Monday 4 April 2016

Competition is ideological

Economists can face difficulties in analysing what happened in the past before records became as detailed as they are today, and often depend on extrapolation from other data.  Despite that, there is a general agreement that India was responsible for around 25% of the world’s industrial output in 1750 and that the proportion fell to around 2% by 1900.  If the detail of the figures is inevitably subject to debate, the cause of the fall is even more so (there’s an interesting analysis of both the figures and the causes here).
But as the history of the British Empire shows, globalisation of trade is not as new as it sometimes appears, and the balance can swing from one country or region to another over time.  For India, the imposition of Imperial rule, at the same time as the Industrial Revolution in Britain, coincided with a switch of manufacturing from India to Britain as the Indian economy became one supplying raw materials rather than finished goods.  It's not hard to see a causal relationship there.
In short, India lost much of its industry and the key economic decisions leading to that were taken elsewhere.  It’s tempting to see last week’s announcement on the future of steel-making in the UK as a sort of mirror image of that process – de-industrialization of the UK as a result of decisions taken in India.  That’s a bit over-simplistic, of course, but there is a more general parallel.  In the 18th and 19th centuries, there was a flow of economic power from places such as India and China to Western Europe in particular – and that flow is now increasingly moving in the opposite direction.  And just as others seemed to be powerless to prevent the flow in the past, governments here seem to believe themselves largely impotent in the face of the reverse threat today.
Does it have to be so?  The rebalancing of the world’s economy, with wealth shared more equally, which is underway is certainly long overdue, and those of us supporting such a move have to recognise that any such readjustment is likely to involve a certain amount of pain.  But that pain is exaggerated by the insistence – shared by all parties – that the size of the respective shares must be decided by competition rather than by co-operation.  Our politicians seem mostly unable to conceive of a world where countries and peoples work together for a fair distribution of the world’s finite resources rather than a world full of cut-throat competition in which all participants seek to maximise their own share.  But that’s an ideological driver, not an economic one.

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