From Iceland to India: it’s all change

Allister Heath
SOMETIMES, seemingly random facts and events explain a great deal about the world we live in. Here is my pick of the day.

During the five decades from 2000 to 2050, the US workforce is expected to grow by 37 per cent, fuelled in particular by continuing migration. In stark contrast, China’s workforce is set to slump 10 per cent, courtesy of Beijing’s one child policy, while Europe’s will collapse by 21 per cent. India’s population will hit 1.6bn by 2050 and overtake China’s in twenty years’ time. The earth’s population is expanding by 80m per year and will reach 7bn this year and 9bn by 2045. Demographics are hugely powerful economic and social forces; America’s growing population will help it become far more powerful relative to Europe and Japan; China will lose influence relative to India. For wealthy societies, larger populations are a source of strength, not weakness.

Iceland’s economy is expected to grow 2.6 per cent in 2011 and 2.4 per cent in 2012, far better than anything the UK or the Eurozone will be able to produce. Sometimes, when all is lost, embracing bankruptcy and defaulting on unaffordable debt is the way to go. Many people in Britain are angry that the Icelandic government (in other words, ordinary Icelandic taxpayers) didn’t pick up the bill for UK customers. But the Icelandics said no to bailouts – and after a total collapse, their economy is recovering.
Research by Uri Gneezy, Eman Haruvy and Hadas Yafe, published in the Economic Journal a few years ago, showed that going to dinner with friends on the basis that the bill would be split equally (compared to everybody paying for what they eat) leads to an average bill that is 36 per cent higher. Anybody who believes the Eurozone should pool its debts needs to think about this very carefully. Federalisation would guarantee even more over-spending. It is madness.

Ahead of next week’s strike, it is interesting to look at the revised deal offered to public sector workers. The exact sums vary between parts of the state sector. In one case, a worker on a final salary of £34,200 will retire on £22,800, an income for which the equivalent pension pot is an extraordinary £600,000. There are probably no private sector employees in the country on those kinds of salaries who will retire with anything like such a pot of cash – most people on such wages will end up with nothing. In the case of the civil service, somebody on a final salary of £29,800 would retire on £24,300, an income that would require £650,000 to buy on the market. I doubt strikers will gain much sympathy from ordinary private sector workers, who would kill for such generous pensions.

India yesterday allowed foreign supermarkets to own 51 per cent of joint ventures. This is a dramatic liberalisation: to date, foreigners could only operate wholesale joint ventures. Single-brand retailers (Apple, say) will be able to fully own their subsidiary. India is a major opportunity for the UK economy. Expect UK retailers to make a move. City law firms will be hoping that they will be next in line to be granted access.
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