The Blog

Europeans' Fears About Globalisation Are Misplaced

Britain was replaced by the US as the world's largest economy close to 100 years ago but both countries are better off now than they were on the eve of the First World War. The same will be true as China becomes the world's largest economy.

65 per cent of Brits believe that in 20 years time, people will earn less than today because of competition from China, India and Brazil. Even more people in Germany, France and Italy hold that view as well as a majority in 12 of the remaining 23 members of European Union. The startling finding was presented by Ipsos-MORI Chief Executive, Ben Page, at an event with Tony Blair on globalisation and faith on Tuesday evening.

The truth, however, is rather more prosaic. Current trends suggest that many people in European countries will earn less in years to come. Analysis from the Resolution Foundation has found that because inflation will outstrip wage increases in each of the next three years, living standards will decline for those on middle incomes. But this is due primarily to soaring energy and food prices and the hike in VAT rather than from competition with China. If anything, Britons - and other Europeans - can benefit from China's rise so long as we get our act together.

Last week, I went to the Middle Kingdom as part of a delegation from the Institute for Public Policy Research led by Lord Mandelson, Britain's former Business Secretary. In Chongqing - the world's fastest growing metropolis - we met Bo Xilai, Party Secretary and essentially the most powerful man in the province. His local government is obsessed with attracting inward investment from the rest of the world. We visited a Hewlett Packard factory on an industrial park which is expected to produce 18 % of the world's laptops by 2013 and will transport them to the European market on a brand new train line which runs direct to Rotterdam.

But the opportunities are not limited to high tech manufacturing and assembly. We met three British entrepreneurs helping local businesses to enhance the energy efficiency of new residential and commercial buildings in the area. Half a million people are expected to move into Chongqing this year alone. And as Chongqing expands so will the opportunities for British companies focused on business services such as finance, accountancy, legal services, architecture, and market research. But as Lord Mandelson said reflecting on the visit, "You can't hang back. You have to be front foot forward. People have to be here ... They have to make a commitment and that takes time. China invests in long-term relationships and we have to do that as well". If we don't engage and invest, China and the other BRICs will march on without us - developing their own comparative advantages and boosting growth. At this juncture, we need them more than they need us.

Indeed, although Europe is the region that is least positive about globalisation, a clear majority still think that it is good for the world (55%) and good for their country (54%). Ipsos-MORI have shown a clear correlation between the level of support for globalisation and the percentage increase in GDP from 2008 to 2011. Perhaps unsurprisingly, nearly nine in ten Chinese and Indians believe that globalisation is good for their country. Meanwhile their countries have increased in economic size by over 25% during that period.

Although they may be uncomfortable with the rise of the BRICs, Europeans seem instinctively to understand how globalisation can benefit their economy. Over four in five believe that investment by global companies in their country is essential for growth and expansion while just 31% (the lowest of any region in the world) believe that we should restrict investment by foreign companies even if it means fewer jobs will be created.

This is also critical to understanding globalisation. For as China and India rise so will their investment and spending power. The middle class in China is expanding rapidly while the country is looking to move its £3 trillion haul of reserves away from US Treasury bonds into real assets, including infrastructure projects around the world. This partly explains why China's trade surplus has actually been falling - from 7.5% just a few years to 1.5% this year. More and more Chinese tourists are coming to Europe. With a population four times the size of the US and ten times that of Japan, it isn't hard to see how they will become ubiquitous in Harrods, the Tower of London and Westminster Abbey before long. Many others are gaining degrees in the UK - 95,000 in 2009/10 alone - bringing huge revenues for the universities that educate them.

With the impact of the global recession still resonating in communities up and down Britain, it is easy to see why China's impressive growth performance has become a cause for alarm rather than excitement. But it is simply not the case that as they emerge, we submerge. Britain was replaced by the US as the world's largest economy close to 100 years ago but both countries are better off now than they were on the eve of the First World War. The same will be true as China becomes the world's largest economy - expected in 2016 on PPP comparisons. But Britain must be quick to act if it is to benefit from the rise of the East. Keeping ourselves open to investment, visitors, and students is critical to our prosperity.