The idea that Britain is involved in a ‘global race’ which it will ‘lose’ to other countries unless the necessary reforms are undertaken has been a staple of Conservative party rhetoric for the past 18 months. Numerous commentators have reviewed and ridiculed the phenomenon, with critics typically returning to two objections. Firstly, there is the lack of precision around what exactly the race is for:
This race, we are told, is economic. Our opponents are usually specified: the rising countries of Asia and South America such as China, India and Brazil. Yet the prize is vaguely and promiscuously defined: ‘jobs’, ‘wealth’, ‘growth’, ‘trade’, ‘talent’, ‘technology’, ‘skills’, ‘capital’, ‘competitiveness’, ‘big ideas’,‘influence’, innovation’, ‘investment’, ‘investment opportunities’, ‘recovery’
This lack of clarity leads to the suspicion that the argument is not the result of any analysis of global economic and social trends, but is rather an exercise in creating a foreign bogeyman to threaten those who object to Tory policies.
The second common objection to the metaphor of the global race is its implication that economic trends are zero-sum, that for every winner there must be a loser
Countries get richer together. If China carries on reforming and growing, there will be more opportunities there for Britain
Yet Chancellor George Osborne’s article with his German counterpart Wolfgang Schauble in Thursday’s Financial Times continued to display these confusions and worse. In a single paragraph, they list four domains in which they believe European countries are at risk of losing the global race – economic growth, patent applications (presumably as a proxy for innovation or technological development), youth unemployment and social welfare spending:
Recovery in Europe is vital. But our continent is falling behind. Over the past six years the European economy has stalled. In the same period the Indian economy has grown by more than a third, and the Chinese economy by almost 70 per cent. Europe’s share of world patent applications almost halved in the past decade. A quarter of young people looking for work cannot find any. Europe accounts for just over 7 per cent of the world’s population but 50 per cent of global social welfare spending. Reform is the key.
But in each of these domains the metaphor of a race is misleading – either because they are focusing on the wrong metric or because a competitive approach is inappropriate
Though Osborne and Schauble do not explicitly refer to the idea of a global race, this is clearly the image they are trying to invoke when they worry that “our continent is falling behind”. But who is Europe falling behind, and in which race?
The first race, it becomes clear, is the race for higher economic output. In this race, Europe is falling behind China and India, as they have seen higher growth in the past six years. Stated so clearly, the absurdity of the claim should be apparent – rich Europe cannot be falling behind much poorer countries like China and India – it is clearly ahead of them.* Rather, what is happening is that China and India are catching up to the EU.
Being caught up might not be as bad as falling behind, but it’s still almost always a bad thing. Yet there are a couple of salient facts required to put that in context. The first is that this is a race where it is harder to lead than to chase. The economic principle of convergence means that poorer countries will tend to grow faster than rich ones, essentially because they can trade with and copy technologies from them. The GDP race is one that it is hard to lead – the EU is like a cyclist which must accept that other riders will benefit from their slipstream. Thus lower growth than India or China is not a tragedy to be bemoaned, but the almost inevitable consequence of having a bigger economy. The real problem for Europe is its lack of growth in absolute terms.
The second critical fact is that this is not a case of Europe needing to fend off immediate rivals in a close race Rather, Europe, in seeking to extend its lead over India and China, is like a runner sprinting to lap straggling laggards in the race. Depending on the source, average EU income is 20th-30th in the world. By contrast, China is placed in the 90s and India in the 130s. Stepping out of the metaphor, there is something deeply unpleasant about Europe seeking to out-grow poor countries like India and China. If Osborne and Schauble want faster growth than India and China, then by implication what they want is a more grossly unequal world where the rich are even more distant from the global poor than before.
The second race that Osborne and Schauble want to win is the competition for most patent applications. They are correct that Europe’s share of global patents has declined, but again, they fail to provide the relevant context. First, in absolute terms, patent applications are around 50% higher than a decade ago, according to World Bank data. Second, this seems like another area where convergence has occurred – the EU still has more patents per capita than average, with 10% of global applications, despite (as Osborne and Schauble later observe) having only 7% of the global population.
The third point made is around youth unemployment. However, there is no comparative metric used to illustrate this, so it’s not clear who Europe is supposed to be ‘falling behind’.
Osborne and Schauble’s fourth indicator is the most pernicious – social welfare spending. This is one race where it is particularly unclear what constitutes ‘winning’. I personally would have thought that out-spending other countries would be beating them, but it is clear that the finance ministers see Europe’s high spending as a failure. But I can only presume that they do not see having the lowest social welfare spending in the world as a desirable goal, either.
The fact that Osborne and Schauble offer the context of Europe’s population suggests they see this as some sort of odd ‘race to the middle’ – in their view Europe should be closer to average global social spending. The implication is that social spending is a ‘goldilocks good’ – some is desirable, but too much is a bad thing. But if this is the case, why should we take the global average to be the best indicator of the ideal level? Being above the global average for social spending could just mean that other countries spend too little on social welfare. And in this case that is almost certainly what it means. Why should we care about an average that is clearly pulled down by developing countries lacking the finances to develop welfare states of their own?
There are almost certainly some domains where competitive global comparison is the appropriate way to think about them. But Osborne and Schauble’s letter suggests the Conservatives still haven’t found them
* Even is the race is in terms of absolute GDP (ie not adjusted for China and India’s larger populations), the EU remains clearly ahead of India and just ahead of China