Britain and globalisation: a good marriage

Merril Stevenson
2 February 2007

The news out of Birmingham, England's second city, this week is grim indeed. If reports of an alleged plot to kidnap and kill a British Muslim soldier, broadcasting the events by internet, turn out to be well-founded, it marks a relatively new and certainly gruesome development. Importing terrorist tactics from Baghdad to Birmingham is, I suppose, a dark form of "globalisation". It is certainly helping to give the other, economic, sort - the increasing mobility of capital, goods and services, and labour - a bad name.

But don't knock globalisation, for Britain owes much of its current prosperity to it - as I have explored in a report for the Economist ("Britannia redux", 2 February 2007). A quarter-century ago, few would have expected British GDP per head to be higher today than Germany's or France's, but so it is: Britain has enjoyed the longest stretch of steady economic growth since the early 1970s. Employment is at record levels and inflation has for the most part been well-behaved. And with prosperity has come renewed global clout: Britain has helped to shape European enlargement, aid to Africa, the debate on climate change and, most recently, negotiations to restart world-trade talks.

Merril Stevenson is the Britain editor of the Economist, and author of its report "Britannia redux", published on 1 February 2007

The Economist’s self-declared aim since its founding in 1843 has been to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress".

Britain got its economic act together just as globalisation was accelerating, in the late 1980s. It has managed to catch and ride the current wave successfully, selling the world financial and business services where once it sold cotton textiles and machines. Shifting earlier and more decisively than most countries out of mass manufacturing, where it had few advantages over lower-cost competitors, to more easily defended high-value-added goods and services gave it an edge. Margaret Thatcher's painful union-bashing left Britain with flexible labour markets at a time when countries such as France and Germany are struggling with unbudgeable workers and high unemployment. Strengthening competition - blowing open the City in the "big bang" of 1986, letting in foreign investors with new ideas - has also sharpened everyone's game.

Spots on the sun

Britons as a whole are better off with globalisation: consumer goods cost less, and so do mortgages, for example. But there are painful and wrenching changes afoot as well which harm individuals. Three areas that pose tough questions for globalisers are jobs, corporate control and immigration.

First, some 2.5 million extra jobs have been created since Labour came to power, but over 1m manufacturing jobs have been lost too. A lot of the jobs that have gone were more secure and better paid than the new ones, and not all the people made redundant were able to secure even hamburger-flipping employment. And it's not only manufacturing jobs that have gone: so have many from call-centres and data-processing, for example, and fancier jobs too are beginning to migrate.

Some of this is globalisation's fault but more of it is probably technology's. It is now possible to answer phones and design warehouses and analyse company accounts at a distance and transmit the results instantly, so it is logical to do those things where the cost/quality ratio is best. The answer is surely not to keep people in jobs in which they are not competitive but to make sure they are equipped to get new, better ones. That is where attention should be focused.

A second neuralgic issue is the flood of takeovers of British companies by foreign firms. The steel group Corus, it seems, is to go to India's Tata; and the courtship of the London Stock Exchange by Nasdaq, an American electronic exchange, has long since turned into a siege. Britons are more accustomed to being the acquirers, and this role reversal is unwelcome to many.

Foreign corporate control does raise concerns. Some fear the "headquarters effect": that a foreign owner is more likely to close a foreign plant than one at home or to choose an auditor down the road from head office. Others worry, especially recently, that a number of deals are designed merely to milk quasi-monopolies or strip assets. Britain is particularly open to inward investment, and British firms are not always able to buy abroad with equal ease.

But much foreign investment brings specific benefits - capital, new management or production techniques, employment. A number of studies suggest that productivity is higher in multinational firms in Britain than in most domestic ones. A competitive market in corporate control brings a more general benefit too: by threatening company bosses with takeover it makes them compete harder to stay in business. It is difficult to say where ownership lies anyway when investors buy shares the world over. Other countries may want to shoot themselves in the foot by keeping out foreign investment but that is no reason why Britain should.

Immigration is a third issue where globalisation helps more than it hurts, but does some of both. The flow of foreigners into Britain has increased over the past ten years, partly because a growing economy has demanded more workers and partly because disruption elsewhere - plus European enlargement - has boosted supply. Immigrants have undoubtedly kept wages down and most likely taken some jobs from those that wanted them. But they have also lifted economic output and contributed needed skills. The choice does not always come down to outsourcing work abroad or importing people to do it; but when it does, surely Britain benefits more by importing the labour and the knock-on economic activity it generates.

These arguments pale, however, next to the social unease that immigration and ethnic diversity are causing, especially now that Islamist terrorism has reared its head. A debate­ - indeed a definition - of multiculturalism awaits another blog. What matters is that the benefits of globalisation, which has done much for Britain now and in the past, not be thrown out in reaction to the latest report of clear and present danger. Britons have supported freer trade since before the repeal of the Corn Laws. They should not abandon it now.

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