Douglas McWilliams, Mercers

1
Introduction The Greatest Ever Economic Change
Inaugural Professorial Lecture

• Douglas McWilliams, Mercers School Memorial
  Gresham Professor of Commerce
• September 2012

2
Objectives

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

3
Overview

• The theme of the lecture series
• Background my masters 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

4
My masters 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

5
Smaller East Asian economies share of world GDP
(using the Maddison measure)
Maddison Data Archive at the Groningen Growth and
Development Center at Groningen University
Asean plus Taiwan
6
Japan share of world GDP (using the Maddison
measure)
Maddison Data Archive at the Groningen Growth and
Development Center at Groningen University
7
Chinas share of world GDP (using the Maddison
measure)
Maddison Data Archive at the Groningen Growth and
Development Center at Groningen University
8
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

9
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

10
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
11
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
12
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

13
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
14
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
15
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
16
Our slower growth in the West is now translating
into less good health and life expectancy
Hong Kong Singapore United Kingdon
GDP per capita, 2012 estimate (1990 Geary-Khamis dollars) 34,874 30,918 22,555
Annual hours worked 2,287 2,307 1,625
Government spending as share of GDP 16.7 17.3 49.8
Top tax rate 15 20 50
Life expectancy 82.2 81.0 80.1
17
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 2013 6pm Gresham College
• The winning and losing nations Thursday 21 March
  2013 6pm Gresham College
• Also Sorting out transport in London Wednesday1
  May 2013 6pm Museum of London

18
World outlook for GDP for large economies
Billions of US dollars, current prices at market
exchange rates
19
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
  worlds 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

20
The Greatest Ever Economic Change

• Contact
• Douglas McWilliams, Mercers School Memorial
  Gresham Professor of Commerce
• and Chief Executive, Cebr
• dmcwilliams_at_cebr.com
• 020 7324 2850