A slowing, bickering, changing world Top of the Charts 18 October 2019 Torsten Bell Afternoon all, So, Boris Johnson has chosen his Brexiteers over unionism. The EU have chosen getting it done versus hoping remainers get their act together. The DUP have chosen a rock, having been offered a hard place. Labour want to choose a referendum, but may get a general election. The slightly odd thing of course is that Britain hasn’t really chosen where it’s heading at all. Yes, No Deal is basically off the table. And yes, this deal envisages a much looser final trade relationship with the EU than Theresa May’s deal (there’s a reason the ERG will eventually vote for it). But what that actual relationship is will be what the next ten years of British politics is all about. To bastardise Churchill – this is not even the beginning of the end. At best it’s the end of the beginning. We’ve all got a lot more choosing to do. Luckily, only MPs get to spend Saturday choosing. So, to ensure we don’t become totally myopic amid our own euro-crisis, this week’s reads focus on the shifting of tectonic plates in the global economy. Have a great weekend, Torsten, Chief Executive, Resolution Foundation Slowing world. Forget Brexit uncertainty for a second, the whole global economy is slowing down. That was the (not relaxing) message from the IMF’s World Economic Outlook published this week. The foreword from Gita Gopinath, the Fund’s newish Chief Economist, provides a decent summary of the very long report. The short version: growth down (the 3 per cent forecast for 2019 would make it the worst year since the financial crisis), trade tensions up. The slow growth among many advanced economies is now being compounded by a slowdown among large developing and emerging countries – a fact reinforced by this morning’s news that China is growing at its slowest pace for three decades. Uncooperative world. The IMF put much, but far from all, of the blame for slowing growth on rising trade tensions. Those trade problems, most visible in the US/China dispute, are part of a wider issue. Combine Trump’s ‘America First’ approach with a weakened Europe and China wanting to rewrite the rulebook, and you get a fragmented world order – not a great starting point for tackling issues like climate change, financial stability and internet security. For a thoughtful take on this trend, with some positive suggestions for navigating it, you can do worse than Jean Pisani-Ferry’s recent reflections. His answers are a mixture of the pragmatic (use the institutions you’ve got – like the IMF – and engage the private sector on climate change) and more ambitious (Europe needs to step up to more of a geo-political leadership role). The less encouraging news is that historically we’ve only managed big increases in collaboration after major wars… Rethinking our world. What are the root causes of the turn against globalisation? In a typically-acerbic post, Paul Krugman reflects on why economists back in the 1990s (including himself) underestimated the impact on inequality that globalisation could bring. First, globalisation was much greater than anyone expected. Manufactured exports from developing countries have tripled since the mid-1990 (relative to the world economy). Second, economists under-emphasised the significant impact on some workers of change, even if for workers overall change is neither big nor hugely negative. Manufacturing employment fell off a cliff in the US after 2000, having a major impact on some people and places. So, does this mean Trump is right to turn to protectionism? No, he argues, the era of disruptive, rapid change is largely over – and the most disruptive thing now would be to try to reverse globalisation. The lesson here for economists and policy makers is be less chillaxed about massive changes. However well-motivated, disruptive change can be hugely traumatic for the people directly affected. Changing world. Continuing the theme of rapid change, this fascinating blog delves into why the Industrial Revolution happened in Britain. After all, Britain in 1550 was a global backwater – poorer and less densely populated than the low countries, and lacking the empires of Spain or Portugal, or world leading innovations. But a century later we were well on course for our world-leading phase. The author leaves why exactly for future posts, but in a related piece notes that after 1550 we got a lot more adventurous at seafaring – building trade networks and exploring the globe. The only surprising thing is that this Global Britain story hasn’t made its way into a government speech about Brexit yet. There’s still time Liz Truss…. Learning world. This week saw the awarding of the Nobel Prize for Economics to Esther Duflo (the youngest-ever winner and only the second woman to win), Abhijit Banerjee and Michael Kremer for their transformation of the field of development economics into one that uses field experiments to evaluate which interventions do and don’t work. It’s a great reminder for the public that economics is about far more than high finance and inevitably wrong forecasts. Here’s a summary of some of their work, a much-longer look at the contribution from – and limitations to – the winners’ use of randomised control trials, and a full-on attack on where this turn in development economics has taken us. Chart of the Week …Provides a moderately tongue in cheek reminder that having a clear goal in mind matters. For superstar marathon runners it can help achieve the seemingly impossible – like running one in under 2 hours. And, as the chart shows, other landmarks – more towards the 4 hour mark – heavily influence how fast us plebs run our marathons. Having a clear objective is very motivating, it turns out. And if you want additional proof look no further than Brexit. The ERG, who have known all along what they wanted (ie totally out of single market and customs union) have fought that minority view into being government and Conservative Party policy. Meanwhile, the DUP’s confusion over having no vision for reconciling their pro-Brexit position with their wish to avoid any divergence between Great Britain and Northern Ireland has left them in a massive hole.
