Over the past few days, on a visit to India to improve economic ties, the message of UK Chancellor (and prime minister in waiting) Gordon Brown has been muddied by an unseemly media controversy over apparent racism being suffered by a second-rung Bollywood actress on a third-rate British “reality” program, Celebrity Big Brother. Undoubtedly upset with the row stealing his thunder on an important visit, Brown declared, “India and Britain are bound by shared values that support fairness and tolerance. We are against any form of racism or intolerance.”

Beyond the usual politicians’ platitudes, though, there are important trends that Asia would do well to understand in greater depth. In particular, the process of globalization is inextricably tied with the destinies of nations. Economic performance depends very much on the ability of societies to maximize their output in line with competitive advantages.

Backlash against globalization

In issuing an apology of sorts, Brown was perhaps not being merely solicitous of his hosts’ feelings. The wider issue for the United Kingdom, as with the United States, has been the backlash against globalization. Indian outsourcing firms have stolen a march over rivals from other countries in both the UK and the US, leading to frequent job losses in these countries to the benefit of Indian employees, as well as the shareholders of outsourcing firms.

It has been cheaper for firms to outsource processes such as those in the back offices to India, which has led them to focus on tasks that provide higher revenues per employee. In the mind-boggling management-speak of consultants, this process would be termed value addition.

From a purely macro-perspective, the UK has achieved one of the most significant turnarounds in modern economic history by transitioning from a manufacturing-based economy to a services-based one. [1] Former prime minister Margaret Thatcher, now Baroness Thatcher, can claim much of the credit for this, as her obstinate dismantling of Britain’s nationalized industries sowed the seeds of the country’s transition.

A similar process has been afoot in the United States, although the key driver for change was the market, rather than government forces. It did not hurt that the Republicans under president Ronald Reagan followed a more laissez-faire approach than the preceding administration of Jimmy Carter had indicated.

Herein, however, rose an important difference between the United States and the UK. I am referring, of course, to the differences in skill levels. While the school system in the US was necessarily egalitarian, that of the UK was less so, with a disproportionate number of entrants into the famed Oxford and Cambridge universities coming from private rather than government-run schools. This elitism, combined with an educational system that had been out of touch with modernization, led to a rapid skills shortage in the services sector.

Fortunately, post-Thatcher governments realized these difficulties and set about creating an open immigration system. Almost alone in Europe, the UK has the most flexible immigration laws that allow pretty much anyone within the European Union – including its most recent additions such as Poland, Slovenia, Hungary and the Czech Republic – to move in and work. Immigrants from other countries, including those in Asia, face greater restrictions that are designed to allow only the most highly qualified to immigrate.

Indeed, the typically pro-worker anti-immigrant Labour Party changed its stripes to be elected into power. That team, including Brown and the current prime minister, Tony Blair, has managed to hold on to power for more than 10 years, driven by the strong economic performance that has itself fed on net immigration. It goes without saying that positive changes to UK demographics have been at the heart of the country’s economic growth in the past few years, marking a sharp contrast to the failed policies of countries such as Japan, France and Germany, whose over-reliance on manufacturing and agriculture have caused significant economic underperformance.

Dole versus Pole

This process of economic adjustment has not been without pain for the UK, though. [2] The country’s manufacturing heart was in essence ripped out by Thatcher-era policies, which forbade any government assistance to failing state undertakings. A lack of competitive manufacturing advantage in a range of industries caused those companies to collapse, particularly after the removal of tariff barriers with the rest of the European Union. All car manufacturers of British origin were either purchased by foreign companies or have declared bankruptcy in the past few years. Some did both.

Against these armies of newly unemployed in the heart of the country who depended on the government for their sustenance in the form of welfare payments and an unemployment dole, the flow of immigrants into big cities such as London has continued over the past few years. This phenomenon has created a new middle class of non-English-speaking people to emerge. The phenomenon has not passed the political scene unnoticed, as Britain’s mainstream parties have given some way to right-wing parties such as the British National Party, who have characterized a Britain under siege by Polish plumbers and Indian information-technology workers.

In this debate of those on the dole versus the Poles (and Indians), it is but natural that the boundaries of dialogue often exceed acceptable norms, leading to the apparent rise in overt racism across the United Kingdom. Where does the reality show fit in within all this? As mentioned above, Britain’s own population has become more diverse in the past few years, necessitating greater variety in entertainment. In the US, significant immigration led to the launch of dedicated Spanish-language television channels, while in the UK, terrestrial channels have been broadening their appeal to new immigrants by providing programming more to their tastes.

The invitation of a Bollywood actress to participate in Celebrity Big Brother was thus a purely commercial decision, reflecting the desire of the television channel to attract non-traditional views to its program. A casual read of UK newspapers’ online editions this week suggests that the move was broadly a success, albeit for the “wrong” reasons, ie, the racism controversy. Commentators who had first castigated the channel for attracting unknown celebrities have switched tack to criticizing the behavior of the British contingent on the program (Channel 4’s website shows that other participants are of American extraction). The British celebrities had been accused of using derogatory terms to describe the Bollywood actress, although it is as yet unclear to yours truly whether the verbiage exceeded the usual norms of discourse that are to be expected from lowbrow television in general.

Brown and Oz

In a previous article, [3] I wrote about the muddled and often xenophobic policies of Australia’s government that defied the country’s economic position. Since then, a decline in oil and commodity prices has precipitated Australia’s economic decline. The country’s inability to transition to products higher on the value chain in essence reflects a failure of its immigration policies, which is why I found its continued posturing against neighboring countries and emerging Asian powers both unsettling and illogical. Much like the failure of Japan and Germany to attract new immigrants who could have helped these countries move up in service industries such as software, Australia has failed to tap into its key advantages.

In that light, Gordon Brown’s statements appear more farsighted, aiming as they do to nip in the bud any notion of the United Kingdom being a xenophobic country. It is thus not so much a matter of humble pie as recognition of new economic realities that the UK’s prime minister in waiting chose to issue the apology to his Indian hosts. The pragmatism stands in sharp contrast to the unnecessary sound-bite-chasing that foreign ministries across Asia indulge in far too often.

1. “United Kingdom – Recent Economic Developments”, various dates, International Monetary Fund Staff Country Reports.
2. “Wage Inequality in the United Kingdom 1975-99”, Eswar Prasad, IMF, February 1, 2002.
3. Hazards of Oz , Asia Times Online, November 18, 2006.