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- The Reformer Blog
3 February 2015
When it comes to the UK economy, we have the message mainly cheerful about the next twelve months but what about the next ten years? The country is at the start of a transition towards a Nordic model with creative and service activities taking over from heavy industrial structures.
The surprise in the Nordics has been the strong market performance in life sciences (Novo Nordisk in Denmark), media (leading producers of TV soap frissons), food processing, water management and specialist engineering. For countries with a very limited natural resource base – even the Swedish iron ore is not what it was – the performance has been remarkable before and during the recession.
These activities are well suited to the new world markets for the emerging, low-tax middle class on the Lagos-Shanghai line. In 1914, 70 per cent of the world’s population was on a Chicago-Moscow line. Now we face the challenge of population growth, ever-increasing resource demands and congestion much further south.
The UK now has activities which offer the chance for more rapid growth and higher productivity – the cotton and iron industries of the twenty first centuries. The main growth areas are likely to be in life sciences where there are unique opportunities for NHS/ private cooperation in speeding up research; in media with the world revival of TV; and in digital activities. There are also new opportunities in engineering and avionics, as well food processing. Health services are also an important area for new apps and better communication with patients.
The UK also has opportunities which were less open to the Nordics. These include tourism, where the UK is already a world leader, and education (both school-age, higher education and skills training). The English language no longer belongs to the English. Alongside our American cousins there are one billion other English speakers worldwide with more on the way every year as the population mainly on the new line builds up to nine billion by 2040.
The new Nordic economy is showing up most obviously in London and the South East but it is also coming along well in the South West, Eastern England and the East Coast of Scotland. The Severn Valley has more than 50 firms working in cyber-security, spin offs from GCHQ at Cheltenham as well as an unexpected gain from Betfair also spun off from GCHQ. In the East the new economy is not just for Cambridge but is driving growth in Northampton and Milton Keynes. In Scotland the thriving SMEs in food processing and engineering in Alex Salmond’s constituency and across eastern Scotland produced a heavy No vote.
This new economy based on aptitudes not industrial plant is much faster changing than the old one and much more demand driven. As Nokia has found – and even now Angry Birds – the product life cycle can be as short as five years. The days when a corporate supply side with a monopoly of scarce resources in technology produced large metal goods on a take-it-or-leave-it basis (aka the UK economy 1950-80) are long gone. The new economy will be shaped by people under 35 assisted by more with-it retirees who have intuition about new markets and who can satisfy very demanding, digital consumers on a worldwide basis.
There are key messages for government. Forget all the specific winner-spotting funds and focus on the wider and more general blockages to growth in the new economy. Open up Britain so that it has the world’s best communication and (as it already has) the most ready welcome to able people. Growth depends on the entry of new firms and innovation and this can also help drive up productivity in the rest of the economy. The growth areas are already clear – but a series of actions are required to maximize expansion.
One of these new general actions is to back immigration by young qualified people. Past periods of growth were greatly helped by my Huguenot ancestors and by immigrants from central Europe. The recent and continuing economic revival in London has been greatly helped by thousands of able young migrants from France and across the European Union. Even the brilliant new stamps for British Prime Ministers were designed by a mover from Germany.
A second key general action is on airport capacity. We need additional capacity to promote lower cost airfares and to break the cartels which have brought about such heavy fare rises in long distance flying compared with the gains from competition across Europe. We need a single world market in aviation. The European breakthrough depended on spare capacity in Stansted and the worldwide breakthrough would come about through allowing expansion both at Heathrow and at Gatwick. For such gains it would be worth paying very generous compensation to all (work out the price that will make them want the airport) those affected on the ground.
In fact the government role should shift from micro management to strategic actions which would encourage growth and competition. Governments can no more spot winners now than they could forty years ago. The Department for Business, Innovation and Skills should be converted into a Ministry for Economic Growth to open up the very special opportunities that are there for the UK in the next ten years.
Professor Nick Bosanquet