a level playing for foreign firms and in which market access can be largely theoretical. But there is no alternative. The emergence of new powers in the east and south must lead to a shift in our focus from the euro-Atlantic world of the twentieth century towards the more multipolar economy that has emerged in the last decade.