Transcript Title SUBTITLE - Gresham College

How to make Western economies more
competitive
Fourth Gresham Lecture
Douglas McWilliams
Mercers School Memorial Professor of Commerce at Gresham College
Centre for economics and business research ltd
Unit 1, 4 Bath Street, London EC1V 9DX
t: 020 7324 2850 f: 020 7324 2855 e: [email protected] w: www.cebr.com
Objective
To discuss economic policies necessary to prevent the
Western world falling into a competitiveness trap
Discuss in the UK context but conclusions applicable not
only to the rest of Western Europe but also to other
Western economies like the US
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Overview
The earlier lectures
The new theory of economic growth
Exchange rate policy
Competitiveness policy
Counter inflation policy
The economic payoff
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Key points from the earlier lectures
The ‘supercompetitiveness’ of the emerging economies;
The continuing shift in the terms of trade in favour of primary products and
away from finished goods and services; and
The likelihood that overall world economic growth will be constrained
because of limits from the lack of natural resources, meaning that some of
the enhanced economic growth in the emerging economies will be at the
expense of lower growth in the mature economies.
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The new growth theory
Economic growth is not simply a function of supplies of factors but is
constrained by demand
Demand is particularly affected by the balance of payments position
Demand is also limited by inflationary tendencies – for example though its
impact on the exchange rate
Factors of production are endogenous
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Three critical elements of policy
• Exchange rate policy
• Competitiveness policy
• Counter inflation policy
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The 2020 Tax Commission’s proposals were estimated to
boost GDP by 10% after 17 years
Impact on GDP compared with base case (%)
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The City’s impact on the balance of payments current
account
£ millions per annum
Insurance balance
Financial services balance
Investment income
TOTAL City balance of payments
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2000
1,959
13,048
1,813
16,820
2001
2,905
15,107
9,359
27,371
2002
4,843
15,159
18,436
38,438
2003
4,649
16,875
17,711
39,235
2004
4,134
18,812
18,523
41,469
2005
661
20,153
22,496
43,310
2006
2,853
24,495
10,470
37,818
2007
4,068
34,302
22,103
60,473
2008
4,475
41,597
33,851
79,923
2009
4,634
35,550
20,656
60,840
2010
3,704
31,495
23,039
58,238
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Cost of living compared with the US – IMF data
Afghanistan
47.9
India
40.8
China
64.3
Russia
61.6
Greece
98.1
Korea
74.1
Spain
99.4
Italy
109.7
Japan
133.9
France
121.1
UK
109.4
Germany
111.4
Australia
153.8
Canada
124.5
Ireland
116.6
US
100.0
Singapore
75.7
Norway
158.5
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Cost of living in the UK compared with the OECD average
OECD average = 100
Source: OECD
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Actual individual consumption (2)
Food and non-alcoholic beverages (3)
Food (4)
Bread and cereals (5)
Meat (6)
Fish (7)
Milk, cheese and eggs (8)
Oils and fats (9)
Fruits, vegetables, potatoes (10)
Other food (11)
Non-alcoholic beverages (12)
Alcoholic beverages, tobacco and
narcotics (13)
Alcoholic beverages (14)
Tobacco (15)
Clothing and footwear (16)
Housing, water, electricity, gas and other
fuels (17)
Household furnishings, equipment and
maintenance (18)
Health (19)
Transport (20)
Personal transport equipment (21)
Communication (22)
Recreation and culture (23)
Education (24)
Restaurants and hotels (25)
Miscellaneous goods and services (26)
111
105
105
96
123
76
98
95
120
95
116
156
122
211
103
118
106
96
131
108
97
114
108
112
115
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Regional population density, the Netherlands, Switzerland, Germany, Belgium and the UK
Inhabitants per km2
South Holland (NL)
1,254
North Holland (NL)
1,008
Utrecht (NL)
887
Zug (CH)
535
Basel-Landschaft (CH)
527
North Rhine-Westphalia (DE)
524
Limburg (NL)
522
Noord-Brabant (NL)
499
Flanders (BE)
462
Aargau (CH)
430
South-East (UK)
425
West Midlands (UK)
410
Saarland (DE)
398
Overijssel (NL)
341
Yorkshire and the Humber (UK)
327
Solothurn (CH)
320
Baden-Württemberg (DE)
301
Sources: ONS (2006), Centraal Bureau voor de Statistiek (2011), Statistische Ämter
des Bundes und der Länder (2011), Research Centre of the Flemish Government
(2011), Bundesamt für Statistik (2009)
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The gains from a counter inflation policy
• Prices lower by 8%
• Real income gain of £2,000 per household
• GDP 15% higher after 10 years
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How to make Western economies more
competitive
Fourth Gresham Lecture
Douglas McWilliams
Mercers School Memorial Professor of Commerce at Gresham College
Centre for economics and business research ltd
Unit 1, 4 Bath Street, London EC1V 9DX
t: 020 7324 2850 f: 020 7324 2855 e: [email protected] w: www.cebr.com