Albert Beardow, a student of Natural Sciences at Christ's College, and Conrad Griffin, who reads History at Peterhouse, discuss tonight's debate motion for the Cambridge Union Society.
Albert writes in proposition:
It is easy to be complacent when faced with success. We've seen how bankers were happy to pile high on debt and risk in the good times. We've seen how governments can happily spend the excesses on improved welfare for the people. And we've seen how voters, with strong employment prospects as part of a growing government bureaucracy, willingly go along with the extravagance.
But perhaps it is easier to be complacent when, faced with disaster, things just don't seem all that bad. Sure, unemployment is at 8.4% and the economy may be flat-lining, but does not London still remain the world's pre-eminent financial centre? Do we not still have world class universities that students across the world dream of attending? Is this not just a small downward blip, and soon enough we'll be back to the good times?
Yet Britain has fallen from fourth to seventh in nominal GDP rankings since 2000, surpassed by France, China and Brazil. This is not just a story of emerging market growth. As Prudential's recent threat to move to Hong Kong shows, the conditions for corporate success that Britain finds lacking are increasingly being found in other parts of the world. In key business-friendly attributes such as competitiveness, education and infrastructure, the UK can no longer be described as world class.
The WEF's assessment of global competitiveness has seen Britain fall behind China in more than twenty crucial indicators of economic competitiveness, including the burden of government regulations, wastefulness of government spending, correlation between pay and productivity, and venture capital and loan availability. And in terms of macroeconomic outlook, government fiscal profligacy and a low national savings rate have left the UK in a shocking 85th place.
And yet for all the political class's rhetoric about keeping Britain open for business, their propensity has been to decrease the attractiveness of the country for corporations and talent. A comparatively high corporation tax has sent emerging businesses such as Facebook and Google to Ireland. The continuation of the 50% tax rate and attacks on high pay have made business executives question the pro-business aspirations of the country's leaders. The threat is not so much that the incentives won't be in place for improved performance, but that companies won't be able to draw in the globally competitive talent they desire.
And global talent is certainly a requirement, as the British education system fails to produce young people fit for employment. In 2009, Sir Terry Leahy, CEO of Tesco, lamented on how employers are "left to pick up the pieces" of low education standards. When compared to competition from Asia, this is even more striking. At age 15, British students are more than a year behind those from Shanghai and South Korea in reading, whilst the corresponding gap in mathematics is the same as that between British and Albanian students.
Even British higher education is losing its appeal, with far more Indian and Chinese prodigies looking to the Ivy League over Oxbridge. And of course, for those that do choose to study in the UK, rigid immigration restrictions encourage a significant number of these skilled workers to return home.
Britain's woefully inadequate infrastructure is also in dire need of a reboot. It is estimated that more than £350 billion of investment is needed merely to maintain existing transport infrastructure. Yet capacity is already close to breaking point, and even where there is progress, it is slow. It is expected that construction of the 190km of the first phase of the recently approved High Speed 2 railway will take eight years. China managed to build 1300km of high-speed line between Beijing and Shanghai in just three. And still there has been no long-term plan set in place for increased airport capacity, vital if Britain is not to be outperformed by its European neighbours as a business hub.
It is easy to be complacent, but it is just as easy to quibble over false dichotomies such as between austerity and growth. Significant structural reforms are required, addressing the challenges outlined above by decreasing the regulatory bureaucracy and increasing labour flexibility and productivity. It may be too late to reclaim Britain's heyday as a world capital, but with these, perhaps, Britain could truthfully sell itself as open for business once again.
Conrad argues in opposition:
The World Investment Report published in July 2011 by the UN Conference on Trade and Development reaffirmed that Britain is the most favoured destination for Foreign Direct Investment in Europe, and one of the most attractive places to do business in the world. In 2010 the book value of capital investment stock held by foreign investors in the UK led Europe at $1,086 bn, with inflows in the year at $45.9 bn. On the World Bank's Ease of Doing Business Index for 2011, Britain ranked 4th, after Singapore, Hong Kong and New Zealand out of 183 countries.
What creates such a positive international view? Firstly, Britain triumphs over competitors in cultural and legal terms. English is spoken by over one billion people - the second most spoken language after Mandarin but the most geographically diverse. We have several of the top ten universities in the world, with Cambridge and Imperial being just two of many leading research universities driving scientific innovation and discovery. Britain's strong, stable democracy dates back to the Magna Carta in 1215. It has a Judiciary which is independent of the Executive, ensuring impartial application of the Rule of Law, and a comprehensive system of property rights protection. Companies Act legislation provides a regulatory framework for companies and protection for investors, as does the FSA with regard to the financial services industry and the consumer. We also have no equivalent of the US Sarbanes Oxley Law inhibiting corporate practice. With regard to corruption, The Bribery Act 2010 carries imprisonment penalties for corruptive practices, extending provisions existing in criminal law. Britain also has a highly developed national infrastructure network. With its international airport hubs, 120 commercial ports, and railways linked to the continent via the Channel Tunnel, Britain is well positioned to service international trade. Its time zone is a unique advantage in allowing financial services traders to access Asian and American markets within the same working day. The globally respected LSE is the third largest exchange by market capitalisation in the world.
From a more fiscal and economic perspective, Britain has a stable currency, tradable on the international markets with the Bank of England setting interest rates and monetary policy. The government's austerity policy controlling its £ 1 trn of public debt underpins the strength of sterling, the triple A rating of its debt, and promotes the global view that Britain is a responsible country, in sharp contrast to European counterparts. Regarding trade opportunities, Britain is a member of the EU - with a population and market the size of the US - providing tariff free access to goods and services exported to, or imported from, 27 countries. The EU enables the free flow of labour, and Britain has employment and union practices that are preferred by corporations over more restrictive environments in, for example, France. As a former empire nation, Britain has strong links to the 54 countries that make up the Commonwealth - a membership that represents over a third of the world's population, 21% of the world's land mass and a combined GDP over £10 trillion.
In terms of business policy, the government is committed to lowering the rate of corporation tax from its present main rate of 26%, which is still lower than that of France and Italy. Whilst personal taxation rates in the UK are currently high, there are tax reliefs available to encourage business growth, such as Entrepreneurs and Business Property Relief. Non-domiciled individuals can decide not to pay tax on earnings outside of the UK in exchange for a £ 30,000 flat fee, which encourages wealthy entrepreneurs to base themselves in London with attendant advantages to the economy, such as the Indian steel magnate Lakshmi Mittal of Arcelor Mittal.
Britain has also long had a reputation for quality. Bentley, the car maker, is defying the economic climate by producing 80 vehicles a week for worldwide sales. We have industries that produce precision engineered capital goods for global markets, witness BAE Systems in defence. The sub prime crisis of 2008, combined with the government's policy of charging rates on empty premises, has reduced the cost of property for purchase and rental outside London, of many industrial, retail and office premises thereby encouraging occupation. Our education system has long meant there is access to a broad talent base, leading the UK to be the headquarters of major global financial institutions such as HSBC and Barclays Bank making the City of London one of the premier financial trading centres in the world. In fact there are 241 foreign banks operating in the City of London alone, and the financial services sector as a whole contributed 11.2% of total government tax receipts in 2009/10.
Whilst it is recognised there is much to be done in this country to improve its global competitiveness, increase economic development and lower unemployment, Britain is still very much a capital for business.
If you are a member of the Cambridge Union Society, and would like to contribute to this blog, please e-mail Sophie Odenthal on press@cus.org for more information.