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China, Trade and Heathrow

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The Chancellor has seen the future in China, and it works. Or at least can be made to work on Britain's behalf. Britain desperately needs as much growth as it can get if it is to get through this period of austerity and to emerge on the shining uplands of a growing economy. That growth won't come from its strapped consumers. It won't come from Europe, in recession and unlikely to sort out its debt problem for many years. It won't come from America: the engine that can't, won't return to rapid growth until it solves its political and fiscal problems. So pay heed when George Osborne says Britain must look to Asia as the "engine of world growth." Growth that can help end layoffs in the City, provide Britain with a wave of affluent tourists, and markets for its intellectual property and manufactured goods.

The problem is that it is not easy to get from here to there, or there to here. Heathrow airport, operating at regulation-constrained levels simply can't provide adequate connectivity with China. Or with the emerging Brazilian market, now a magnet for job seekers who can't find work in Europe. At least not when compared with what is on offer from other European hubs.

Only 27,000, or 7% of the 370,000 transfer passengers flying to Beijing via European airports, set foot in Heathrow, eschewing a few days of spending, touring and doing business in Britain for the superior connectivity provided by airports in Amsterdam, Paris, Madrid and Frankfurt, according to data gathered by Frontier Economics, consultants to BAA, as am I. Chengdu and Nanjing can be reached from other European hubs, but not from Heathrow. Some 25 airports in emerging markets that connect regularly with European airports do not connect with Heathrow. If the constraints on the operation of Heathrow were removed, by 2021 ability to serve China and Brazil would almost double compared with what could be provided if current restrictions on operations were maintained. And that says nothing about what could be done if a third runway were permitted.

Regular airline service makes trade in goods more reliable, makes it easier for potential business partners to have the face-to-face meetings that remain key to successful business dealing and the attraction of inbound investment, and attracts tourists -- and remember that it is millions of affluent Chinese, not semi-broke Europeans who will provide the growth Britain needs if they can be persuaded that getting here is as easy as getting to Paris.

It may well prove to be the case that Boris Johnson is right, and that the long-run solution is an entirely new airport. After all, a man with the transportation nous to figure out how London can do without bendy-buses can't be taken lightly in these matters. In the end, markets, not ministers will determine whether Britain is to get a new airport some 20 years from now. The capital for the needed environmental impact studies will have to be raised, and if the permitting process flashes a green go-ahead sign, some £50 billion will have to be found.

Meanwhile, Britain needs a more immediate fix if it is to realise the ambitions of the Chancellor and the prime minister. Unfortunately, that will require a bit of Keynesian sense. Not of the borrow-and-spend sort, but of the "When the facts change, I change my mind" variety. And nothing is clearer than that the facts have changed since the Chancellor decided that expansion of Heathrow was too hot a political potato to consider handling.

For one thing, the economy has not recovered, and borrowing has not fallen as quickly as was anticipated. However important job generation was when the decision to prevent Heathrow expansion was taken, it is infinitely more important now, with rating downgrades the fate of economies that don't have pro-growth policies. For another, a new generation of quieter, cleaner aircraft is rolling off the assembly lines. Finally, rising inequality suggests that less weight be given to the relatively affluent residents in areas affected by Heathrow traffic, and more to those with lower incomes who would benefit mightily from the increased economic activity that a more fully used Heathrow would generate.

Perhaps the Chancellor and his government colleagues might want to change their minds in light of changed facts. Perhaps they might want to link permission for make more intensive use of Heathrow to a pledge from the airlines using it as a hub that the added capacity will be used on the new trade routes of this century. After all, developing new trade routes is every bit as consistent with the nation's Victorian history as would be the construction of a new airport.

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