We need an export-led revolution to save the UK economy
HAPPY New Year, dear readers. Let me begin my first column of 2013 with a plea to economists, policy-makers, commentators, politicians, financiers, business folk and everyone else who wants more growth and jobs.
Please, please, spend less of your time obsessing about fresh ways to subsidise mortgages, pump prime the economy with more quantitative easing or to bolster domestic demand by getting the government to borrow even more. Instead, let’s focus on British companies’ abject failure to triumph in the global export markets, at a time of unprecedented opportunities around the world. There is lots of appetite internationally for goods and services – this is not a demand side problem, it is a supply-side problem.
Export volumes of goods and services fell in the first half of last year, and the latest figures suggest that Britain is exporting just 0.1 per cent more than it did in the first quarter of 2008, when the economy reached its credit-infused bubble peak. It is embarrassing just how many economies have increased their exports at a faster rate than us over the past five years. Ireland is up by 9.7 per cent, Germany by 9.5 per cent, the Netherlands by 9.2 per cent, Spain by 7.4 per cent, and even nose-diving France has done slightly better at 0.4 per cent. As Michael Saunders of Citigroup notes in an excellent research paper, just five of the fifteen traditional EU members (Austria, Italy – down 7 per cent – Luxembourg, Finland and Greece) have done worse.
What makes all of this especially depressing is that sterling’s trade-weighted index remains 17 per cent below the 2000-07 average, making UK exports more competitive.
So what is happening? UK firms have become obsessed with Europe – unlike, paradoxically, members of the Eurozone. IMF data analysed by Citigroup suggest that UK exports of goods to emerging economies was worth 3.4 per cent of our national income last year, a smaller share than all other EU-15 member states. Even Greece exports relatively more.
Britain’s exports to China have surged 11 per cent a year over the past decade, which sounds good until one realises that everybody else has been doing even better. Switzerland has increased its own exports to China by 25 per cent a year, and now sells more to it than Britain does, even though the UK’s GDP is four times larger than Switzerland’s. In 2011, the UK’s exports of goods to Italy, Spain, Portugal, Ireland, Greece and Cyprus were worth exactly the same as our combined exports to the biggest 10 emerging markets. This is a monstrous miscalculation.
But there is another issue. The UK increasingly specialises in exporting high value added financial and business services, rather than goods. Yet while strong growth in global services trade has resumed, the City remains shell-shocked and unable to bounce-back, partly as a result of an ultra-hostile regulatory and tax environment. At last count, the volume of UK exports of services was still 4.3 per cent down from peak.
In 2010-2011, world trade in goods surged 20.1 per cent year on year, compared with 10.1 per cent for all services, 9.6 per cent for financial services and 10.2 per cent for business services. Of course, this mix is currently better for Germany, which specialises in goods, but it ought to still be pretty decent for London. The opportunities are there – UK Plc must take them, and the government needs to focus on making Britain a competitive location from which to create wealth once again. Let’s end the City and business-bashing in 2013, and focus on exporting our way back to prosperity.
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