Robert Peston’s BBC programme on the economic crisis highlighted an interesting difference in behaviour between the Chinese, and the British and Americans.
The Chinese save around half of their salary – even though those salaries about 10% of Western equivalents.
The West (US and UK particularly) save hardly anything – instead we prefer to borrow and buy what we want when we want it. The availability of easy credit has changed our behaviour over the years. I would also suggest that the Welfare State (in the UK at least) has given people a false sense of financial security. If you fall, the safety net will be there to catch you.
Having studied Max Weber at University and been fascinated by his association of the rise of capitalism with Protestant ethics, it seems strange that we have forgotten the lesson that deferred gratification is sound economics. Individuals and nations have binged on easy credit and have become addicted to it.
The Chinese are rapidly becoming the world’s creditor. China’s strength, influence and power show no signs of waning. What future for the West if we can’t get through the current crisis?
What behaviours must we change to help us get off our addiction to instant gratification?
Firstly, I think the Welfare State needs serious reform. It creates a culture of Learned Helplessness. Given the demographic and obesity issues we’re facing it makes one wonder how we will cope with increased costs in a flatlining economy. We could always borrow more…no wait, that’s what got us here in the first place.
Next, we need a greater incentive to save rather than to spend. The UK has come to rely on the consumer as an engine of economic activity. The trouble is, most consumer products are made outside of the UK. Politicians have pandered to this, recognising that consumerism is a barometer of electorate feelgood. We are happier when we have cash in our pocket and we’re spending it freely. Interesting that David Cameron (the UK Prime Minister) has been trailing low interest rates as an economic benefit to the electorate. They are more beneficial to borrowers than to savers. OK, business has to borrow to finance growth. But the problem there is lack of credit, not the cost of it.
Next, we need to reduce the UK’s reliance on financial services and the City of London. One commentator on Peston’s programme said that if the City of London was to be the equivalent proportion to the UK economy as Wall Street is to the US economy, then it would be one-eighth the size. We need to start making things again. And politicians need to create the conditions for a manufacturing renaissance. If the special pleading about the City of London at last week’s Euro summit was not evidence that the UK economy is dangerously lopsided then I don’t know what else will make our politicians recognise that we are too reliant on the City.
Another BBC programme last night showed children in a Primary School learning Chinese – the head teacher basically said there was no point learning a European language because Europe was in decline and future opportunities would be elsewhere. I fear she will be proved right.