© Centre for Economics and Business Research ltd Douglas McWilliams, Mercers’ School Memorial Gresham Professor of Commerce September 2012 Introduction: The Greatest Ever Economic Change Inaugural Professorial Lecture

Objectives To introduce my Gresham lecture series and show how the industrialisation of the emerging economies compares with other previous major economic changes

Overview The theme of the lecture series Background – my master’s thesis on the first two electronics plants in the Kuala Lumpur area Growth in the smaller emerging economies of East Asia Japan – the outlier Comparison with the so-called discovery of the Americas Comparison with the industrial revolution Sneak preview of key points from the next 5 lectures

My master’s thesis 1973 First two electronics plants in the Kuala Lumpur area Texas Instruments and Motorola Set in export duty free zones 60% of local expenditure was net social gain to the Malaysian economy using World Bank criteria for cost benefit analysis Payoff periods 10 and 12 months respectively MY CONCLUSION WAS THAT THERE WOULD BE MUCH MORE OF THIS SORT OF INVESTMENT

Smaller East Asian economies* share of world GDP (using the Maddison measure) * Asean plus Taiwan Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

Japan share of world GDP (using the Maddison measure) Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

China’s share of world GDP (using the Maddison measure) Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

The greatest ever economic change? Criteria Impact on world GDP growth Impact on GDP per capita Impact on changing economic advantage Impact on pressure on natural resources

The ‘discovery’ of the Americas Columbus sailed in 1492 Massive movement of population, mainly from Europe Importation of many new plants and substances to Europe Genocide and conquest of indigenous peoples Impact of extraction of precious metals, especially silver

World GDP from year 1 to 1820 Millions of Geary-Khamis 1990 dollars Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

World GDP per capita from year 1 to 1820 Dollars per head (Geary-Khamis 1990 dollars) Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

The industrial revolution A range of technological changes affecting a wide range of industries with mechanisation as a common theme Affecting agriculture, mining, transport as well as various forms of manufacturing Combined with political, economic and legal changes – rule of law, joint stock companies with limited liabilities, capitalism and trade, representative government tending towards democracy and a range of social changes aimed at ameliorating the position of less privileged people in the industrialising economies Often called ‘The Great Transformation’

World GDP from year 1 to 1913 Millions of Geary-Khamis 1990 dollars Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

Western European GDP per capita from year 1 to 1913 Dollars per head (Geary-Khamis 1990 dollars) Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

Rates of world economic growth since 1900 Millions of Geary-Khamis 1990 dollars Maddison Data Archive at the Groningen Growth and Development Center at Groningen University

Our slower growth in the West is now translating into less good health and life expectancy Hong KongSingaporeUnited Kingdon GDP per capita, 2012 estimate (1990 Geary- Khamis dollars) 34,87430,91822,555 Annual hours worked 2,2872,3071,625 Government spending as share of GDP Top tax rate15%20%50% Life expectancy

The next 5 lectures this academic year Is growth in the emerging economies additional or will we grow more slowly? – with Thras Moraitis and Michael McWilliams Thursday Oct 15, 2012, 6pm Gresham College A new theory of economic growth – with Cebr colleagues Thursday Nov 13, 2012, 6pm Gresham College How to make Western economies more competitive Thursday 24 January 2013, 6pm Gresham College Will there be a shortage of spending power (a modern reinterpretation of Keynes)? Thursday 28 February pm Gresham College The winning and losing nations Thursday 21 March pm Gresham College Also ‘Sorting out transport in London’ Wednesday1 May pm Museum of London

World outlook for GDP for large economies Billions of US dollars, current prices at market exchange rates

Conclusion By a range of measures, the industrialisation of the emerging economies justifies the title ‘the greatest ever economic event’ Even though growth is likely to slow sharply in China, rising relative prices and a rising exchange rate mean that it will become the world’s largest economy in the 2020s But rising population and a likely acceleration of economic growth when its current troubles are over mean that India should eventually overtake China around 2050 One can get a glimpse of how the emerging economies will behave when they get richer by looking at Singapore and Hong Kong These examples show the cost to the UK from maintaining the anti-business, tax and spend approach – which has moved from affecting our relative wealth to affecting our health as well If the UK does not reform its attitude to growth, to stop treating it as an optional extra, then we will go down the same route as Greece, if a bit more gently

© Centre for Economics and Business Research ltd Contact: Douglas McWilliams, Mercers’ School Memorial Gresham Professor of Commerce and Chief Executive, Cebr The Greatest Ever Economic Change