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The world's fifth biggest economy

A "fact" often used by the LEAVE campaign to indicate the UK's apparent position/strength in the world is that it is the fifth largest economy in the world. All indicators appear to show that this is true. But the questions I ask myself are:

Wasn't the UK the largest economy in the world at one time?

If we are declining in the world ranking how fast is that decline, and what is our ultimate position?

There's a Wikipedia page that helps us out when establishing the initial facts

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

You'll see that the UK is consistently fifth, but also, in the rankings that show the EU as a whole the EU is vying with the USA for the top slot.

So, is there any data that shows the historical position? I found this wikipedia page that shows data back to 1990 - which must be wrong because it is at odds with the page referenced above (shows the UK in 10th position):

https://en.wikipedia.org/wiki/World_Bank_historical_list_of_ten_largest_countries_by_GDP

This page shows the UK historically between third and eighth place - essentially a decline since 1950:

https://en.wikipedia.org/wiki/Angus_Maddison_statistics_of_the_ten_largest_economies_by_GDP_(PPP)

It also projects that the UK will be in 7th place by 2030.

This article in The Atlantic suggests reasons for this change, and the likely long-term position (make sure to read parts II and III):

http://www.theatlantic.com/business/archive/2012/06/the-economic-history-of-the-last-2-000-years-in-1-little-graph/258676/

I think that it is essentially saying that global economic position is linked to population size, and the development of technology. As technology spreads to less developed economies the balance shifts to populations size. That is, the UK has had a distinct advantage in being at the centre of the industrial revolution, that has enabled it to grow well beyond its rank in population - but that advantage is lost as technology spreads elsewhere. This can be seen most clearly in the growth of China over the past 20 years.

If this premise is true (and I think it is hard to argue that the size each state's economy is not a factor of population - given that all those states ranked above the UK have larger populations), what is the UK's eventual position (if the technology advantage largely disappears)?

Well, again, Wikipedia can give us the answer:

https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population

The UK is placed 22nd in this table. I think that is realistically our global economic ranking in the future - how long it takes to get there is another debate, perhaps 50 years, perhaps 100. But how long to get to tenth, or 15th - 15-20 years? Perhaps 30?

Look at another "fact", the EU's population is 508 million, in the table referenced above that would place it third overall (even without the UK it would be 440 million, still well above the USA). Doesn't "biggest combined economy in the world" (the EU) for the next 10 years or so sound pretty good? Or "third largest combined economy" (the EU) if rankings are tied to population? Sounds a lot better to me than "22nd largest economy".

(edited 7 years ago)

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Reply 1

ODES_PDES

Original post by typonaut

A "fact" often used by the LEAVE campaign to indicate the UK's apparent position/strength in the world is that it is the fifth largest economy in the world. All indicators appear to show that this is true. But the questions I ask myself are:

Wasn't the UK the largest economy in the world at one time?

If we are declining in the world ranking how fast is that decline, and what is our ultimate position?

There's a Wikipedia page that helps us out when establishing the initial facts

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

You'll see that the UK is consistently fifth, but also, in the rankings that show the EU as a whole the EU is vying with the USA for the top slot.

So, is there any data that shows the historical position? I found this wikipedia page that shows data back to 1990 - which must be wrong because it is at odds with the page referenced above (shows the UK in 10th position):

https://en.wikipedia.org/wiki/World_Bank_historical_list_of_ten_largest_countries_by_GDP

This page shows the UK historically between third and eighth place - essentially a decline since 1950:

https://en.wikipedia.org/wiki/Angus_Maddison_statistics_of_the_ten_largest_economies_by_GDP_(PPP)

It also projects that the UK will be in 7th place by 2030.

This article in The Atlantic suggests reasons for this change, and the likely long-term position (make sure to read parts II and III):

http://www.theatlantic.com/business/archive/2012/06/the-economic-history-of-the-last-2-000-years-in-1-little-graph/258676/

I think that it is essentially saying that global economic position is linked to population size, and the development of technology. As technology spreads to less developed economies the balance shifts to populations size. That is, the UK has had a distinct advantage in being at the centre of the industrial revolution, that has enabled it to grow well beyond its rank in population - but that advantage is lost as technology spreads elsewhere. This can be seen most clearly in the growth of China over h past 20 years.

If this premise is true (and I think it is hard to argue that the size each state's economy is not a factor of population - given that all those states ranked above the UK have larger populations), what is the UK's eventual position (if the technology advantage largely disappears)?

Well, again, Wikipedia can give us the answer:

https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population

The UK is place 22nd in this table. I think that is realistically our global economic ranking in the future - how long it takes to get there is another debate, perhaps 50 years, perhaps 100. But how long to get to tenth, or 15th - 15-20 years? Perhaps 30?

Look at another "fact", the EU's population is 508 million, in the table referenced above that would place it third overall (even without the UK it would be 440 million, still well above the USA). Doesn't "biggest combined economy in the world" (the EU) for the next 10 years or so sound pretty good? Or "third largest combined economy" (the EU) if rankings are tied to population? Sounds a lot better to me than "22nd largest economy".

Some very good points.
Good research

Reply 2

typonaut

A possible drop in position is almost imminent: if the value of the pound maintains its position after the referendum then the UK will almost certainly drop a place or two.

Reply 3

username1204031

Original post by ODES_PDES

Some very good points.
Good research

It's all lies. Obviously OP gets his salary from the EU!

On a serious note, I've never understood why "we're the 5th biggest economy in the world" is a reason for leaving the #1 biggest economy in the world.

(edited 7 years ago)

Apple?

Original post by JordanL_

On a serious note, I've never understood why "we're the 5th biggest economy in the world" is a reason for leaving the #1 biggest economy in the world.

I suppose it's a bit of a leap for most people to understand that they are part of the single market, and that is (probably) the largest combined economy in the world. I don't suppose the LEAVE campaign want to really add that bit in to their sloganeering though.

One thing I forgot to mention above, as well as technology, the UK (along with other European powers) benefitted from the natural resources of its empire - which is something we clearly cannot continue with (no matter how many old dears go on about how "great" we used to be, and how we will be once more - yes Michael Gove, I mean you!).

Stunned to see what an uncontentious thread this turned out to be.

(edited 7 years ago)

Reply 6

Drewski

For all those making the point about the 500m in the EU, what about the 2.6b in the commonwealth, of which we're the lead?
What about the fact that even if we lost the market of 500m consumers in the EU, by making a single trade agreement with India - who again, just happen to be a commonwealth country - we'd have 1.6b consumers?

Why are these points irrelevant?

Reply 7

typonaut

Original post by Drewski

They sound like grand numbers don't they? If you didn't really think about it too much you'd be taken in by those numbers alone. Let's go even larger - let's do trade deals with the whole of the rest of the world and leave out the EU. 6.5bn customers right there.

Here's the reason that argument doesn't really make any sense (BTW, India's population is under 1.3bn, see the table here: https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population):

India's entire economy is around USD:2.0 trillion. Compare that to the UK's USD:2.9tn, or the combined EU's USD:17.0tn. You really want to favour an Indian market of USD:2.0tn over that of the rest of the EU's USD:14.1tn? Sure, you get a lot more potential customers, but even combined they don't have much spending power.

In addition, India is quite a protectionist economy. Recently I followed some stories about Apple wanting to sell "reconditioned" iPhones to India - because the market won't support any kind of volume for new iPhones - but the Indian government wouldn't allow them to do that. Apple also wanted to open it's own branded stores in India - but was blocked from doing so because there was a stipulation that these stores had to carry at least 30% locally produced items. I think they relented a little on this, agreeing in the end to let Apple have stores for two years, and then apply the 30% local goods rule. If you think we're going to sell top-end pharmaceuticals to India, think again, the country is allowed, under WTO rules, to create generic copies. The list of these things goes on.

The scenario is similar with China - take a look at the literally dozens of UK companies that have tried to get into the Chinese market, with local partnerships made compulsory. They have all ended up pulling out of China because they can't make it work under the conditions imposed upon them.

You want to do deals with the rest of the world and hitch our economy to theirs? Here's the bad news (more or less as above): if you add together the economies of the EU, the remainder of the G7, Russia and China you get a sum of around USD:52tn.

Guess what the economy of the whole world is worth? About USD:75tn. That is, the entire rest of the planet has about 30% of global trade. And every state in the 70% already accounted for is chasing that 30%. If you think we can just go out there and pick it up then you are dreaming.

It's a lot of people, but it isn't that much money, and it certainly isn't very much per capita.

Added to this you have the inherent stability issues associated with these developing economies. A couple of years ago everyone was shouting about how we could do great deals with the BRICK states (Brazil, India, China and Korea). Certainly the potential for growth is there - but I think India and China are really non-starters for lots of reasons. Brazil's economy is currently in a real state. But we still have Korea (USD:1.3tn).

These sorts of arguments remind me of Nicola Sturgeon's a couple of years ago: Scotland will sail off into the sunset funded by its oil revenues. Uh, yeah, with the benefit of hindsight we all know the price of oil crashed, and what Scotland could rely upon was an economic link to a larger and more stable economy (both that of the UK and the EU).

Surgeon is backing the IN campaign, but I somehow doubt she is going to talk about how she was wrong about the destiny of the Scottish economy. I doubt Gove, Johnson and Farage will be hanging around to say sorry either.

Don't get reeled in by these simplistic slogans from the LEAVE politicians. Be more critical, think of what lies behind these claims, or better still, what gives them any substance at all?

Reply 8

Armpits

Original post by Drewski

You will never have full access to Commonwealth countries (aside perhaps some Carribean countries).

Why? Because they are sovereign nations that have no incentive to comply with the UKs wishes aside from trade advantages.

For example, the EU could easily make life harder for the UK by leveraging it's size to incentivise these Commonwealth countries (e.g. India) to maintain tariffs with the UK, by lowering tariffs with the EU.

And are you seriously making the argument that trade with the EU could even hypothetically be replaced with trade with Commonwealth countries?

Especially given the degree of Economic integration??

(edited 7 years ago)

Reply 9

Iknowbest

BRIC nations Brazil, RUSSIA, India, China are advancing faster than many other countries... although it is reported to have slowed down! Hmm i wonder why!!

Sanctions.. fuel price reductions from Saudi, bad press, forced conflicts, higher tariffs, etc etc.. basically anyway that America could slow them down.. with the help of her Allies of course!

The world bullies can't let anybody become to successful.. just look at Africa. They should be the richest Continent on the planet! Gold, minerals, diamonds, many other precious stones that greedy people pay a fortune for.. then we have the amount of Sun many Countries in Africa get.. free energy potentially for the whole country!!!
Then we have the leaders of the African countries hand picked by western leaders, OR bought by Western leaders.. or Indebted to them! France take Billions from some African countries each year and this is scratching the surface!

Well we can't let any other Country get to powerful right! Let's keep thing's in order and bully many other Countries and gain control over them in any way possible!

We might be the world's 5th largest economy we might be 20th.. so what? We do ok in comarison to many other countries who we help to struggle!

Reply 10

CherishFreedom

Two questions:

1. Why would you assume that the our technological advantage will 'largely disappear' in the future? Isn't this a bit pessimistic considering the UK was responsible for inventing some of the most innovative inventions in the modern age such as the World Wide Web and fibre optics? The UK also has some of the most research intensive universities in the World, factoring in population we have the highest concentration in per capita basis.

2. Have you considered maybe it's the different political system that some countries run, that prevents them from developing its resources? Take Angola for example, it is abundant in natural resources, enormous reserves of oil, gas and diamonds, good rainfall and fertile soil. It is also one of the poorest oil rich nations in the world.

Another point to note is that you may be assuming that some countries are undergoing sustainable growth. Since I am Chinese by origin I will use China as an example. China has been the 'factory of the world' for the past 30-40 years, since Deng Xiao Ping introduced introduced free trade between China and the rest of the world.

During these time China experienced rapid economic growth, with double digit GDP growth for much of the 4 decades period. Many countries have since shifted their manufacturing to China and replaced its manufacturing sector with Tertiary sectors such as finance and consultancy. This is due to China's willingness to accept low pay, bad working condition and the environmental impacts of dirty industries such as extraction of rare-earths. In essence they are willing to do the 'dirty job' other Western countries refuse to do for good reasons.

As a result China is experiencing wide-spread air and water pollution, and the public have little confidence over the safety of its food produce. It may be glamorous to be the world's 3rd largest economy at the moment, but one question to ask is whether this growth is sustainable in the long term, and whether it is approaching a plateau because of its short-termism?

In my opinion, Britain's future standing in the world will largely depend on its level of commitment on sustainable development and technological investments. This is hard to forecast but there is no indication at the moment that we are heading the opposite direction.

You may be using far too many assumptions to conjure up the '22nd largest economy' statistic, which would happen if all variables are the same in all countries and that their developments are static and not dynamic. Where things are dynamic ie. changing, you must analyse at least one dimension deeper ie. not just its current state but the direction in which it is changing. With respect, your hypothesis seems odd and rather simplistic.

Reply 11

Fenice

Original post by JordanL_

If you combine every economy in Europe, you are obviously going to get the world's biggest 'economy'. But what does that do for us exactly?

Reply 12

typonaut

Original post by Iknowbest

Hmm i wonder why!!

Whatever the reasons, these are the countries we are supposed to tether our economy to, to go out into the world and be more successful. You say the USA bullies the rest of the world - right now the only economy at parity with the USA is that of the EU.

The only way forward for us is grouping together to pool our negotiating/economic power.

I don't dispute what you say about the resources in developing economies - but I think it becomes increasingly untenable to blame western intervention in the economies of these states.

Reply 13

typonaut

Original post by Fenice

If you combine every economy in Europe, you are obviously going to get the world's biggest 'economy'. But what does that do for us exactly?

If you did that, then you certainly would have the world's biggest economy - but the EU (without the entirety of Europe) is arguably the biggest economy on its own.

What this gives us is greater stability and greater bargaining power.

Reply 14

Fenice

Original post by typonaut

So? What does that even mean? It is a collection of individual economies.

How does it give us stability? When last I looked the euro is bursting into flames and youth unemloyment is 50% in the South. Richer economies have to prop up weaker ones. There is nothing stable about the European 'economy'.

As for bargaining power, perhaps that would be more impressive if it was our power rather than the EU's.

Reply 15

midnightice

Original post by JordanL_

Absolutely no one in Brussels is suggesting that we would end up cutting off our economic relations with the largest trading bloc in the world. Are you saying it's rational to believe that we, with a large trade deficit with the EU, would have a deal imposed on us that would make it more costly for German car manufacturers and French food producers (to name a couple) to sell to us?! And that even if trade tariffs were imposed on us (incredibly far-fetched to believe this in 2016 for crying out loud), we wouldn't be able to offset it by making trade deals with our Commonwealth partners and Asian tiger economies and thus in the process reduce significantly the costs of goods to UK consumers?

Where is the significant economic growth in the world? Is it in Europe? No, Europe will get worse with the inevitable implosion of the French and Italian economies still to come. So trade should focus on growing markets, yes? Do we have such trade arrangements? No! Why? Because the EU is all about European protectionism and consequently inflating the prices of goods when compared to world prices, evident in the process of negotiating trade deals that requires the accounting of interest of all 28 states, clearly ineffectual when compared to a simple bilateral arrangement. Is this not a hinderance to us?

It's about leaving the political project that is destined for greater integration and is not in the interests of Britain's global, not European, horizons.

Reply 16

username2659199

Well now the leave campaign will make the argument that the EU is causing that decline. And I've always thought we are the fifth largest because we are in the EU

Reply 17

typonaut

Original post by CherishFreedom

Actually if you read one of my posts after that you'll see that I say that the UK also benefitted from the natural resources of its empire - which is not something we can get back.

But, to answer your question directly: I'm sure that you have noticed this, but pretty much the entire planet has access to the internet and mobile phones. An advantage in steam engine design is no longer going to help us out. Technology jobs are being exported from the high income economies to the low income economies. Most high-tech manufacturing is done in South East Asia these days, large tech firms are setting up campuses in India to do their development work.

The technology gap is getting tighter and tighter. After Gutenburg developed the printing press in Mainz, Germany, it took more than 20 years for a similar press to be set up in London. Something invented in London today can be copied in China tomorrow.

2. Have you considered maybe it's the different political system that some countries run, that prevents them from developing its resources? Take Angola for example, it is abundant in natural resources, enormous reserves of oil, gas and diamonds, good rainfall and fertile soil. It is also one of the poorest oil rich nations in the world.

Of course, that is true, political systems have failed whole nations. These systems may have been imposed from outside. But I think we can have hope for those states that they will eventually succeed in running their own affairs, and making the most of their natural resources.

If the technology gap closes, resources on the earth are finite, political systems restructure… then the ultimate economic position of any state is to a large extent determined by its population.

Another point to note is that you may be assuming that some countries are undergoing sustainable growth. Since I am Chinese by origin I will use China as an example. China has been the 'factory of the world' for the past 30-40 years, since Deng Xiao Ping introduced introduced free trade between China and the rest of the world.

During these time China experienced rapid economic growth, with double digit GDP growth for much of the 4 decades period. Many countries have since shifted their manufacturing to China and replaced its manufacturing sector with Tertiary sectors such as finance and consultancy. This is due to China's willingness to accept low pay, bad working condition and the environmental impacts of dirty industries such as extraction of rare-earths. In essence they are willing to do the 'dirty job' other Western countries refuse to do for good reasons.

As a result China is experiencing wide-spread air and water pollution, and the public have little confidence over the safety of its food produce. It may be glamorous to be the world's 3rd largest economy at the moment, but one question to ask is whether this growth is sustainable in the long term, and whether it is approaching a plateau because of its short-termism?

I think we should probably pray that China's economy is sustainable, or that it manages transition very well, because the alternative will have very poor outcomes for the rest of the planet - or at least the most developed economies.

In my opinion, Britain's future standing in the world will largely depend on its level of commitment on sustainable development and technological investments. This is hard to forecast but there is no indication at the moment that we are heading the opposite direction.

I think that sustainability is largely tied to the EU - certainly if you mean environmentally friendly. This is an issue we can only work on collectively, and have been successful in doing so. You know that the LEAVE campaigners constantly talk about the red tape they want to cut through - well what is that red tape? Is it obligations we have to protect the environment, is it quotas on fishing, is it sustainable agriculture...?

You may be using far too many assumptions to conjure up the '22nd largest economy' statistic, which would happen if all variables are the same in all countries and that their developments are static and not dynamic. Where things are dynamic ie. changing, you must analyse at least one dimension deeper ie. not just its current state but the direction in which it is changing. With respect, your hypothesis seems odd and rather simplistic.

It is simplistic to say that the UK will fall to 22nd place. I'm not sure it is simplistic to say that this is the natural position, all other things being equal. If you read the initial references I gave you will see that there is a good argument that economic size is tied to population size. That's an obvious argument that you can see with China - creeping-up to, or even surpassing the USA, despite having much lower incomes per capita. You can also see this with the relative size of the Chinese or Indian economies in the past - they were the largest economies for hundreds of years.

Your argument is that "all other things may not be equal". You are possibly correct. But even if you are, there is a great weight behind the populations of other states, where they can be much poorer than us on a per capita basis, but still have larger overall economies. Take a good look at the list of nations by population size - there are at least 7 whose populations are 2-3 times that of the UK, there are two that are around 4-6 times that of the UK and there are two that are 20+ times larger than the UK.

There might be a different argument that economic clout is a factor of income per capita and overall size of the economy. But that isn't the argument that is being made by the Brexiteers. If we are relying upon economic size ranking alone, then I fear that is not a position that we can hold long term.

Look at the references, the long term trend for the UK is a fall in rank.

Reply 18

typonaut

Original post by Fenice

So? What does that even mean? It is a collection of individual economies.

It is not just a random collection of economies. It is a unique set of interlinked economies. It is a single market, with a level playing field for all market entrants.

How does it give us stability? When last I looked the euro is bursting into flames…

Surely you know this is nonsense? The pound has substantially weakened against both the euro and the USD since this referendum debacle came to be.

and youth unemloyment is 50% in the South.

Please substantiate this claim.

Richer economies have to prop up weaker ones. There is nothing stable about the European 'economy'.

The EU is partially about helping the development of smaller and weaker economies, that is the principal reason for membership of the Eastern European states. Stabilising and helping these economies is good for the whole continent, because it helps keep our economies more stable by not having failing states on our borders.

You also seem to be forgetting that the current financial problems facing the world started off with a banking crisis in the USA - nothing to do with the EU.

As for bargaining power, perhaps that would be more impressive if it was our power rather than the EU's.

It is our bargaining power, shared with our EU partners - the UK helped create this entity, and is a core part of it. To talk as if it was something separate and detached from the UK is to, frankly, completely misunderstand the current debate.

Reply 19

typonaut

Original post by midnightice

This is the exact opposite of the problem. Michael Gove accepted, in the past few days, that tariffs were inevitable. That UKIP headcase Douglas Carswell insists there will be some kind of instant replacement for the single market. I don't really trust either of them, but I think Gove is being more of a realist.

What will happen is that the EU will impose tariffs on UK exports, making them more expensive. The UK government will impose tariffs making German cars and French groceries more expensive (for UK consumers).

And that even if trade tariffs were imposed on us (incredibly far-fetched to believe this in 2016 for crying out loud), we wouldn't be able to offset it by making trade deals with our Commonwealth partners and Asian tiger economies and thus in the process reduce significantly the costs of goods to UK consumers?

I don't know about you, but even Chinese consumers don't trust food produced in China.

Apart from anything else we de-coupled ourselves from the commonwealth economies more than 40 years ago - and many of these run protectionist regimes anyway. The Asian Tiger was shot dead some decades ago. Japan has stagnated for 20 years.

Take a look at the size of some Asian economies: South Korea £1.3tn, Indonesia $850bn, Taiwan $525bn, Thailand $400bn, Malaysia $300bn, Singapore $300bn, Philippines $300bn… even if you add them all together they aren't much larger than Germany alone.

Where is the significant economic growth in the world? Is it in Europe? No, Europe will get worse with the inevitable implosion of the French and Italian economies still to come. So trade should focus on growing markets, yes?

Please read what I have written previously: the output of all the countries in the world, without the EU, remaining G7, Russia and China only accounts for 30% of the total world economy, Put another way, 70% of the world's wealth is in the EU, G7, Russia and China. If you think you can go out there and pick up that 30% you are just kidding yourself.

Do we have such trade arrangements? No! Why? Because the EU is all about European protectionism and consequently inflating the prices of goods when compared to world prices, evident in the process of negotiating trade deals that requires the accounting of interest of all 28 states, clearly ineffectual when compared to a simple bilateral arrangement. Is this not a hinderance to us?

I think the reality is that, with or without trade deals, UK companies would be going out to these states trying to sell to them - if there were a market there to be served. We don't need trade deals to have trade (isn't that what the Brexiteers keep telling us - things will just carry on, on WTO terms?).

Please substantiate your claim that the EU inflates prices to consumers.

It's about leaving the political project that is destined for greater integration and is not in the interests of Britain's global, not European, horizons.