The “Anglo Saxon” model - lightly-regulated financial markets and high debt - makes their economies unusually vulnerable to boom and bust. 
This has become conventional wisdom. Today’s figures, though, seem to contradict it. They show that euro zone GDP (pdf) fell 1.5% in Q4 (6% annualized!), as much as it did in the UK and more than in the US. With next week’s figures likely to show a huge fall in Japanese GDP, this means that the major “non-Anglo” economies are doing at least as bad as the US and UK.
You might object that this is because their economies are a little more manufacturing-oriented, and manufacturing is especially cyclical.
However, today’s other figures (pdf) from the euro zone, showing a 2.6% drop in industrial production, show that this isn’t the whole story. Between August and December, manufacturing output fell by more in Japan (19%) and the euro zone (9.1%) than it did in the US (7.5%) or UK (7.6%). Looking at manufacturing output in the last three years, you’d infer that the Anglo Saxons were the stable economies, not Japan or the euro zone.
Personally, I think this is largely just a story about the international division of labour - the more cyclical bits of manufacturing are done outside the Anglo Saxon area.
But it suffices to show that the UK and US economies are not unusually unstable. The belief to the contrary, I fear, owes more to Anglo-centrism than to the data.
This has become conventional wisdom. Today’s figures, though, seem to contradict it. They show that euro zone GDP (pdf) fell 1.5% in Q4 (6% annualized!), as much as it did in the UK and more than in the US. With next week’s figures likely to show a huge fall in Japanese GDP, this means that the major “non-Anglo” economies are doing at least as bad as the US and UK.
You might object that this is because their economies are a little more manufacturing-oriented, and manufacturing is especially cyclical.
However, today’s other figures (pdf) from the euro zone, showing a 2.6% drop in industrial production, show that this isn’t the whole story. Between August and December, manufacturing output fell by more in Japan (19%) and the euro zone (9.1%) than it did in the US (7.5%) or UK (7.6%). Looking at manufacturing output in the last three years, you’d infer that the Anglo Saxons were the stable economies, not Japan or the euro zone.
Personally, I think this is largely just a story about the international division of labour - the more cyclical bits of manufacturing are done outside the Anglo Saxon area.
But it suffices to show that the UK and US economies are not unusually unstable. The belief to the contrary, I fear, owes more to Anglo-centrism than to the data.
What's the puzzle?
Presumably, the Conservative Party press office will shortly be issuing a release - if it hasn't already done so - quoting David Cameron saying Gordon Brown is personally to blame for all this.
Posted by: Bob B | February 13, 2009 at 03:51 PM
Umm...
How to lie with statistics. Why did you pick manufacturing as your statictic du jour? You know perfectly well that it the manufacturing which has been replaced by (the extraordinarily robust) financial sector and the building sector in Anglo-Saxon economies.
Posted by: reason | February 13, 2009 at 03:53 PM
"You know perfectly well that it the manufacturing which has been replaced by (the extraordinarily robust) financial sector and the building sector in Anglo-Saxon economies."
True, but . . . a comment and a question:
How well I remember the many online contributions of New Labour cheer-mongers in the run-up to the 1997 election, which swept Tony Blair to power, about what New Labour was going to do to restore manufacturing to its rightful place in Britain's economy after the blight of Conservative misgovernment. Instead of which there was virtually no growth in manufacturing output from 1997 up to the onset of the credit crunch.
How long will it take for business and financial services to recover from the recession?
The trajectory of the price of London Stock Exchange shares hardly suggests much investor confidence in its future prospects:
"The value of stocks traded on the LSE has plummeted amid the global downturn, and shares in the LSE itself have been battered among concerns over growing competition and threats to its market data services. Its shares have fallen from a peak of over £17 a year ago to less than 500p."
http://www.guardian.co.uk/business/2009/feb/13/clara-furse-london-stock-exchange
Posted by: Bob B | February 13, 2009 at 04:28 PM
"Anglo Saxon model" used to mean something different: market-finance vs the "Continental model" of bank-finance.
Bank failures mean the failure of the Continental model.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/02/the-stable-anglo-saxon-model.html#more
Posted by: Nick Rowe | February 13, 2009 at 05:36 PM
Hmm. There's Anglo-Saxon and Anglo-Saxon - comparing Germany (which is a bit more Saxon, if not so much Anglo) and France, who are neither Anglo nor Saxon and bloody proud of it, the Germans appear to be in more trouble.
Of course, the French make yer small cheap car and the Germans specialise in big/sporty gas guzzling luxury models, and I'm guessing the former still have something of a market.
I'd hazard a guess that the French industry is therefore better geared for stimulus aimed at buoying the car market, not least because they're notably better for the environment and also reduce imported oil use and the cost of mobility, so it's actually a form of investment. Safer too, so there's a bit of payback in the form of reduced deaths, injuries, hospital bills...
You aren't going to get yourself out of deflation by offering consumers two grand off a Porsche. Two grand off a nice little Citroen or Renault, on the other hand, might work. In fact, I think the French are doing something along those lines.
The UK problem is that even if we wanted to stimulate manufacturing there's precious little to stimulate. On the other hand, there's precious little to go bust, too.
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Posted by: Evolution Management Solutions | February 13, 2009 at 06:06 PM
Can you really talk about the Anglo-Saxon economies? The UK and US are quite different in many ways (and with obvious similarities). But then again so is Spain, and others.
Posted by: Matthew | February 13, 2009 at 08:20 PM
It is a feature of mechanics that decreasing the damping of an oscillatory system increases the amplitude and decreases the stability.
In manufacturing, advanced manufacturing techniques such as just-in-time and kanban systems decreased the damping of the manufacturing supply system, and when the recession hit in Oct 1990 it swept rapidly through the sector causing a deep recession. When the economy picked up in 1994 it grew rapidly too.
In banking, has the move to mark-to-market effectively removed the damping? By forcing a reduction in credit outlook to be instantly registered in full magnitude rather than smoothed through accrual accounting? This could be partly responsible for the rapid collapse of finance. And if this is so, could any upswing be similarly rapid?
Posted by: Dipper | February 13, 2009 at 08:24 PM
There's mounting international pressure for tougher regulation of banks and - especially - of hedge funds to prevent another global crisis down the line. Christine Lagarde, the French finance minister, is making the credible point that restoring confidence in the present crisis is contingent on agreement about regulatory reforms:
"France will on Friday press for tighter controls on hedge funds, urging other big industrialised nations to strengthen regulation of the industry and compel banks that lend them money to hold more capital. . .
"The proposals will be highly contentious in the hedge fund industry, which is based predominantly in the US and UK, and has been lobbying to restrict regulation to fund managers, rather than the funds themselves."
http://www.ft.com/cms/s/0/75e74f90-f971-11dd-90c1-000077b07658,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html
What impact - if any - will regulatory reforms - if any - have on the profitability of London's financial institutions?
In Britain, this is not an issue peculiar to London, as the net fiscal surplus generated in London and the South East regions in pre-crisis times has been bankrolling public spending in the rest of the country to the tune of £12bn to £18bn a year:
http://news.bbc.co.uk/1/hi/uk/7368326.stm
Posted by: Bob B | February 13, 2009 at 09:37 PM
News update:
"The Prime Minister said the public was 'rightly' angry about the way the banks had operated - leading to a multi-billion pound bail-out by the taxpayer - and promised that the regulatory system would be overhauled.
"Speaking at a question-and-answer session at Coventry University, he said that in future there should be no rewards for short-term deals."
http://www.independent.co.uk/news/uk/politics/ill-end-banks-irresponsible-risktaking-says-pm-1608895.html
Posted by: Bob B | February 13, 2009 at 09:48 PM
"The belief to the contrary, I fear, owes more to Anglo-centrism than to the data."
I suspect that much of this is managerialism. Non-anglo markets are more closely regulated i.e. managed. Therefore, people reason, they must be more stable, have more long term investment, etc.
After all, in those markets it is easier to see that someone is running things. That is why people believe in managerialism.
Posted by: ad | February 14, 2009 at 08:23 PM
“How to lie with statistics. Why did you pick manufacturing as your statictic du jour?”
Reason, clicking on the links provided I get
Japan: “The Cabinet Office is expected to reveal Monday that gross domestic product in the October-December period plunged an annualized 11.7 percent, according to a consensus of market forecasts.”
UK: “Gross Domestic Product (GDP) contracted by 1.5 per cent in the fourth quarter of 2008, compared with a decrease of 0.6 per cent in the third quarter.”
US: “Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis.”
Europe: “GDP declined by 1.5% in both the euro area1 (EA15) and the EU271 during the fourth quarter of 2008, compared with the previous quarter, according to flash estimates published by Eurostat, the Statistical Office of the European Communities.”
That gives an annualised drop in GDP of 3.8% in the US, 6% in the UK, 6% in the euro area and the whole of the EU, and 11.7% in Japan.
So who is doing best?
Posted by: ad | February 14, 2009 at 09:03 PM
“In manufacturing, advanced manufacturing techniques such as just-in-time and kanban systems decreased the damping of the manufacturing supply system”
Did they? If I have a lot of supplies in stock, and demand for my product falls, it will be a long time before I need to order more. If I have few supplies in stock, less time will be required before I need to order more. So from my suppliers point of view, my move to just-in-time may have increased the damping, at least during downturns. And every manufacturer is a supplier to someone.
Posted by: ad | February 14, 2009 at 09:08 PM
ad
And per head? The US has to grow more just to stand still. But in general it is still very early to play such games.
Posted by: reason | February 16, 2009 at 10:17 AM
That earliness has not stopped others from "playing such games".
And according to wikipedia the difference in annual population growth between the US and Japan is 1.02%, compared with an 8% difference in their (negative) annualised growth rates:
US population growth 0.88% per year
French population growth 0.57% per year
UK population growth 0.28% per year
German population growth -0.04% per year
US population growth -0.14% per year
Posted by: ad | February 17, 2009 at 09:27 PM
I think you find the difference in the workforce growth is greater still.
Posted by: reason | February 18, 2009 at 10:49 AM
This is just one idea, and perhaps displays no more than my limited imagination. If there are better ideas out there, that amount to more than "implement something called "market socialism" and then - alacazam! - full employment!" then I'd love to hear them. http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html
Posted by: cartier watches | December 27, 2009 at 05:19 PM