Impact of Emerging Economies on UK
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Published: Fri, 07 Jul 2017
The United States, Japan and the European Union have long been regarded as the leading economic powers in the world. Referred to as ‘The Triad’, this group of nations represents the largest economic power bloc in the world. With strong economic controls, they are able to grow their economies in measured steps. This is in stark contrast to the growth of many BRIC (Brazil, Russia, India and China) countries whose growth is rapid and often uneven in both tempo and regional development (Dhaval 2010).
The United Kingdom, traditionally allied with the Triad, has both opportunities and threats from the emerging BRIC nations. These include challenges to existing industries within the United Kingdom itself and also in competition with usual export markets for their goods, prompting GDP growth. However, with the competition also come expanded markets and niches where the United Kingdom may be able to compete to sell goods.
The different sectors of the United Kingdom will be affected by the power shift in different ways. The main sectors will have to compete for raw materials in an increasingly competitive market, which will cause prices to rise. However, the services and technology sector, especially in the areas of software development and higher education may well experience a boom, as they are in high demand, require an educated work force and do not rely on primary resources (An Overview of the BRIC Economies 2010). The well educated middle class demographic could do well from such a boom.
Overall, however, the BRIC economies represent a rising threat to the stability of the global economy and to international trade. While the Triad have undergone their own trials, with the Global Financial Crisis, Greek bailouts and Japanese ‘Lost Decade’, they have at least managed to some degree. With the possible exception of China, the rest of the BRIC lack sufficient controls over monetary and fiscal policy to correct the problems that might befall them.
You may think that it is good to see the BRICs gaining power. It means that as these nations become more prosperous nations they can help to address global problems. Who wouldn’t like it if China, India, and Russia started to clean the oceans and feed the starving nations of Africa? That however is the problem with the emerging BRICs. These countries usually do not find it in their best interest to assist in solving global problems. They prefer not to get involved in things that do not benefit themselves. Many of the BRICs prefer to use old Cold War methods of operating. They find it easier and more profitable to say they are like the United States and care for their citizens in public, and oppress them in private; than to generally make life for the average citizen better. Nations such as China send their citizens to work camps for tweets, and are some of the biggest non regulated polluters in the world (Associated Press 2010).
The United Kingdom business environment is beginning to change. The current global economic troubles are starting to affect business within the UK business community. There has been a power shift from the established Triad of the United States, European Union, and Japan; to the emerging economies (BRICs) of China, India and several smaller nations. It is hard to say if this power shift is good or bad.
Some growth for the BRICs is a good thing. The increase in the economic power of emerging nations will allow them to help their own countries and to increase the trade of global goods. This is beneficial to the world as a whole. However, the current rapid growth they are experiencing today is very dangerous. With the BRICs’ rapid growth and less need for international trade, nations such as the UK can be facing tough times.
The business environment in the United Kingdom especially is at a great risk due to the declining powers of the current Triad. The Triad of economic power; that has held the economy in not only the UK but the whole world together since the end of the Cold War, is starting to lose its grip on the world economy. The growth in foreign economic power is leading to increasing strain on global prices on raw materials. This then leads to strain on every business in the UK. Due to this increasing stress and uncertainty in the markets, the UK is rapidly approaching uncertain times. Industries such as airlines and other transportation services are already suffering due to high global oil prices. It is possible to see why there is concern for a loss in trade that can be brought about by the growing BRICs. This is all being compounded by a decrease in growth and a troubling global economy.
While the current forecasts for the United Kingdom business economy look bleak, there is still time to turn things around. The governing power of the UK may be able to do something to stabilize the economy, and protect the business infrastructure. But, with the government struggling to sustain the economy with massive bailouts, and economic manipulation; things are not looking good for business in the UK.
With emerging economies (BRICs) such as China, India, Brazil and Russia; it may seem like there are new world powers that can assist in the stabilization of the global economy. However that point of view is only for the short-sighted, who neglect to see the economic strain that is placed on the global economy. With the recent bail out of Greece and the massive 85 billion euro bail out of Ireland, the UK is in a tough economic predicament (Davis 2010) (Irish Republic 85bn euro bail-out agreed 2010). This predicament is caused by the unstable and rapid growth of these BRICs. The growth of these emerging economies is not regulated and controlled like the Triads, and this leads to a dangerous and unstable economy. Countries such as China which plans to raise their GDP from 1.54% to 2.5 % by 2020, is one of the most dangerous (Narendra 2010).
China as one of the fastest growing economies in the world can be seen as a threat to global stability. With their highly unstable growth, and unregulated economy, it is only matter of time before China starts a ripple effect that will devastate the UK economy (Dixon 2010). With the shifting of power from the US and UK toward China at an alarming rate, China is quickly becoming a massive economic force. With the shift in economic power, nations such as China have far less need to export goods to outside nations and less need to purchase imports from other nations.
This is leading to economic troubles in the United States. This in turn, causes economic troubles for the UK. With BRICs increasing their self reliance and lessoning their dependence on foreign nations, the economic strain will drastically increase in the UK in the long run. This can be seen in various goods that have recently seen high prices not seen in decades, such as the price of raw sugar (Plummer 2009). This increase in raw material prices leads to increased prices for processed materials, which causes increases in the cost of living (Verma 2010). [See Figure 1]
With the increased cost of living and the economic power shifting to unstable foreign powers, the UK is quickly approaching uncertain economic times. With the increase in price of raw materials, business in the UK is starting to suffer. While it may seem that the worst is over, the UK auto industry is reporting an estimated increase of 160bn euro in the cost of vehicle components by 2020. While the increase in demand for components will increase, it is only a matter of time before China, with its unregulated cheap labour begins to out produce the UK, which will lead to greater economic troubles (Berret, Bernhart 2010).
The future of business in the UK looks bleak with the budget balance expected to expand to a dangerous -13% of the GDP. [See Figure 2]
This would increase the public debt of the UK to over 70% of the GDP. It would cause the borrowing rates of the UK to rise and make banks less likely to loan to new businesses (UK Economy 2010, Economic Forecast). [See Figure 3]
With no new loans, an increase in the cost of raw materials and increases in the cost of living; local businesses will began to suffer greatly which will lead to higher unemployment rates. With the loss of local business, unemployment is expected to climb. Unemployment that is estimated by some to increase to 4 million by 2012. In addition to climbing unemployment and rising costs, growth in the UK is expected to be a mere 2% by 2012. This will cause a domino effect where businesses cannot hire new employees, and out of work citizens cannot afford goods, causing more business to collapse thus leading to greater unemployment (Hopkins 2009) (Inman 2010). [See Figure 4]
This shift from power to the BRICs is going to cause troubles with not only the UK economy but the global economy as well. While it may be harsh to say that growing economies on the emerging world is bad, it is a fact. While the rest of the world grows at a rapid and unsustainable rate, the larger nations and the United Kingdom will face tough economic times until the BRICs collapse under their own weight. While it is certain the BRICs will remain dominant for the foreseeable future, it is inevitable that they will become unable to sustain themselves and have to turn by to the Triad for help; one must just hope it is still there (Ionescu, and Oprea). With the loss of business and the increase in unemployment, UK business as a whole will suffer greatly. [See Figure 4]
The transportation industry which is already suffering due to high fuel cost and the threat from global terrorism will suffer even greater when they see huge deceases in travelling Europeans. The loss in traffic will not only hurt the transportation industry but the tourism industry as well; which in turn hurts local businesses even more. This chain reaction of a crumbling economy and loss in growth will lead to panic and strife among neighbours that will threaten the European Union as a whole. All of this will happen while nations such as China increase in both economic and military strength. With a powerful nuclear armed China and an increasing Russian economy, it is possible to see a threat of a renewed Cold War. (Pop 2006) This may seem farfetched for a younger population that does not remember the great threat and fear felt throughout the world. It is not the case for an older population that knew all too real the threat of the Soviet Union. One may think this is never going to happen, as this is the modern world. It is always the modern world, and the threat is all too real. Russia, China, and other BRICs are gaining power, and nations such as North Korea are starting to stir up trouble. One just has to look at the fact to see that not just the UK but the whole world is quickly approaching a change. It is a change that for better or worse will be here in our lifetime and in the near future. Whether you are a UK business owner or a possible investor; you can not overlook the changing times, where the Triad is no longer the most dominant economic power.
The United Kingdom will face many challenges in the future. There is significant risk in relying on the BRIC economies to generate economic growth, as this growth is unplanned and relies on many unpredictable factors. In addition, many businesses in the United Kingdom are already under pressure. It is therefore likely that standards of living are set to fall and unemployment is going to rise.
The nations of the BRIC, unlike the nations of the Triad, lack sufficient fiscal control and monetary policy to effectively police their economies. When this is combined with the decline in the Triad, it will spell uncertainty for many of sectors within the United Kingdom. In particular, it will be very difficult for the manufacturing sectors to compete against the low labour costs of the BRIC nations. Additionally, without environmental regulation, a minimum wage or an educated populace, it will make it even harder for manufacturing to survive. This is in addition to rising raw material costs, which will in turn raise living costs.
It is unfortunate, but the BRIC economies represent the introduction of even more people into the global market place. The small population and many main market sectors being challenged by their competitors in the BRIC means hard times ahead for the business environment in the United Kingdom.
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