The real game is emerging markets

Allister Heath
IT is always tempting to build grand theories about national decline following the kind of thrashing meted out to England yesterday afternoon. This should be resisted; Germany v Britain makes great sport but little else. We may not be any good at football right now – and Fabio Capello needs to be sacked – but yesterday said nothing about our (hardly great) economic or geopolitical prospects.

It is true the UK won’t be doing well when it comes to growth or influencing the world stage over the next few years – that is because our long-term ability to grow has been crippled by years of mismanagement, over-spending, excessive tax, onerous regulation, poor education and insufficient infrastructure. But thanks in no small part to last week’s Budget, we will almost certainly continue to outperform the Eurozone, which is in a much worse state than we are. Germany itself is recovering and will grow a little faster than Britain this year – its economy contracted roughly as much as the UK’s during the recession, despite Germany’s smaller financial sector – but the difference won’t be material.

The real contest is not about Britain versus Germany, France or even America – it is about how Western nations can reform their economies to compete better – and benefit more – from the boom in the emerging world. Citigroup is predicting GDP growth of 10.5 per cent in China this year, 8.4 per cent for India, 12.5 per cent for Singapore and 7.6 per cent in Brazil. China and other non-Japan Asian economies will generate 40 per cent of global GDP growth (at current exchange rates, a higher share when adjusted for the fact that a dollar buys more in Beijing than it does in New York), twice the contribution of the US and over four times the EU’s contribution. That is where the real economic game is taking place.

Oil accidents are horrific and heart-breaking. But as Donald J Boudreaux, an economist from George Mason University who writes for the excellent Café Hayek blog points out, they are the all too visible downside of a product which also boasts an enormous yet invisible upside. An even greater danger than the actual spill in the Gulf of Mexico is that we end up with an ailing economy polluted by a gusher of panic-driven legislation. Boudreaux lists some of oil’s underreported benefits – the many millions who are alive thanks to pharmaceuticals and medical devices (petroleum derivatives); the vast numbers of people healthy because dangerous bacteria were killed by ammonia or kept contained by plastics (also made from oil); readers of this and other newspapers enjoying a paper printed with ink (traditionally made using petroleum) whose sight is enhanced using glasses made of plexiglass, yet another oil-based product – and of course the fact that our civilisation depends on trade and transport. Even the asphalt on which we walk is made from oil.

None of this excuses incompetence, stupidity or negligence. But the oil industry, for all its flaws, remains vital to human well-being. There is nothing I would like more than for some enterprising firm to finally crack a low cost, viable alternative to oil for transportation. Huge strides have been made but battery technology and other critical issues remain; let us hope it all changes within the next decade. Even then, however, we couldn’t live without oil – politicians pretending we could need to get real.