Emerging Economies

Debate between John Howell and Gordon Birtwistle

Monday 14th June 2010 Commons Chamber

[John Howell (Henley) (Con)]

Let me start by thanking all the hon. Members who made maiden speeches tonight. I suspect that when I came into the House after a by-election colleagues breathed a sigh of relief at the fact that they had only one maiden speech to concentrate on. Tonight we have had three, but they have been three excellent speeches. I particularly welcome a fellow central and east European cold warrior to the Conservative Benches, particularly in the context of this debate.

It is nice, too, to return to a subject that I left professionally almost a decade ago, when I was the author of the Ernst and Young emerging markets reports. It was a monthly attempt to score key markets for attractiveness, principally from the point of view of foreign direct investment. The big emerging markets of the day were in eastern Europe, which seem still to be the big emerging markets of today, as if nothing had happened. Many are still on the list, despite being members of the European Union. Then, as now, the big enigma was the role of Russia.

In the intervening decade there seems to have been in the field a long march of taxonomists, who have sought to subdivide emerging markets almost ad infinitum. The Financial Times divides them into advanced and secondary emerging markets, based on national income. Morgan Stanley divides them into developed, emerging and what it calls frontier markets. There is a core group of markets on which everyone agrees, with a few others, such as Saudi Arabia, around the edges.

I am not sure that such taxonomy is of any use. What we are still dealing with are industrialising countries with large growth and large potential, accompanied by equally large risk and insecurity. Most of that taxonomy, anyway, is capital markets-driven, but a very different picture often emerges if one looks at those economies not as capital markets, but as markets for foreign direct investment or for export. Indeed, when for a brief while I presented business programmes for BBC World Service television, I visited more emerging countries’ stock exchanges than I care to remember. Undoubtedly the smallest but one of the most enthusiastic was that in Mongolia, but we should remember that the Mongolian stock exchange is not there to generate capital for its companies; it is there as a social device for the equitable distribution of newly privatised assets, most of those by means of mass or voucher privatisation, which the UK has sponsored. Inevitably, those are high-risk procedures, but experienced capital-market players can largely cope with such risks.

A good question is how we define the difference between emerging economies and emerging markets. We are talking about the attractiveness of such economies in business terms, with their export-led focus, use of agents, joint ventures and, indeed, direct investments. In my time as a partner at Ernst and Young, I helped many small and medium-sized enterprises into emerging markets, but we have to be realistic, because one of the biggest constraints on them is the amount of time involved in entering such markets.

Sadly, the majority of SMEs that came to me for advice came when they were on their last legs in the UK—their markets having disappeared for one reason or another—and they wanted an emerging market and an emerging economy as a means of getting them out of their problems. I am not saying that that cannot be done; it can. The company that I set up with a business partner did so, but it meant that one of us was always on the road, particularly as our first major project was to produce what I can only describe as a pop video of Manmohan Singh, to be shown at an international conference. It was incredibly difficult, because the essential humility of the man meant that his character did not fit into the pop video class. The business meant having to be away for quite a long time and, in a business with two principals, one can imagine the difficulties that arose.

We need to take a balanced view of individual countries, and to make an assessment that some will need more help than others and more encouragement from Government if they are to export. There is a lot of talk about the emerging economies that are in fashion today and out of fashion tomorrow, but not all of that is based on the objective, analytical criteria of companies such as Morgan Stanley; much of it is based on gut feeling.

We spoke earlier about one barrier being the difficulty of language, but one that is frequently overlooked is the difficulty of culture. I remember how, at an INSEAD seminar, the most distinguished cultural scientist on the matter, Fons Trompenaars, put forward his view on cultures and how that can help people assess them and do business. His view is based on a number of individual dilemmas that he put to about 15,000 people throughout the world.

The most famous is known as the dilemma of the car and the pedestrian. Essentially, we are in a car driven by a friend who exceeds the speed limit and knocks down a pedestrian. On the question of the driver’s expectation that we will lie for him, the worst place in the world, according to Fons Trompenaars, is Canada, where 96% of people would shop their friends to the police. Emerging markets, however, are some of the best places to have friends: in South Korea, 26% would shop their friends; in Russia, 42% would; and in China, the figure is 48%.

Those responses should not be taken literally, but they are indicative of how much obligations to the state outweigh obligations to individuals. [Interruption.] The Minister of State, Foreign and Commonwealth Office, the hon. Member for Taunton Deane (Mr Browne) laughs, but Britons figure at 90% on that scale, so the UK is not too good for friendship. Interestingly, however, those questioned in the UK asked how seriously the pedestrian was hurt. If they were more seriously hurt, there was more of an obligation to the state than to the individual. One has only to cross the channel to obtain completely the opposite result, where the more the pedestrian is hurt, the more the driver obtains our assistance in lying, because their punishment would be more severe. That may seem academic, but I recommend the work of Fons Trompenaars to hon. Members; it provides a useful, pragmatic framework for considering emerging markets. For example, it draws out the frequency with which developed countries depend on legal agreements and big contracts.

[Gordon Birtwistle]

My concern, which the hon. Gentleman may well be able to answer, is about the fact that the emerging markets have now taken away our heavy industry—shipbuilding, steel and things of that nature. How do you see this country fighting back against the emerging markets, with jobs of the future? I accept that we have advanced engineering in aerospace and other such sectors, but many residents of the country do not have the skills to be involved in that type of industry. How do you see the UK fighting back against the emerging markets in respect of less skilled jobs?

[Mr Speaker]

Order. I gently point out to the hon. Gentleman that I do not see anything, although I think that the hon. Member for Henley (John Howell) will.