Economics Teachers’ National Conference An Ever Changing Business World: Globalisation & the UK Government Policy Response Vicky Pryce Chief Economic Adviser and DG, Economics DTI
Vicky Pryce Economics Teachers’ National Conference Global growth % 2005 2006 2007 forecast World Growth 3. 4 3. 9 3. 3 UK 1. 9 2. 7 2. 6 US 3. 2 3. 4 2. 7 Asia Pacific 5. 1 4. 7 Japan 2. 6 2. 2 1. 9 China (IMF) 10. 2 10. 0 India (IMF) 8. 3 7. 0 Euro Zone 1. 5 2. 7 2. 1 Germany 0. 9 2. 7 1. 7 France 1. 2 2. 0 1. 9 Source: Consensus Economics and IMF
Vicky Pryce Economics Teachers’ National Conference World trade growth set to continue Source: IMF
Vicky Pryce Economics Teachers’ National Conference Global economic rebalancing Source: FCO Global Growth Model
Vicky Pryce Economics Teachers’ National Conference Globalisation not new…
Vicky Pryce Economics Teachers’ National Conference Globalisation now: what’s different? • Highly populated emerging economies, esp. China and India – Developing countries’ share of world trade in goods up from 27% in 1990 to 35% in 2003. • ICT revolution – Between 1970 and 1999, the cost of 1 Mhz of processing power fell from $7601 to 17 cents. • Size and speed of capital markets – More than a $1 trillion traded daily on forex mkts • Intra-industry trade – OECD: intra-industry trade estimated to account for 60%-70% of trade in sophisticated manufactured products. • Growing services FDI – By 2002 service share of world FDI was 66%, up from 42% in 1988
Vicky Pryce Economics Teachers’ National Conference Structural shift in UK economy
Vicky Pryce Economics Teachers’ National Conference Shares of world exports of services
Vicky Pryce Economics Teachers’ National Conference Knowledge intensive services increase export share
Vicky Pryce Economics Teachers’ National Conference Foreign Ownership in the UK • UK policy of opening UK markets to foreign business, and seeking to open international markets to UK firms • Foreign owned businesses account for: – 20% of UK jobs in production sectors and 9% of service sector jobs (excluding financial services) – 24% of UK value added, over the period 1990 to 1997. – 40% of business R&D undertaken in the UK in 2004 • Evidence suggests inward FDI can boost UK productivity
Vicky Pryce Economics Teachers’ National Conference Investment Stock abroad and in UK
Vicky Pryce Economics Teachers’ National Conference FDI position in UK
Vicky Pryce Economics Teachers’ National Conference Industrial Policy • Generally non discrimination between UK and foreign owned business • Generally generic forms of support to all business irrespective of sector or ownership • But presumption that inward investment can bring with it superior technology, management practice, of wider benefit • Like all generalisations occasionally exceptions in practice
Vicky Pryce Economics Teachers’ National Conference Improving productivity is the key to improving competitiveness Source: ONS
Vicky Pryce Economics Teachers’ National Conference UK performance on competitiveness • The OECD ranks the UK 2 nd on their product market regulation indicators (first in the G 7); • The World Bank currently ranks the UK 6 th in terms of ease of doing business (and highest in Europe); • The World Economic Forum and the Institute of Management Directors produce overall assessments of competitiveness, ranking the UK 10 th and 20 th respectively. • UK competition authorities are highly regarded.
Vicky Pryce Economics Teachers’ National Conference UK policy response • CSR – globalisation as driver • Recognition that needs cross government action. Permanent Secretaries work on globalisation • Work streams include: climate change & energy; education & skills; science & innovation; migration; business; regulation; and health • Many necessary policies already being pursued but more effort needed • International Futures Project (IFP)
Vicky Pryce Economics Teachers’ National Conference Independent Reviews • Independent reviews commissioned in line with workstreams identified by Perm Secs, including: – Leitch Review - identifies UK’s optimal skills mix in 2020 necessary to maximise economic growth, productivity and social justice in a globalised economy. – Gowers Review - UK’s intellectual property framework – Eddington Review - ‘Transport’s role in sustaining the UK’s productivity and competitiveness’ – Stern Review - Economics of Climate Change
Vicky Pryce Economics Teachers’ National Conference Priorities for the UK Competitiveness – Raise productivity – science & technology, innovation, skills, enterprise – Need to convince EU of need for adjustment. • International architecture matters – Practical, enforceable market rules & regulation • Adjustment not protectionism – Some people will be disadvantaged and will need assistance to adjust • Responding to pressure on services •
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