http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2005/10/16/do1602 .xml
Gordon's gone to China, so let's hope he wakes up and smells the green tea By Niall Ferguson (Filed: 16/10/2005) European Union finance ministers went to China last week. Let's hope the trip shatters the complacency that seems to pervade European capitals these days. "Wake up and smell the coffee," is what Americans like to say when they encounter complacency. But it's the Chinese green tea the Europeans need to wake up and smell. A hundred years ago any delegation of European leaders visiting China could have felt smug with reason. Western Europe accounted for roughly a third of world output. After a century of economic stagnation, China produced less than a tenth. The British, French, Russian German and Japanese empires all controlled chunks of Chinese territory. All down the Chinese coast and even inland, there were numerous so-called "treaty ports", where European citizens could live and work with complete immunity from Chinese law. So indebted was the Qing Empire to European bondholders that the Chinese system of customs collection was staffed by foreign officials. It was even run by an Ulsterman. The revenues from Chinese trade flowed directly to European investors. China's humiliation was complete when, in 1900, the European empires joined forces with the United States and Japan to suppress the anti-Western Boxer Rebellion. Having defeated the Boxers in Beijing, the international expeditionary force staged a "grand march" through the Forbidden City, pausing only to "acquire" some ancestral Manchu tablets for the British Museum. That was then. Today, as a result of reforms dating back to the late 1970s, China has the most dynamic economy in the world and quite possibly in all history. Europe, by contrast, is fast becoming the "sick man" of the developed world - a title held by Japan for most of the past 15 years. Over the past decade, according to the International Monetary Fund's latest World Economic Outlook, growth in the core economies of the EU that make up the eurozone has been a miserable two per cent per annum. Growth in China has been more than four times faster. Already, as World Bank figures reveal, China's gross domestic product is around a fifth the size of the eurozone in dollar terms. Project those growth rates forward and China could overtake the eurozone within 30 years. Of course, economic history is never linear and the chances are that China's growth will slow somewhat in the coming decades. But even the most pessimistic observers do not anticipate its falling below six per cent a year. Meanwhile, it will be nothing short of miraculous if the European economy grows as fast as two per cent a year between now and 2035. The European Commission itself admits that the effect of ageing populations could reduce annual growth by up to three-quarters of a percentage point. Even if China grows at six per cent and the eurozone at 1.25 per cent, Beijing will still overtake Brussels before 2040, around the time my children will be the age I am now. Europe's sluggish growth - and high unemployment - are two of many reasons why China's leaders rank the EU significantly behind the United States in the global pecking order. Leave aside the two other big reasons, lack of military clout and lack of significant energy reserves, both of which make even Russia seem more important to Beijing, and purely as a potential market for China's exports, Europe seems less promising than China's own Asian neighbours. European politicians, of course, only make matters worse. To say that the Chinese were unimpressed by the EU's decision to slap quotas on Chinese textiles last June would be an understatement. Not only was it a flagrant piece of protectionism, it was also a cock-up, as European warehouses proceeded to overflow with suddenly illicit Oriental underwear. The subsequent compromise hammered out between Beijing and Brussels was far more of a humiliation for the European Trade Commissioner, our own Peter Mandelson, than is generally appreciated. In Chinese eyes, he had to come begging to them for a bale-out. (Losing face is bad, even if you have two.) And yet European leaders just don't seem to grasp how dire their economic predicament is becoming. Quite the reverse. The out-going German Chancellor, Gerhard Schröder, regaled his Social Democrat fan club last week with a risible defence of the "strong state", apparently oblivious to the fact that most German corporations long ago gave up on the German state as a potential engine of economic reform. Earlier this month, I had the pleasure of hearing the urbane and witty President of the European Central Bank, Jean-Claude Trichet, give a speech in Athens. Sadly, his message was another vintage piece of Euro-complacency. The euro, he assured his after-dinner audience, was a huge success story. Wait a second. A success? The IMF forecasts that the eurozone economy will grow by 1.2 per cent this year. Growth in Germany will be 0.9 per cent. In Italy it will be zero. I'm not sure Alan Greenspan would regard these as the achievements of a successful monetary policy. Of course, we in Britain have a Chancellor of the Exchequer who is immune from Euro-complacency. On the eve of their departure to Beijing, Mr Brown admonished his fellow finance ministers for their wicked ways rather as I imagine his Presbyterian father once admonished the congregation at St Bryce Kirk, Kirkcaldy. Preaching from the pulpit of the Financial Times, Mr Brown called for "reforms in labour and capital markets [and] in trade and in macro-policy". "Europe can no longer succeed as a trade bloc looking in on itself," thundered the Rev Brown. "Instead, Global Europe must be outward not inward looking, focused on external competition." Yet for all his fine words about the need for "risk-based approach to regulation" and reductions in "labour market rigidities", Mr Brown was exposed last week as being something less than the pillar of economic rectitude he claims to be. The Organisation for Economic Cooperation and Development has just published a new Economic Survey of the United Kingdom. It confirms my long-standing suspicion that Britain is no better prepared for the economic challenge posed by a resurgent China than any of our Continental neighbours. In many ways, the best measure of an economy's performance and prospects is the productivity of its workforce - the efficiency with which they work or, if you prefer, the amount an individual worker can produce in a given hour. By this key measure, the United Kingdom is in fact one of the worst economies in Europe. According to the OECD, productivity in the United States, Germany and even Italy is 20 per cent higher than it is in Britain. In France it is nearly 33 per cent higher. The roots of the problem are not far to seek. As the OECD points out, an exceptionally large share of British pupils leave school without qualifications. This helps to explain why one in every 14 British men aged between 25 and 54 is inactive; they simply lack the skills that employers need. Thirty per cent of Britons aged between 25 and 34 are classified by the OECD as "low-skilled", the second-worst rate in a sample of 16 developed countries. The countries that come top - with five per cent or fewer "low-skilled" - are Japan and Korea. This is where Europe really has to worry. For what is happening in Asia is not merely that their manufactures are becoming as good as ours. The reality is that their workforce is rapidly becoming better than ours. And as a billion-plus Chinese pour their energies not only into working but also into studying, the gap between the Old West and the New East can only widen. No doubt a few days in China will do Mr Brown and his colleagues a power of good. I only wish all the British teenagers contemplating an early exit from education could have gone too. They're the ones who really need to wake up and smell the green tea. --- Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University www.niallferguson.org ------------------------ Yahoo! Groups Sponsor --------------------~--> Fair play? Video games influencing politics. Click and talk back! http://us.click.yahoo.com/VpgUKB/pzNLAA/cUmLAA/TySplB/TM --------------------------------------------------------------------~-> -------------------------- Want to discuss this topic? Head on over to our discussion list, [EMAIL PROTECTED] -------------------------- Brooks Isoldi, editor [EMAIL PROTECTED] http://www.intellnet.org Post message: [email protected] Subscribe: [EMAIL PROTECTED] Unsubscribe: [EMAIL PROTECTED] *** FAIR USE NOTICE. 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