Emerging Economies

John Bercow Excerpts

Monday 14th June 2010 Commons Chamber

[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.

[John Howell]

I thank the hon. Gentleman for his comments. Clearly, British industry still has a big role to play in emerging markets, but we need to be realistic about in which markets it can play that role, what assistance is needed and what size companies can play in which markets.

The dilemma that I was discussing draws out the frequency with which developed countries depend on legal agreements, big contracts and lawyers, and how relationships tend to get ignored. Emerging markets, however, depend more on the relationships that are built up; the handshake comes first, rather than the contract—hence the amount of time required to develop business in them. That is important not only for foreign direct investment or the export trade but for capital markets and understanding the role of supervisory regimes—the structure of those market institutions and how the regimes are approached. The point is also a crucial piece of understanding about how such countries will perform in international forums. One thinks immediately of the expectation of honouring OECD template agreements, which are the lowest common denominator but often do not fit within the cultures of the countries that we are talking about.

I respectfully suggest to Ministers that the issue also appears in diplomacy. When I was leading a delegation of British business to a G7 meeting, I remember being able, because I had the benefit of such an understanding of cultures, to get the Hungarians and French on side with us Brits to overturn an American proposal for Russia to simplify bureaucracy by introducing a new ministry. The proposal was quickly defeated; the Hungarians got on board and the French commented that they had never previously recognised that a Brit could understand la psychologie.

That provides a link to another issue as well. Part of the reason why some emerging markets never fully emerge is their lack of understanding of the fact that economics and politics cannot be separated. It is difficult to find an emerging economy that is not also an emerging or problematic political system. Russia is the principal example of that—bedevilled by an incomplete set of reforms that left politics behind economics.

The know-how fund was one of the institutions set up by the previous Conservative Government, who appreciated that market economics needed to go hand in hand with democracy. Their well placed £100 million or so laid the ground for much of eastern Europe to come into the European Union. The know-how fund was aimed not at Governments but at providing assistance to NGOs to build capacity on the ground. That is still a good approach. Sadly, however, the know-how fund was not allowed to finish its work in Russia.

The shadow Minister, the hon. Member for Rhondda (Chris Bryant), took the biscuit when he complained about the position in which Russia was left, given that it was his Government who abandoned the know-how fund, turning it over to the European Union as part of a multilateral package. They also abandoned the east European trade council and the British Association for Central and Eastern Europe. In a debate in 2008, the hon. Member for Birmingham, Edgbaston (Ms Stuart) pointed out that since 1991 BACEE, a small organisation with a minuscule grant in aid from the Foreign Office, had had more than 5,000 politicians, civil servants, judges, journalists and business people from countries of central and eastern Europe participating in its programmes as alumni. That is the way to build up understanding of the politics in emerging market countries.

Unfortunately, when the know-how fund was delivered to the European Union, chaos resulted, with companies turning up in countries to be told that the same contract had been let twice. We also had the ridiculous situation of trying to bring into emerging markets in central and eastern Europe an Italian system of accounting, a French system of law, and an English system of stock exchange. It is no wonder that some of these emerging markets failed to emerge fully during the course of their transition.

Over the years, the role of UK Trade & Investment in this field has swung between a focus on geography and a focus on sectors. During that time, I have had a role in swinging it towards sectors, but I appreciate that it swings back again. An emphasis on sectors is fine provided that one recognises that some markets require more hand-holding than others. I praise UKTI for its services, which have been excellent.

As regards the transition in future, we will need to see markets as separate countries. The acronym, BRIC—Brazil, Russia, India and China—makes no sense in terms of relationships, just as a massive grouping. The transition should be acknowledged both in business and in aid. As regards aid, we must recognise that while there is a move away from providing aid to countries such as India, China and Russia, which I welcome, there is a difference between providing aid and technical assistance. Even after one has moved beyond the trade part, there is still a need to recognise that many of those countries still do not have fully developed local democratic institutions, civil society groups, media or, indeed, enterprise that is fully reflective of a market economy and democracy. I urge Ministers to look carefully at that to ensure that we do not throw the baby out with the bathwater but continue the process, looking back at the mistake that was made in relation to Russia, where, if we had continued our focus, we could have done a lot more to ensure that there was the continuity needed to bring that economy fully out of its emerging status to play its full role in the world.

--- Later in debate ---

[Kwasi Kwarteng]

With respect, I am talking about the emerging economies, and the point about education is central to the debate. If the country is to improve and compete with other countries, we need much more rigour and discipline. That was palpably lacking in the Labour Government’s actions in the past 13 years.

We must approach the problem much more broadly. Britain was so successful in the past because we had a thriving economy. The industrial revolution powered Britain’s ascent to world dominance in many ways. Leaving a country economically crippled is the worst thing that we can do to our standing abroad. We must tackle our domestic economic situation before we can even begin to try to compete with emerging economies. I just wanted to put those broad points on the record, and to say that Labour failure has once again damaged—

[Mr Speaker]

Order. We are grateful to the hon. Gentleman. With the leave of the House, I call the Minister, Mr Henry Bellingham.