Celebrate British decline

In: Uncategorized

24 Feb 2012

Is British decline, or that of the western world more generally, a bad thing? Many Britons would without hesitation say it is but the answer is not so straightforward.

After more than three tough economic years it is not surprising that pessimism is so strong. The chaos in the eurozone has unnerved many Europeans. But even in America, where some see tentative signs of recovery, the outlook is often viewed as grim.

Barack Obama is reportedly reading work by Robert Kagan, a senior fellow at the Brookings Institution in Washington DC, on “the myth of American decline”. Evidently the president wants to fortify himself with arguments to use against American pessimists.

To be sure such downbeat views are not entirely new. Back in 1918 a German historian, Oswald Spengler, created a huge stir with his work on The Decline of the West (Der Untergang des Abendlandes). But the economic crisis and eurozone turmoil have added new impetus to this sense of doom.

Before going along with the pessimists consider a comparison between two possible worlds. To make the argument simple assume it just consists of Britain (as a proxy for the West) and China (representing the emerging world).

World One:

Average income in Britain £20,000.

Average income in China £2,000.

World Two:

Average income in Britain £30,000.

Average income in China £15,000.

Compare the two worlds. In World One the average Briton is 10 times richer than the average Chinese. In World Two the average Briton is only twice as rich as the average Chinese.

However, although absolute living standards are higher for Britons in World Two, with an income of £30,000 compared with £20,000 in World One, it has experienced a relative decline. The gap between Britain and China is much narrower in World Two.

I cannot speak for everyone but given a choice between an annual income of £20,000 and one of £30,000 I would certainly chose the higher one. If the Chinese were becoming richer too then so much the better. Why would I want to begrudge others a higher standard of living?

Part of the problem with this discussion is that absolute and relative decline are often confused. It would certainly be bad news if living standards in Britain were falling – indeed that is exactly what seems to be happening. But if British incomes were rising, along with those in poor countries rising faster still, that should be welcome.

Indeed as the world gets richer it should be expected that, in relative terms, the West will decline. If people in poor countries move from travelling by bicycle to driving cars that represents a relative decline for the West. In that context it should be remembered that there were still an estimated 1.4 billion people in the world living on less than $1.25 a day according to the most recent estimates.

Understanding the difference between absolute and relative decline is essential to making a proper assessment of economic progress. Falling living standards in the West are certainly not welcome. The enrichment of billions of people in the poor countries, along with rising living standards in the West, should be a cause for celebration.

This is my latest blog post for fundweb.co.uk