Expert Zone

What ails the UK and western economies

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The industrial revolution which missed India eventually resulted in this once developed and rich country being placed on the receiving end of a ruthless colonial enterprise.

Those engaged in indigenous trade and crafts were coerced into producing primary goods for export at prices convenient to the United Kingdom.

Thanks to newly found mechanised facilities, their industries were now capable of producing far more and better finished products than the artisans in India. These value-added goods were then dumped in India and other markets of the vast British Empire.

England enriched itself substantially because without input cost escalations and those associated with overcoming hurdles to market entry, its industry never really faced the challenges of a normal business environment.

Such undisputed control on the sea routes, the sources of raw material and also the end market could ensure that inflation and margins never really mattered in their scheme of things.

The vast profits generated in these colonies found their way back into the UK, transforming it into possibly one of the richest economies in the world. Obviously, its navy and armed forces gained the prowess to aggressively push forth with its colonial agenda to perpetuate its usurious economy.

U.S. vs China: which economy is bigger, better?

(The views expressed in this column are the author’s own and do not represent those of Reuters)

One of the most surprising developments resulting from the financial crisis is the belief among ordinary Americans that China has become the world’s leading economy. This view appeared in the roughest times of 2009 and has persisted even though the impact of the crisis has begun to ebb. U.S. media have frequently conveyed the same belief. But it is patently absurd.

The principal reason for Americans’ dismay is jobs: Official U.S. unemployment breached 9 percent during the past two years. It is even higher when counting those who have stopped looking for jobs, yet would work if they could. In contrast, Beijing issues an urban unemployment figure below 4.5 percent, but this includes only those officially recognised and no one, including officials at the Ministry of Human Resources and Social Security, believes it is accurate.

The state-controlled Chinese Academy of Social Sciences placed urban unemployment at 9.4 percent before the full impact of the financial crisis was felt. The PRC’s rural unemployment has long exceeded 20 percent. True Chinese unemployment is certainly higher than true American unemployment, and, depending on how unemployment is measured, could be much higher.

The contest in income, meanwhile, is utterly unequal. American Gross Domestic Product (GDP) in 2009 was nearly $15 trillion, while China’s was $5 trillion, despite a population more than four times as large. The average American had $48,000 in 2009 income, the average Chinese had less than $4,000. Both of these gaps narrowed in 2010, as they have almost every year in the past 30, but they remained huge.

It is true that many consumer goods are cheaper in China, some much cheaper. Economists try to formalise different prices in different countries by checking the purchasing power of the same amount of money. The idea is that the same amount of money should buy the same good or service everywhere. When it does not, because one country has far lower prices than another, for instance, it can be useful to compare incomes using differences in prices. The difference in prices is called purchasing power parity (PPP). PPP recognises that earning $50,000 a year in London is very different from earning $50,000 a year in Luanda, Angola. But PPP is often not very accurate.