A more competitive UK won’t come from government targets
GOVERNMENTS shouldn’t try to centrally plan economies. It is absurd for the coalition to have decreed that it wants UK exports to reach £1 trillion a year by 2020, for example. Of course, UK firms need to produce more; and of course in doing so they will need to sell more overseas. But plucking impressive-sounding numbers out of thin air and turning them into “targets” makes a mockery of economic policy.
Governments need to set frameworks, not try and direct activity; we need lower and simpler taxes, better education and a more sensible land use regime, among many other reforms, not meaningless exhortations. In any case, the £1 trillion target is hopeless. It would require an annual increase in exports of £63bn per year between 2012 and 2020, a compound growth rate of nine per cent. Exports grew just five per cent a year on average between 2000 and 2012.
The coalition also wants to see an extra 100,000 companies exporting by 2020, another senseless target. I’m certainly not denying that the only way the UK will grow its income per capita in a significant and sustained way is if more entrepreneurs export more. But the government needs to stop wasting our time with such diktats and ask itself what it is doing wrong and how its own silliness is damaging exporters – for example, there are no direct flights to Jakarta or Bogota, and that is entirely because the coalition has forcibly prevented private companies from expanding London’s airport capacity.
It also sometimes seems as if the coalition would like sterling to be kept down as much as possible to boost exports, even though many of the UK’s most successful products today are much less price sensitive than the sorts of goods we used to export in the 1970s – and even though the weak pound is a key reason for the UK’s high inflation, which is impoverishing people and reducing domestic demand. Public policy should be set for the good of the whole economy, not merely to artificially bolster one part of it, especially when the costs of doing so are far greater than the benefits.
We should also remember why exports are “good” – after all, shipping a good overseas means that UK residents cannot enjoy it themselves. Exports only have value in as much as they allow us to generate foreign currency to pay for imports (which are not a “bad” in need of minimisation); in fact, were the world not divided into different currency zones, there would be no difference between international and domestic transactions. Trade is trade, be it between individuals that reside in one country or individuals that reside in different countries; and trade is good, promotes the division of knowledge and labour and is the root of almost all progress. We need iPhones from China and Audis from Germany; to pay for them, we need to sell financial and business services from London and Nissans from Sunderland.
Reform, the think tank, highlights some fascinating export growth sectors in its paper on our exports challenge. Food and drink exports to China for the past year are up 126 per cent, and to South Africa and Hong Kong by 25 per cent. Exports of TV programmes hit a record high of £1.224bn last year, according to figures from the Producers Alliance for Cinema and Television. The US market is worth £475m a year and is the UK’s biggest, accounting for more than a third of revenues and growing by 11 per cent last year. Sales to China remain small – at £12m – but grew by 90 per cent in 2012.
British exports in the years ahead will not just be about cars or even pharmaceutical products: high value added services of the sort London specialises in will prove increasingly vital. Forget useless targets: the government’s role is to make the UK more competitive, nothing more and nothing less.
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