WE’RE witnessing the world’s greatest ever economic event: the industrialisation of the two thirds of the world that were previously impoverished. This has implications for the West, which once had a monopoly in the provision of sophisticated products.
The emergence of the East not only affects nine times the proportion of the world’s population as were affected by the Western industrial revolution, but it is happening three times as fast. China is industrialising as much in 50 years as we did in 150 years.
This speed makes the change so disruptive. Normally, when societies get rich they give more importance to leisure, less to growth; they indulge in public spending that requires taxation, reducing incentives.
This is what happened to the West. But the East has been more cautious, partly as wealth has come so quickly.
We can see what will happen in China and India from looking at Singapore and Hong Kong. In GDP per capita terms (after allowing for cost of living) Hong Kong is about 50 per cent richer than us, while Singapore is 30 per cent richer. With wealth comes health – the average Hong Konger lives two years longer than the average Brit.
Yet they work much harder. The average Singaporean works 2,307 hours a year; the average Hong Konger works 2,287 hours. We in Britain work 1,625 hours. It’s as if each Singaporean worked an extra five months a year.
And these countries have not let public spending spiral. In “socialist” Singapore, public spending is 17.3 per cent of GDP, while in “capitalist” Hong Kong it is 16.7 per cent. In the UK, our share is 50 per cent. As a result, they keep taxes down. Hong Kong’s top rate of income tax is 15 per cent. In Singapore it is 20 per cent.
It is this unashamedly pro-business attitude and the low rates of tax that are already causing City jobs to move East. The East is also increasingly close to where new business is emerging.
This summer has seen the first of the socialist Western European societies to reach a state of collapse. My Greek friends describe conditions in Athens as being much the same as they were during the war. Greece’s decline has been exacerbated by the euro, but the underlying cause affects all European economies – lack of competitiveness.
We may think it can’t happen here, but already consumer spending is being squeezed – down 8 per cent per household over the last five years.
Our decline will take longer than in Greece. We have more assets and can control our currency. But ultimately, lenders will see that, if they lend to us for us to repay them in a devalued currency, they are being short changed. Once they see through that, the game is up and we’ll be forced to retrench.
New Labour made no attempt to solve our problems. The coalition started, but hopelessly misjudged the scale of the problem.
My series of 18 lectures starting tonight are a wake-up call; an attempt to persuade the country that time is running out and that, unless we learn from the countries who are the real winners in the economic Olympics, we will go the same way as Greece.
Douglas McWilliams’s inaugural lecture as Gresham Professor of Commerce is held in the Royal College of Surgeons, Lincolns Inn Fields at 7pm tonight www.gresham.ac.uk/lectures-and-events/the-greatest-ever-economic-change Professor McWilliams is also chief executive of Cebr.