Keeping ahead of China and India

John Redwood is comments that the Chinese and Indian economies will soon be larger than those of The EU or USA. The high growth rates, coupled with their huge populations means that this will happen quite soon. I believe that if the most advanced nations are not to stagnate they must accelerate the advance into higher value-added activities*.

 The government’s role in this should be, at minimum, to refrain from hampering the creativity and the flexibility that this requires. Further it should provide a structure to enhance the comparative advantages that the UK enjoys. For example, in no particular order:-

 1. In learning. Britain is probably second in the world (behind the USA) for attracting foreign students. For the size of population, we lead the world in world-class universities. The government should encourage/enable the universities to build upon this. Our comparative advantage is that we are the home of the English language, the World’s second language.

2. In Finance. Sorting out a proper structure for banking regulation that will both prevent the build-up of systemic risk, whilst at the same time encouraging/enabling future innovation. The apparent contradiction between these two aims is best resolved by emphasising general all-encompassing principles, rather than the detailed rules of the American’s or the detailed form-filling that was key feature of the last decade.

3. In Climate Change. The current aims to reduce CO2 emissions by 80% by 2050 are totally unrealistic. The attempts to do so will only serve to make Britain’s poorer and fail to meet our growing energy requirements. Roger Pielke Jnr explains why here.

* It is usual to say that higher productivity per person is required. From that tautologous statement the National Income = National Output, the way to increase income per person is to increase output person. As working time tends to decrease, more that 100% of this must come from higher output per unit of time. That is, greater productivity. However, the way to increase the income of a business is to increase the margins. The output of a university is not in the raw number of published papers, but the rare papers that create a seismic shift in out knowledge. In finance, it is not the quantity of deals done, but the large deals that create the most profit. For these reasons, I prefer the term more value-added rather than productivity as the driver of increased income per capita.

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