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- Dubai 04:56 06:09 12:10 15:31 18:05 19:19
For a while it seemed as though we were about to enter a post-industrial age built on service economies – and financial services in particular. Areas such as the City of London and Wall Street would get rich on the rent from high-value financial transactions while the rest of us spent our way to prosperity.
As we now know, this brave new world has turned out to be a false dawn. Banks cannot "innovate" their way to prosperity and there is not a never-ending supply of credit to keep the rest of us in the comfort to which we have grown accustomed. So what does this mean for the future, and how will our economies look post-Great Recession? I discussed this question last week with Sir John Rose, the Chief Executive of Rolls Royce – the engine maker and one of the world's leading high-tech companies.
Sir John's views are beginning to resonate with the business world and with economists as we grapple with what society should look like in the 21st century. He pointed out that in countries like the UK (and Dubai for that matter) we receive high wages and need to be highly productive to justify that investment. But high wages and high productivity are not a birthright and we have to continue educating and innovating in order to stay an economic leap ahead of the competition. This is a theory that Thomas Friedman expanded on in The World is Flat, which warns that our children will not just be competing for future jobs with the other kids in their classes but also kids in China, India etc. They too want high paying jobs and may soon have the education and economic freedom to reach a level of productivity where they can demand it.
So, as a matter of urgency we need to ensure our children are leaving school or university with the right qualifications. After all, not all boys can grow up to be footballers and not all girls can be pop stars. More importantly, however, we need to recognise that industry has to be championed. This is obvious in countries such as the UAE but in the UK and, to a lesser extent, the US, this has been forgotten.
Thatcherism and Reaganomics taught that the markets should be left to decide what succeeded and what failed and if an industry could not compete, it should not be propped up. This is entirely correct (although apparently it doesn't apply to banks) but even the sturdiest plants need the right soil, the right light, the right amount of water – and the only way of ensuring the conditions are perfect is for governments to take an active interest in industry.
The UAE has been among the most forward-thinking in this regard. It has identified key industries that suit its location, resources and ambitions and it has created the conditions to allow them to flourish. From the $10 million [Dh36.7m] loan that allowed Emirates airline to get off the ground to free zones to infrastructure and investment funds that buy into key industries such as aerospace, the UAE has planted seeds that could bloom into spectacular flowers.
Politicians and economists in other parts of the world need to alter their priorities and drop the militant Thatcherism/ Reaganomics that have become unquestioned principles. In the UK, we could start by paying close attention to a document that was published last week by the Space Innovation and Growth team (IGT). The UK currently has a six per cent share of the global space industry, which is pretty good given that government has paid it virtually no attention. But space is a top-down industry that requires massive investment, often with no obvious or immediate gain.
My favourite example is the Global Positioning System (GPS), which was created by the US Air Force for military use but 20 years later spawned a hugely valuable navigation industry. The IGT believes that the UK could have 10 per cent of the global space market by 2030, worth about £40 billion [Dh230bn] a year to the economy. But that will only happen if the government creates an environment for the private sector to flourish – and that can only be achieved through investment in space projects.
The irony of this new world order is that most people had assumed central planning had been killed off with the Soviet Union. In reality, we need it more than ever if companies such as Rolls Royce or industries such as space are to thrive. What is ultimately required is political balance: government must provide the catalyst that allows companies to prosper without stifling them with too much control. That must be our manifesto for the future.
- The writer is business correspondent of the Times of London
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