What drives economic prosperity

Commentators are currently lining up to bestow catchy names on the Philippine economy such as “star performer” and “tiger.” Not so long ago, it was more common to hear negative descriptions such as “the sick man of Asia.” Sentiment and “brand” matter enormously. With the death of Lady Thatcher, the global media has been looking back on a period in the 1970s when commentators liked to portray the United Kingdom as the “sick man of Europe” — nobody claims commentators need be original. How that changed, the policy decisions taken, and how long some perceptions take to shift can perhaps be seen best through the automotive sector in the UK.

The 1970s brought about two major international challenges for the automobile sector in the UK; the oil crisis and increasing competition from abroad, and the self inflicted problem of poor labour relations, strikes and products that were no longer globally competitive. Many started to doubt if the automotive industry would be able to recover. So what changed?

Many at the time called for increased tariffs and protectionism of the home market. Others wanted government subsidies. While politically appealing, they could only ever be short term fixes. Amongst the most visible changes was the amount of inward investment in the sector. A mostly British sector previously, along with some of the big US manufacturers like Ford and General Motors, was changed forever via investment from Toyota, Nissan, Honda and others. As well as new cars, came new working practices, many alien to the UK at the time but now standard.

Many of the British brands from the 1970s continue to thrive including Aston Martin, Rolls-Royce, Jaguar Land Rover, Mini and others. But they too have changed in dramatic ways. Mini is now owned by BMW of Germany. Jaguar Land Rover is owned in India. Some people may think this must be bad for the British economy. The facts tell a different story. In total, more than one million vehicles and 2.5 million engines are produced in the UK each year, 75% of which is exported. The industry supports a thriving R&D base and this, in part, explains why two-thirds of F1 motor racing teams are based in the UK. The industry as a whole generates around $45 billion each year while exporting to over 100 markets.

Perceptions haven’t yet caught up with reality. Most people I speak to are surprised that we still make any cars in the UK. They are even more surprised when I say that the UK now produces more cars than at any time in its history and even exports to Japan. In the Philippines, I hope this perception will start to change as Bentley and Rolls Royce are in the process of joining Jaguar Land Rover and Mini with sales operations in Manila.

But perhaps the most important lessons are in terms of understanding the global economy. BP is closely associated with the UK. However, it is a public company and over 40% of its shares are owned in the US. Boeing is synonymous with the US yet its supply chain is global, including in the UK. Honda, Nissan and Toyota are as Japanese as Saki, yet British workers help them produce nearly 500,000 cars a year. 10% of the Philippines’ GDP originates from OFWs and more from BPOs. It is anyone’s guess what high growth economies will be badged as in 10 years time. But learning from others and being firmly embedded in the global trade and investment flows will be essential for anyone wanting to avoid dreaded “sick man” analogy.

(Stephen Lillie is the British Ambassador to the Philippines)