All entries for Thursday 11 September 2014
September 11, 2014
Summary: On a restricted definition of "the world" (limiting it to our neighbours of similar size in northwestern Europe), British growth is best in the world since ... well, since 2012. This shouldn't count for much. More importantly, and perhaps surprisingly, British growth is also best in "the world" since the 1970s. To go on to a more tendentious point, the economy of the United Kingdom appears to be benefiting still from the relative growth advantage that it gained in the Margaret Thatcher years. I thought I'd mention this while the UK still exists.
Here's the full argument, with evidence. To start with, just how well is the UK economy doing at the moment? Here are the top three results of a Google search on "British growth best in world":
- Top of the world: UK economy winning global growth race (The Telegraph, 15 August 2014)
- UK economy now best in the world as new figures show (The Daily Mail, 15 August 2014)>
- Britain will be best performing of the world's largest economies in 2014 (The Guardian, 8 April 2014)
These have been recent headlines, but anyone with a little knowledge of recent economic history knows it's not so simple. The UK economy is growing fast, in part, because it is making a belated recovery from its deepest postwar recession, which began in 2008. In the crisis, the UK economy went down hard. As the crisis wore on the economy continued to perform dismally, with recovery continually postponed. In that setting, Britain's current rapid growth is no more than partial compensation for its underperformance earlier in the recession.
In other words, how well the British economy is performing today depends critically on when you start the clock. If you start it from yesterday, the British economy looks great. If you start from a few years back, its performance looks unimpressive at best.
How far back should you go? While the previous peak, in 2007, is a natural reference point, it is still only a few years ago. As an economic historian I'd prefer to take a longer view. How well is the British economy doing today, relative to other countries, if we shift the starting point still further back into the past? This is an easy thing to do, and it produces some surprises.
Here's what I did: I found figures for the real GDP of the United Kingdom and of five European neighbours, per head of the population. These neighbours are Belgium, France, Germany, Italy, and Netherlands. I chose these because they are not only nearby, but also because they are important trading partners, comparable to the UK in both income levels and economic size. The result is a small sample, but this is just a blog and I want to make a simple point. Anyone can repeat the exercise with more countries and then you will naturally find a more nuanced story. I looked at each country's growth rate comparing 2013 with every previous year: 2012, 2011, 2010, and so on, back to 1950. Germany is in the data, but only back to 1990, because before that it was two countries, and you cannot easily compare Germany today with West Germany in, say, 1970 or 1950. Finally, I worked out Britain's rank among the six countries (five before 1990) based on its growth rate up to 2013, starting from every one of the preceding years.
The chart below shows the result. It plots Britain's rank compared with our European benchmark competitors, based on growth rates of average incomes up to 2013, and it shows how that rank depends on the year you start from. In other words it answers the question: British growth is best in "the world" -- since when?
Source: Data for real GDP per head of the population in international (Geary-Khamis) dollars and 1990 prices are from The Conference Board Total Economy Database,January 2014,
Each data point is the UK's relative position among five or six West European countries, based on the increase in real GDP per head in 2013 over its level in the base year shown. Countries are Belgium, France, Germany (from 1990, the year of East and West German reunification), Italy, Netherlands, and the United Kingdom. Because Germany is counted only from 1990, there are six countries from the present to 1990 (red squares), but only five before that year (blue squares).
Here's how to read the chart. As of 2013, Britain's growth is best in "the world" (OK, the little world of our Western European neighbourhood) since ... well, since 2012. But there is more! As of 2013, Britain's growth is also best in "the world" since 1995, 1994, ... and since every previous year right back to 1970. Now I'll discuss this in more detail.
If you measure Britain's growth over the last twelve months that are shown, from 2012 to 2013 Britain's performance was the best of the six countries. So, the red square on the far left puts Britain in first place out of six. For those who prefer numbers, here they are (and they remind us that economic recovery has been pretty anaemic everywhere):
- United Kingdom 0.8% growth of GDP/head, 2012 to 2013
- Germany 0.6%
- Belgium 0.0%
- France -0.3%
- Netherlands -0.9%
- Italy -1.1%
The chart also shows how Britain's relative position collapses as we move the starting point back to the beginning of the global crisis. Thus, the red squares to the right of 2012 and back to 2007 fall back to the second, third, and fourth ranks. If we start the growth story on the eve of the Great Recession, British growth to the present is nearly worst in "the world," ranked fifth (out of six):
- Germany 1.1% average annual growth of GDP/head, 2007 to 2013
- Belgium 0.3%
- France -0.5%
- Netherlands -0.8%
- United Kingdom -1.1%
- Italy -2.2%
Now for a surprise. As you take the starting point further back into the twentieth century, Britain's relative performance starts to look better and better. The red and then blue squares reflect this by rising back up to show Britain recovering to fourth, third, and second place, and eventally back to first place. If, for example, you wind the clock right back to 1979, the year that Margaret Thatcher took office, then British growth from that year to the present is faster than of any of the other European economies in the sample (which now excludes Germany). Here are the figures:
- United Kingdom 1.9% average annual growth of GDP/head, 1979 to 2013
- Belgium 1.7%
- Netherlands 1.5%
- France 1.2%
- Italy 1.0%
Note: Britain's relative growth advantage is seen for a whole run of starting points, beginning in 1995 and ending in 1970. This does not mean that the turnaround in Britain's fortunes began in 1970, for in the 1970s British economic performance remained relatively poor. The turnaround began in the 1980s under Margaret Thatcher. At that time Britain began to grow faster, just as our European neighbours decelerated. The way our chart looks at things, however, the benefits of that turnaround cast a beneficial "shadow" back onto earlier years, considered as starting points for the measurement of growth.
Finally, you can push the starting point right back into the 1960s and 1950s, but eventually relatively slow British growth in the so-called Golden Age of Brettton Woods takes its toll, so that Britain's ranking slips back down again to the bottom. Here are the last figures:
- Italy 2.7% average annual growth of GDP/head, 1950 to 2013
- Belgium 2.4%
- France 2.3%
- Netherlands 2.2%
- United Kingdom 2.0%
Note: There's a surprise here for Italians. In almost all these estimates Italian growth has been worst in "the world"; notoriously, Italian incomes have marked time over the last 20 years. The surprise is that if you measure growth since 1950, Italian performance shows up as best in "the world"! That's the legacy of a postwar economic miracle: Italian incomes tripled in just two decades from 1950 to 1970.
Here's my bottom line. Just how good is British economic performance today? The answer depends critically on "Since when?"
- The British economy has done relatively well since 2011, outpacing our nearest European competitors. But this is no surprise, because British economic performance was so spectacularly poor in earlier years of the Great Recession.
- The British economy has done relatively well since the 1970s, and this deserves greater recognition. Even today, despite the dismal experience of the Great Recession, the British economy continues to benefit from its reversal of fortunes under Margaret Thatcher.