Bill Jamieson: Scots need to keep outward approach

Workers in a Chinese steel factory. Picture: Getty

It has been a proud claim of Scots that we are an outward-facing people. We went to the furthest corners of the Earth. We made huge contributions in science, engineering, education, commerce, finance and law around the world.

But in the intense internal focus of a constitutional debate that has now preoccupied us for a decade, this external connection seems less strong than it was. Our horizons have narrowed. With a few honourable exceptions, we are coming to define ourselves less within the wider world and more in terms of our relationship with England alone.

So what is happening “out there” and why does it matter? It matters because, as our self-regard has intensified, massive changes continue to unfold. They will have a greater impact on our fortunes and well-being than we realise or presently seem ready to discuss. And they will force us to embark on a greater journey than any on offer next year.

Old certainties are vanishing: the confidence that economic growth is inevitable; that our children will be better off than their parents; that our financial institutions are trusted as once they were; that the state will fund our retirement and welfare programmes will continue.

According to Sir Jeremy Heywood, the UK’s top civil servant, current spending cuts are insufficient and we are in a “20-year generational battle” to return the country to financial health. Relative decline is embedded in our psyche. And independence alone fixes none of this.

These deeply worrying changes are not easy to arrest, still less to reverse without a fundamental change in our thinking, our priorities and our culture.

Earlier this week I met British economist Jim O’Neill, former chairman of Goldman Sachs Asset Management and one of the world’s most closely followed global trend-spotters. He delivered an outstanding lecture at the Edinburgh Business School on Tuesday organised by the fast-growing Asia Scotland Institute.

It was O’Neill who coined the term “Bric” back in 2001 to define the world’s fastest growing emerging economies – Brazil, Russia, India and China. The acronym has become shorthand for the massive shift in global economic power away from the developed G7 economies towards the developing world. To Bric he has since added “Mist” – Mexico, Indonesia, South Korea and Turkey.

Opinion differs as to when the combined economies of the Bric nations will eclipse the current richest countries of the world. These four nations combined already account for more than a quarter of the world’s land area and more than 40 per cent of the world’s population. The most widely quoted “overtake” year is 2050. But last November the Organisation for Economic Co-operation and Development predicted that China will be the world’s leading economy in just four years, with other Bric nations likely to usurp the current top dogs during the next few decades. China and India will together have a GDP that will beat that of the G7 nations by as early as 2025, and by 2060 they expect India to outperform the US on its own.

This narrative of super-charged growth has not gone totally to plan in recent years. India has not grown as strongly as many forecast a decade ago. And the recent slowing of China’s growth rate has caused convulsions in markets worldwide. So is the China story overcooked, and emerging markets yesterday’s fad?

Much now depends on the scale and speed at which China adapts as a consumer economy, and on productivity and infrastructure improvements in India. But in an address packed full of insight, two charts in O’Neill’s presentation reaffirmed the general direction of travel. One showed that by 2020 Germany will be exporting more to China than to France, blowing apart one of the key pillars of the case for monetary union. Indeed, the continuing faster pace of growth in Asia Pacific overall since European economic and monetary union was first conceived has made the UK’s attachment to the EU one of our greatest policy errors of the past 50 years.

The second chart, based on a UN Development Report earlier this year, showed how the percentage of global trade accounted for by trade between developing countries has now risen to almost equal the percentage accounted for by trade between developed countries.

Given developments such as this, it is thus not surprising that an alert student generation here seems less engaged with the politics of nationalism and more concerned about their prospects and well-being in this evolving global shift.

Much of our hopes for economic recovery here rest on a resurgence in inward foreign direct investment. But a separate paper out this week from Madhur Jha of HSBC Global Research gives pause for thought. Gross Foreign Direct Investment (FDI) flows to emerging markets are higher today than in the pre-crisis period, while in the developed world they remain below pre-crisis levels. In 2011, emerging markets garnered more than half of total global FDI inflows – and more than a third of these went into the large Bric economies.

Note also that a large slice of the corporate cash piles in the West – the UK corporate cash pile alone is reckoned at more than £700 billion – is more likely to be committed to developing economies than our own. So, while China’s breakneck growth may slow to an annual rate of 7 per cent – equivalent, says O’Neill, to a stunning 4 per cent growth rate in the still dominant US – the challenges for us are set to intensify. Either the gradient of our relative economic decline will steepen or we must undertake sweeping supply-side reform – “less government, more governance” in O’Neill’s crisp summation of India’s predicament, as relevant for us here as it is there.

In this, however, there is opportunity: what can we export to China as it moves towards being a consumer society – a trend more important for us than fluctuations in China GDP? Food and drink products, certainly; technically innovative electronic equipment and expertise; luxury goods; fashion products and those with high-design content; artistic and cultural output, and above all, education.

We are not without skills and resource in a world fundamentally altering before our eyes. The social comforts and underpinning to which the baby boomer generation grew accustomed can no longer be counted on in the low growth era that stretches before us. But for that decline to be arrested, the imperative of change is of a magnitude greater than anything that a constitutional referendum can affect. And it is this we need to be addressing, every bit as much.

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