The economist Joseph Schumpeter used the term 'creative destruction' to describe growth achieved on the foundations of old industries and business models. Creative destruction has become shorthand for a Darwinian economic process in which the destruction of an old order paves the way for growth.
The global economic crisis has certainly wrought huge destruction. Last week the Governor of the Bank of England warned that the crisis is not even half over.
But what about the creation side of Schumpeter's formula? Here are four areas of the UK economy which are seeing growth.
- Consumers are spending on technology. Household spending and incomes have declined over the last five years but UK consumer spending on communications has risen by almost 18%. Global sales of smart phones have risen from 118 million in 2007 to 488 million last year, helping raise Apple's share price five-fold.
- UK car production is on an upward path, rising 34% between 2009 and 2011. Inward investment and the devaluation of sterling in 2007-08 have helped boost exports. Last month, the UK recorded its first quarterly trade surplus in cars and vehicle parts since 1976.
- The UK private sector has created 892,000 jobs since the beginning of 2010, far more than the 453,000 jobs lost in the public sector. One of the fastest growing areas of employment is skilled services such as design, consultancy, law and accountancy. Employment here has risen by almost 6% in the last two years, to just short of 2.5 million people or 8% of the workforce. The number of people working in IT and communications has risen by almost 7% in the last 2 years.
- The financial crisis has led to a wave of innovation in the sector. Peer-to-peer lending which connects borrowers and savers over the internet has boomed. In the UK platforms such as Zopa, Funding Circle and Crowd Cube are attracting consumers with the promise of attractive savings and borrowing rates. Worldwide, there are over 450 crowdfunding websites today, up from under 100 in 2007 and the amount of money raised through these 'platforms' has almost tripled since 2009. In the UK, companies such as Tesco, John Lewis, Hotel Chocolat and Leon have tapped their customers for funding directly through bond issues.
The big picture for the UK, as for many other European economies, is of a weak recovery from the 2008-09 downturn followed by a return to recession in late 2011. The gathering euro crisis has added new risks and uncertainties. Yet at a sectoral and company level growth is taking place, driven by new opportunities, technology, long secular trends and stress in the wider economy. In Schumpeterian terms, creation does, indeed, coincide with destruction.
MARKETS & NEWS
The FTSE ended the week 1.3% up, after European leaders agreed on measures to ease banking stress and sovereign debt difficulties.
Here are some recent news stories that caught our eye as reflecting key economic themes:
- Barclays Bank Plc was fined a record £290m for manipulating UK inter-bank interest rates, leading to a resignation by its chairman Marcus Agius – interest rates
- EU leaders reached agreement on using the EU's permanent bailout facility to lend directly to struggling banks, without adding to government debt – eurozone response
- German chancellor Angela Merkel dismissed proposals to mutualise eurozone debt as "the wrong way to go" – eurozone politics
- The world's oldest bank, Italy's Banca Monte dei Paschi di Siena, received €2bn of funds from the Italian government, allowing it to meet the European Banking Authority's capital requirement rules – banking stress
- Moody's cut the credit ratings of 28 Spanish banks, citing the reduced credit worthiness of the Spanish government and the banks' exposure to commercial real estate risks – banking stress
- Estimates suggest that up to €2bn has returned to the Greek banking system since the June 17th general election – capital returning
- Greece saw a 27% increase in holiday bookings in the week following the 17th June election, compared to the same period last year, according to internet holiday firm Expedia – tourism
- The US Supreme Court upheld the constitutionality of President Obama's health care reform act – Obamacare
- The UK's GDP growth for Q4 2011 was revised down to -0.4% from -0.3% - slowdown
- Sir Mervyn King, Governor of the Bank of England, claimed the UK economy may not yet be "half way through" the economic downturn that began in 2007 - slowdown
- The UK's public sector borrowing rose to £17.9bn in May, compared with £15.2bn in May last year – government debt
- The French government will need to find up to €10bn of additional savings in order to meet budget targets for this year, according to finance minister Pierre Moscovici – government debt
- Ratings agency Fitch cut the credit rating of Cyprus to below investment grade status, citing the large amount of Greek debt held by Cypriot banks – euro debt crisis
- Global banks now hold £11tn of cash, equivalent to 30% of global GDP, following large-scale purchasing of government debt and quantitative easing – liquidity
- The New York Times launched a Chinese version of its website in a bid to attract middle-class readers from the country – emerging markets
- Software firm Microsoft acquired social networking group Yammer for $1.2bn – M&A
- Data from the Washington Post suggests that Russian billionaires now hold the equivalent of 20% of Russia's GDP, whilst billionaires in China hold just 2.9% of China's GDP – emerging markets
- Prices of luxury goods in London, including caviar and cigars, have fallen by 14.5% in the year to April, according to data compiled by Stonehage Group – price of success
- British-based firm Excalibur Almaz became the second space-tourism company in the world to offer a commercial "lunar mission", with tickets on sale for $150m per seat – moon market
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