Will Britannia Rule the Waves of the Vast Sea that is the Global Economy?

Posted on September 24, 2009


In preparing for my interview on Monday with Canada’s Minister of International Trade and Minister for the Asia-Pacific Gateway Stockwell Day, I have done a considerable amount of research regarding the Buy American Policy and the repeated references to the Smoot-Stonehouse Act of 1930 which many cite as being the primary cause of the Great Depression.

Like all issues of significant complexity, there is not a linear explanation or answer that clearly illustrates a point A to point B conclusion. Multiple factors such as time, increased globalization, a weakened economy and political sensibilities can and do in fact intertwine into a convoluted landscape that for most of us takes a backseat to the basic and often difficult task of simply paying the bills and keeping a roof over our heads.

Be that has it may, the factors which influence the viability of a nation’s economy are indeed very real, and ultimately very important to each and every one of us. So understanding their impact on the overall economy can actually serve as a indication of future prosperity or decline.

One such factor is inextricably linked to what is referred to as the “three-sector hypothesis of industry” (which has been extended to four with the advent of knowledge-based industries). Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), services (Tertiary) and knowledge-based (Quaternary).

Under a “general pattern of development,” a wealthy nation progresses through each phase. Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.”

While similarities with the tertiary sector are often made as they are either service-based or oriented, knowledge-based industries are incredibly important. This of course strikes at the heart of today’s post, and the reason that the UK and India may be positioned to emerge as economic titans over the next decade.

Let’s look at the United Kingdom. The Tertiary and Quaternary sectors represents the largest part of their economy, employing 76% of their entire workforce.

With India, the indigenous software engineering talent has made that country the off shoring destination of American high-tech firms, each of which have committed to investing $1 billion into its economy. The result of this boom is that India has seen double-digit wage growth for much of the 2000s. (Note: some may argue that a key part of this growth is due to the fact that wages were previously low and that for all intents and purposes had nowhere to go but up. This of course is an interesting discussion for another day.)

While there are of course other factors and obstacles in terms of the materialization of a “titan” reality, such as the UKs bloated and largely ineffective health care system – which is also the largest government funded health care system in the world, it nonetheless bodes well for the nation’s economy. In short, both the UK and India are pointed in the right direction.

The questions to which this leads are many including how did the UK and India progress to the Tertiary and Quaternary sectors, while the economies of Canada and the United States have to a certain degree remained dependent on the Primary and Secondary sectors?

Even though there are no easy answers, at very least the four-sector hypothesis of industry provides us with the basis for asking the right questions.

I look forward to your thoughts.

In the meantime, here is the on-demand link to my interview with Minister Day; An Interview with Canada’s Trade Minister on U.S. Trade.