Should We Be More Like China?

All is not what it seems.  Copyright Philippa Roberts 2012

David Cameron in his speech to Conservative Party Conference today talked about China.  I got the impression that he was asking whether the British economy should be more like China, which is
"creating a new economy the size of Greece every three months".

Now, putting that claim aside (at least until Tim Harford or FactCheck come back and tell us if it's true or not), is the Chinese economy one we should be aspiring to?

Last year, China's GDP was 9.3%.  This looks really impressive, especially when compared to our growth rate of 0.8% in 2011 (OBR figure in March 2012 forecast).

In fact, only in the last week the IMF has revised its growth figure for the UK downwards, from 0.2% to -0.4%.  It was only three months ago that it was saying 0.2% growth was possible this year - now it's saying the economy will continue to shrink.  The 0.2% growth prediction was clearly more realistic than the Office for Budget Responsibility, which predicted 0.8% for 2012 in November 2011, and stuck by its guns in March this year, also saying that:

"We still expect the economy to avoid a technical recession with positive growth in the first quarter of 2012."

Obviously now, after three consecutive quarters of the economy shrinking, that doesn't look like a good call, but as JK Galbraith famously said:

"The only function of economic forecasting is to make astrology look respectable."

That's a slight distraction.  As I was saying, copying China looks like a good idea, if you just take a snapshot of growth figures.  However, as I've mentioned before China is slowing.  Growth this year is predicted to fall to 7.7% and it looks like the July to September quarter will be the 7th in a row when growth has slowed.  Some commentators have been writing about the property boom in China, including this in the FT.  This property boom has come on the back of cheap credit and the now-expected property bubble sounds remarkably like the model that has just got us into our current mess.

The UK has a mature economy.  We industrialised over 200 years ago.  Many would argue that our economy was declining from the turn of the last century, but that this was disguised by two world wars.  Our average growth rates will never now be the same as those currently seen by China.  To make comparisons between growth in countries in Europe and China is to ignore the different economic histories, and makes no sense.

So I don't think we should aspire to grow like China.  We could aspire to green our economy at the rate China is greening theirs, invest in renewables with the same seriousness, but their model is not one which will fit us.  I'm still waiting for the vision of what our economy, a sustainable economy, will look like.

What Money Can't Buy

Michael Sandel Sept 12, Labour Party Conference

Really enjoyed the talk by Michael Sandel from Harvard yesterday.  Funnily enough I was relistening to his Reith lectures the other week.  I'm a particular fan of the idea that we don't always want to be consumers, we do actually want to be citizens as well.

His idea that we are now living in a market society, not just a market economy, is particularly pertinent these days, especially when it comes to issues like trust that I have blogged about before.  Valuing things only when they have a price tag attached does not reflect the values that we all have.  CEO salaries no longer reflect the value that they bring to the job.  Price no longer tells us something about the real value of an item, all it tells us is how the 'item' wants to be valued.  

Facebook Friends and Trust

I know I keep banging on about trust at the moment, but Facebook has shown us recently why people are losing faith in the idea of a free market.

When Facebook shares were floated, they were bought by small investors and fans of Facebook at $38 a share.  It wasn't only small investors, George Soros bought some too.  However last week saw the end of the 'local-in' period for the early investors, such as Goldman Sachs.  As they rushed to cash in their gains, Facebook's share price fell to less than half of what we were originally told it was worth.  Told by people like Goldman Sachs.

It doesn't matter if this was rigged or not.  It's a high profile float where those who were on the inside make lots of money, and those who take their advice and listen to the hype, don't.  At least in the short term.  I personally have an issue with free marketeers who say that capitalism is the only answer.  It may be, I don't know, but the market isn't free and we shouldn't pretend otherwise.