Examination of Witnesses (Questions 40
TUESDAY 13 JUNE 2006
Q40 John Thurso: It is more likely
to be an earthquake than an apocalypse.
Ms Rosewell: It is doubled; but
we seem to have managed to survive that.
Mr King: We are okay at the moment,
absolutely. I am thinking that in 20 or 30 years' time China,
at its current growth rate, presumably there is a danger in extrapolating
it, will be consuming, in 20 or 30 years' time, the equivalent
of all of today's current global oil production, if it catches
up in the way that it has done so far. That can only mean that
you are going to end up with much, much higher energy prices,
other things being equal, over this next 20 or 30-year period.
We think of $70 a barrel being rather high, but whether we should
instead be thinking about 100 or 150, 200, 250, as possible numbers
I have got no idea, but certainly those kinds of number are possible
in a world where China and India continue to grow at these extraordinary
rates that we have seen recently.
Q41 John Thurso: I think, if we were
to get back to the energy price of the early seventies, in real
terms, it would be $200 a barrel, or about that, roughly speaking?
Mr King: There are different calculations,
but somewhere there. They mention 100 to 200.
Ms Rosewell: There was a significant
interruption in the UK's growth, as a result of that event, but
it was only an interruption. I have still got my ration-book somewhere,
which they issued, if you remember that. I found it the other
Q42 John Thurso: I think I have got
Ms Rosewell: We survived; but,
nonetheless, the `business as usual' actually survived that event.
Q43 John Thurso: How robust are the
commodity markets both internationally and particularly with regard
to energy in China and India? Obviously, for globalisation to
work smoothly, for all these different influences to be taken
account of, for prices to adjust in a smooth way which allows
for that, it needs a robust market. Are those markets robust?
Mr King: No. For China, the hit
really is felt by the refiners and wholesalers, because the prices
are happening in the world market and not being reflected fully
in the prices that the average consumer, or truck-driver, or whatever,
is paying for their fuel. Therefore, there is not a robust market.
I think it is fair to say though that 20 or 30 years ago you could
say arguably there were not robust markets in the industrialised
world. We have moved to what is very much a price-determined system.
China is still a long way behind that. What that really means
in China is that, rather than having the constraint coming through
on price you have the constraint coming through on quantity; in
other words, you have queuing systems developing. Effectively,
you end up with a rationing system, which is the kind of thing
you end up with if you have not got non-market clearance, so you
have huge, four- or five-mile-long queues to get to the petrol
station to fill up, because that is the only way in which you
are going get any petrol at all.
Q44 John Thurso: That takes me neatly
on to asking a little bit more about the environment. I think
there is a fairly clear consensus that global warming is either
one, if not the biggest threat we face, therefore there is a fairly
clear consensus that bringing down carbon emissions is an important
policy objective, yet you have just described the lack of market
mechanisms in China and other countries. Have we got, between
the drive for growth in those developing economies and our desire
to see a clean planet, two irreconcilable forces?
Ms Rosewell: I think it is impossible
to tell whether they are irreconcilable. I also think that although
there is certainly a consensus that there is not just global warming
but it is unprecedented global warming, and that it is to do entirely
with human activity, such a consensus exists but could still be
wrong. There are still arguments about how unusual the period
is and, indeed, how far it is only the result of human activity.
However, I agree that there is such a consensus and that means
that there is a strong policy impetus to do something about it.
I think, however, until that underlying tension is resolved in
the US there is very little chance of it being resolved anywhere
Mr King: If I could add some numbers
to this, according to the data I have, the US accounts for roughly
26% of global oil consumption and 24% of natural gas consumption.
China accounts for 8% of global oil consumption and 1.4% of natural
gas consumption. The UK accounts for 2.1% of oil consumption,
so with a population of 60 million we are about a third, or so,
or a quarter, of China, with 1.2 billion people, and our natural
gas consumption is 3.7% of the world total, compared with China
at 1.4%. The point I would make is that we should not lose sight
of the fact that we, in the rich, industrialised West, are the
major consumers of energy, and even if China grows quickly it
is still going to be quite a long way behind the US for a number
of years. Certainly, from the point of view of consumption per
head, it will still be way behind when it comes to 2030 or 2040,
by which time maybe its total consumption will equal that of the
Q45 John Thurso: That begs the question,
here we are, we have surfed the last wave of industrialisation
and globalisation very successfully; oops, we have now discovered
that what we are doing is not terribly good for the environment.
Now the other economies are starting to surge forward and we are
saying, "No, you can't do that." What can we do to ensure
that they can enjoy the growth they have got every right to, in
a functioning, global economy, but, at the same time, we can help
them to do it in a way that is as environmentally-friendly as
Ms Rosewell: I do not think we
have a chance of doing that unless we get our own house in order
first. I do not think we can preach to third countries unless
we are prepared to act ourselves. That is why I say that, until
this tension is resolved in the US, in particular, I do not see
how you can preach to China or India.
Q46 John Thurso: I cannot remember
which of you, I am sorry, but one of you started your summation
by saying that globalisation is driven as much by technology?
Mr King: Yes, I said that.
Ms Rosewell: Yes.
Q47 John Thurso: You both said that;
wonderful. Is that the answer, therefore, for us, what we can
do is drive headlong into technologies that we can export to them
that make it beneficial for them to be able to operate in a low
Ms Rosewell: Certainly we can
do that and we can also employ those technologies ourselves.
Mr King: I think the starting-point
is that we employ them ourselves, first of all, and then if we
can export them all well and good, but we start at home, first
of all, and not in China or India.
Ms Rosewell: Although, I think
some of the technologies, particularly micro-generation technologies,
will turn out to be very effective, particularly in these huge
countries with a very dispersed population. The costs of investing
in a grid, for example, and indeed it is quite interesting the
technical issues about the maintenance of a grid, need not ever
be made. You can actually have much lower-cost generation with
the kinds of technologies which are becoming available now. My
guess is, this is the route they will take anyway.
Mr King: It is the equivalent
of mobile `phone technology, which is much cheaper than having
fixed-line technology, and that is what the developing world is
Q48 John Thurso: Mark Todd was talking
about the movement of people, and you said that people have passports
and travel. In America, I believe, still only 14 million people
have passports, out of a population of whatever it is, but it
is a couple of hundred-plus million. Is that one of the biggest
threats we have, that America, which is the biggest polluter,
the biggest consumer of energy, actually is the least travelled,
and therefore the least aware of what is needed globally?
Mr King: I think the US does not
have the need to be as aware, if you like, of how dependent it
is on the rest of the world as, for example, the UK does. One
of the reasons for it is that the US is a huge internal market.
When you compare the US with the UK, what probably you should
be doing is comparing the US with the European Union as a whole,
but recognising that the political institutions in the US are
much, much stronger at the federal level than they are in Europe.
The need to look elsewhere is not quite so great because of the
size of the internal market within the US. It may actually reduce
the degree of understanding the US has of its dependency on developments
elsewhere in the world. Certainly, when it comes to the protectionist
issues, it seems to me that one of the reasons why the US is thinking
about that particular position is that it may recognise, and may
believe, whether rightly or wrongly, that protectionism will actually
hurt others more than it hurts the US and in a relative sense
the US comes out of the story reasonably well.
Q49 Chairman: Against a background
of ageing populations in the West, obviously we are going to become
more dependent on workers from India and China for sources of
labour. How much of this will come from greater offshore outsourcing
and how much will be from greater inward migration into the UK?
Ms Rosewell: I think that will
depend upon the pace of development in relative economies. In
other words, if it becomes easier to earn good money in your home
location then that is what you will do; if you see the opportunities
there, you stay. Why become an economic migrant to somewhere halfway
across the world if you can do well in your own country? Indeed,
one of the things I think is becoming clear in India is that now
increasing numbers are returning to India to invest and to start
businesses, and so on.
Mr King: The same is true of China
Ms Rosewell: The same is true
of China. The easier it is to do well in your own country the
less incentive there is to leave; that is one thing. The other
thing is that I would challenge your preamble a little, because
I think the real response to an ageing population is simply that
the domestic population will have to work longer, not just that
we will rely upon more imported labour.
Q50 Chairman: It is not going to
be easy to achieve?
Ms Rosewell: It is not going to
be easy to achieve, but it is necessary.
Mr King: I must say, I think you
will see at the margin some shift towards reliance on labour elsewhere
in the world, as, effectively, as citizens, as a collective
group, we have become less proportionately workers and more proportionately,
I suppose, capitalists, for want of a better word.
Ms Rosewell: Rentier.
Mr King: Rentier, yes; so therefore
we have to rely on the efforts of people elsewhere in the world,
whether they come here or whether our capital goes there. That
raises some issues, longer term, about protection of property
rights, going back to your earlier issues about China, which is
that when you invest elsewhere in the world are you absolutely
sure that what you own you will continue to own.
Q51 Chairman: I think you have already
answered the next question I am going to put to you, particularly
Stephen, but for the public record I think it is important to
put it. Is the UK investing enough in China and India to benefit
from the growing working age population in the future?
Mr King: I do not know what `enough'
is, actually. I do not know how to quantify that.
Ms Rosewell: Could you invest
more; almost certainly, yes. Is it sufficient, that it will enable
us to capture a lot of the gains, I do not know the answer to
that question, actually.
Mr King: I think I would like
to broaden it away from just China and India, because a lot of
the capital flows are going to Central and Eastern Europe, parts
of the Middle East perhaps, in the future, parts of Latin America.
One thing to bear in mind here is that China is actually rather
different from the majority of developing markets, in the sense
that China has a population which is ageing as quickly as that
of America, so really if you want to look for the really youthful
populations elsewhere in the world you have to look to the Middle
East, to India and Latin America.
Chairman: Thank you very much for your
presence this morning. It has been very helpful to us. We have
a long way to go before we come to our conclusions, but you have
already assisted us. Thank you very much.