Episode 1 The Party's Over: How the West Went Bust


Episode 1

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The world today faces a fundamental shift in the balance of power

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from west to east.

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The global economy is on the edge of a precipice.

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'Mayhem on the markets.

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'Fears of contagion in the eurozone sends stocks tumbling.'

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'The Dow fell as much as 705 points,

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'as traders watched in disbelief.'

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'Anxiety over the Greek debt crisis spooked markets

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'in Europe and Asia again today.'

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Since the crash of 2008

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Western banks, and now governments, have lurched

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from catastrophe to crisis.

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This is the most serious financial crisis we have seen,

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at least since the 1930s, if not ever.

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We still haven't had the full consequences of this crisis.

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In this series I investigate how globalisation went badly wrong,

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and what we can do to mend our economy.

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Unless we fix our tax system, financial system,

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Social Security system,

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it's game over.

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Years of borrowing by banks, households, companies

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and governments have left many of us in the West hopelessly in debt.

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What we've been doing is funding an unsustainable lifestyle.

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We used to talk about debt being a developing country problem.

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It's now a developed country problem.

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Now countries like China are in the driving seat.

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PRESIDENT OBAMA: We are facing an economic crisis that has left millions of our neighbours jobless.

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-DAVID CAMERON:

-Some people say that to succeed in this world,

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we need to be more like China.

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This is the story of how we kidded ourselves that we had found

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the secret of ever rising prosperity.

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In truth, our long boom was founded on a dangerous lie.

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The financial sector was saying house prices are never going to fall across the board,

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"Don't even worry about it, it hasn't happened since the Great Depression."

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-Well, it did happen.

-And that's when the party came to an end.

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Shanghai, the fastest-growing city in the world,

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home to 23 million people.

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It's China's capital of commerce,

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and the city has helped China accumulate reserves in excess of 3 trillion.

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So, if you want to find out why we seem to be losing

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the global economic battle, we first need to meet the winners.

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TRANSLATION: My parents wanted me to do an easy job as a sales girl,

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working in a retail store.

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But I felt I would be a salesgirl for my whole life

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if I took that job.

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So I chose to be a worker at a factory.

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Though the job was hard, it would give me a better future.

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'Rena Li works for NVC, a lighting company based in Shanghai.

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'She's worked hard to reach her position as purchasing manager.'

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TRANSLATION: My dream was to go to university.

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It took me two and a half years working in a factory to get there.

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It was a tough time for me.

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I had to work all day, and even nights sometimes,

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and I had to study in my time off.

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But finally, I managed to enrol at university.

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She began work at NVC in 2007.

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In less than 13 years, it's come from nowhere

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to be the world's second largest lighting company.

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It's part of the new global order,

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where China and the other developing economies

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make much of what the richer countries, like ours, need.

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At its heart, there's a simple formula.

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TRANSLATION: In terms of my salary,

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I'm paid £15,000 to £20,000 a year.

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Rena is one of China's rapidly growing middle classes.

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She's paid more than her parents and grandparents ever thought possible.

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But it's far less than what she would be paid in the UK.

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The differences are even starker on the factory floor.

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-TRANSLATION:

-I earn about £250 a month.

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That's if I work about 30 to 40 hours overtime.

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-TRANSLATION:

-As a woman, I would not be able to earn more than £200 a month

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if I worked in the countryside - it's just not possible.

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This job is good experience.

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One day, I plan to go back to my hometown

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and set up a small business. I won't do this job all my life.

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Here it is - the whirring and clicking,

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assembling and manufacturing manifestation of globalisation,

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which lifted hundreds of millions of people in Asia and here in China

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away from the breadline through the creation of jobs. In the rich West,

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we got the things that we wanted and needed much, much cheaper.

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Everybody seemed to be a winner,

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except that the economic system which developed

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contained a lethal flaw.

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The flaw was that we bought vast quantities of consumer goods

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from countries like China with borrowed money.

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We haven't been working hard or smart enough

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against the challenge from China and the other developing economies.

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Households, you and I, borrowed too much.

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Banks that lent to us also became too indebted.

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Now we're concerned that our governments too have borrowed

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more than they - we - can afford.

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We're struggling to pay the money back

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and are beginning to recognise - painfully -

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that we face years of low growth,

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or what we're beginning to think of as a new age of austerity.

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So, how did we get into this mess?

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One clue may be found in Longbridge in Birmingham.

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Rena's company, NVC, exports all over the world.

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And it has a branch in what was once Britain's industrial heartland.

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In the UK, at the moment,

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we are largely an importing and distribution operation.

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We have a large warehouse.

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Product comes straight in from the Far East

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and, for the most part, it goes straight out again.

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This is the higher rated LED version...

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'I'm the marketing and product manager for NVC Lighting. Which means that I'm responsible

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'for marketing activities here in the UK, plus a bit overseas as well.'

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And I'm also responsible for what's in our product range,

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what are the next products we develop.

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'I'm paid between mid-40s to mid-50s thousand pounds a year.

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'It's not a lavish salary, but it's probably the going rate

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'for somebody with my responsibilities in the manufacturing sector.'

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James Hunter Johnston is at the same mid-management level in the company

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as Rena is in Shanghai.

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But he earns three times as much as she does.

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The pay differences are sharp on the shop floor as well,

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which is where Trevor Foster works.

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I'm a production operative at NVC Lighting.

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Basically, we convert standard lighting fittings

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into emergency fittings.

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I normally work a 42-hour week.

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My basic without any overtime is...

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about £1,000 net, that's after tax and everything.

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But, with the overtime, you can earn £1,200,

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£1,300 if you get a good month.

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Trevor's salary is more than FOUR times

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what the people who actually make the lights are paid.

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Kind of lucky that it's a Chinese company, cos at the moment

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China seems to be the place to be, they're doing quite well financially.

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So, you know, we've got plenty of work where I am,

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so I can't complain.

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For the moment, NVC's Birmingham plant is little more than a warehouse to distribute goods

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that are made much more cheaply in China, where the economy is booming.

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It's a pattern reflected across the world.

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Developing countries making things and getting richer,

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many Western countries stagnating. How did it happen?

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We can blame greedy bankers, high-spending governments,

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our own profligacy. But there are also deeper causes,

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and to find the answer, we need to delve back into China's past.

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In 1978, Deng Xiaoping took over the leadership of a country

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devastated by a disastrous economic experiment.

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China was JUST beginning to emerge from

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probably the lowest point in its development

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for several hundred years, possibly for even a thousand years.

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That was the inheritance that Deng Xiaoping took on when he took power,

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and that was really the assignment that he had handed to him -

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how to dig China out of this deep trench of developmental malaise.

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More than 30 million Chinese had starved to death in the 1960s,

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and millions more were left to wander the countryside destitute.

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For older Chinese people, that misery feels like yesterday.

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Thank you very much. Delicious meal you've cooked here.

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Memories of hunger are acute for Rena's parents.

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TRANSLATION: Life in the countryside was very tough.

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We didn't have enough to eat.

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Family life has changed a lot now.

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Almost every family has a telephone, almost everyone has a mobile.

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-TRANSLATION:

-And cars.

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TRANSLATION: We could never have dreamed about these things before.

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-Gan bei.

-"Gan bei" means "bottom up".

-Bottoms up. Gan bei.

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Deng transformed a country and, eventually, the world

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by progressively introducing elements of capitalism

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into communist China.

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'He got criticised from many quarters

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'and Deng in his typically pithy, fiery Sichuanese way

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'replied with the immortal phrase,'

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"It doesn't matter if the cat is black or white,

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"as long as it catches mice."

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Which, although it was never explicitly stated

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was understood by everyone to mean, "It doesn't matter if China

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"is capitalist or communist as long as it gets richer and stronger."

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At the same time as Deng was setting China on its course to become

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the world's second biggest economy, and perhaps its most powerful,

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Britain was beginning to go the other way.

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'Rail fares are going up for the third time in 12...'

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'The pound plummeted to its lowest level...'

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'British Leyland shares have been suspended on the Stock Exchange...'

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'..generally unemployment is suddenly a lot worse.'

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The UK's traditional industries had become inefficient,

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often nationalised, and torn apart by strikes.

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In 1979, a leader came to power who, like Deng,

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challenged and destroyed powerful vested interests.

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Very excited. Very aware of the responsibilities.

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'In the most basic terms,

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'Thatcher's vision was to let the market free.'

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She believed that the state had become far too dominant

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and that we should take the shackles off industry,

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take the shackles off finance, cut taxes, deregulate

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and let private business, the private sector,

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drive the economy forward.

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The best way to think about Mrs Thatcher is she was a classic Conservative.

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Classic Tory constituencies were looked after by her

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and classic Tory enemies were taken on.

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Nowhere was economic change felt more keenly than in Longbridge,

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home to the mass market car-maker British Leyland.

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On a vast, sprawling industrial site,

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by the '70s, this motoring giant was in seemingly perpetual crisis.

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We are invincible! CHEERING

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The Chinese company NVC's UK Marketing Manager,

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James Hunter Johnson, started work in 1979,

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the year that Mrs Thatcher came to power.

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Industrial disputes were almost a monthly activity.

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At least every year, there'd be some sort of industrial disruption

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around about the time when wage rates were being renegotiated.

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We actually had a lock-out.

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So, the workforce actually occupied the factory,

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the management was locked out for at least two or three weeks

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and production, of course, just stopped completely while that was going on.

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It's been an extremely bumpy career to have

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over these last 30 years in manufacturing industry.

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I've almost given up counting the number of times I have changed jobs,

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but it must be 10 or 15 times now.

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NVC's premises in the UK reflect the changing of the guard.

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Its warehouse is perched on a hill overlooking the desolate former home

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of the motor manufacturer, where Trevor Foster once worked.

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I've done numerous jobs over the years,

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mostly in the car industry.

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My last job before this one, I ended up at Continental.

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We made petrol pumps for a lot of the big car companies -

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Landrover, Jaguar, Volvo, etc.

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Unfortunately, they had to ship the business off to the Czech Republic

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cos it was proving to be too expensive to produce parts in this country.

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So it all got shipped off to the Czech Republic

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and we all got made redundant.

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In Britain AND in the US,

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manufacturing employment slumped in the 1980s.

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Under Margaret Thatcher and under US President Ronald Reagan,

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a different kind of global economics was taking root

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which would eventually lead to the great unravelling

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we're now experiencing.

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The fundamental problem in both the United States and the UK

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was that beginning with Thatcher and Reagan there was this ideology

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that markets were efficient and self-regulating.

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-How ARE you?

-I'm fine. How are you?

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'They thought that the private sector could do no wrong

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'and that we didn't need to have regulation

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'and we could cut tax rates'

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and the economy would produce a lot more revenue.

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A lot of this was just hogwash and ideology.

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In 1986, Margaret Thatcher's love of free markets

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unleashed a financial revolution called Big Bang.

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It spurred the creation of the modern banking system

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which in 2007-08 came close to bankrupting itself and us.

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25 years on from Big Bang, there's still some nostalgia

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for the regimented order of the London Stock Exchange's trading floor -

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gone, along with tight restrictions on what firms could do.

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Although it was very sad that you had this amazing club

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for the last God knows how many years coming to an end,

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it was going to throw up a great, new opportunity

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which actually turned out to be very successful.

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Big Bang allowed big international banks to buy up stockbroking firms.

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High street retail banking was combined with more risky investment banking,

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and vast financial conglomerates were created.

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'Immense money was flowing around at the time.

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'Everything became magnified by a huge amount'

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because of the amount of money that came rolling in.

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And...salaries were going up.

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Certain people were in great, great demand and paid huge salaries.

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Basically, everyone was earning more, whatever you were doing.

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It was sort of Champagne times

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and things were very, very exciting across the board.

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The culture of British finance changed in a fundamental way.

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Banking should be boring.

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I was in banking 25 years ago -

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it was a pretty boring business.

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And then, of course, we had things like Big Bang in the UK,

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where basically banking combined with trading activities,

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with merchant banking, hedge funds and so on.

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And so now your bank is just as likely to be spending

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quite a lot of its time, and maybe even more of its money,

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on Delta One trading.

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If you can define what that is, you're doing better than

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chief executives of a number of the banks.

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With the arrival of impenetrable complex financial concepts,

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such as Delta One trading,

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London became the world's leading international financial centre.

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Totally took away the character of the City.

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All of a sudden, we're all sitting behind television screens

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and talking on telephones, and very soon, one doesn't know

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who one's talking to at the end of that telephone.

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I'm sure it has been very, very good for the City, yeah.

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I mean, it's been marvellous for the City.

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The numbers that are around now.

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The trade that takes place on a daily basis is absolutely colossal.

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The rise of financial services in the 1980s and '90s,

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as manufacturing shrank seemed to be the answer

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for a country struggling to compete in the world.

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But it was to create an economy that now seems unbalanced

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and unable to grow.

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While Britain was embarking on its financial revolution,

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in America, the emperor of all free marketeers

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was ascending his throne to become the world's most powerful central banker.

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Alan Greenspan was appointed by Ronald Reagan

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to be Chairman of the US Federal Reserve.

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'Greenspan was somebody who believed very passionately

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'in the primacy and efficacy'

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and morality of free markets.

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This wasn't just a technician, a man who understood central banking.

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This was a man with an ideological commitment

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and that ideological commitment had consequences.

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One consequence of the triumph of the free market was

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an astonishing surge in the pay of those at the top.

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Banks and financial firms took bigger and more dangerous risks

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to generate bigger profits and huge pay packets.

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And when the bosses of our mainstream companies

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saw the spectacular rewards that were going to bankers,

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hedge fund managers, private equity partners,

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they too demanded and got absolutely enormous pay rises.

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The gap between the very richest and the very poorest widened

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at a pace we hadn't seen since the Victorian era.

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When you look at the multiples of an executive pay

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to the median, or middle, of the workforce,

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they're broadly stable throughout the 20th century

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until you get to the 1980s, and then you get the take-off.

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The multiple of top pay to the middle was about 25 to one.

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Today it's over 150 to one. It's gone up six times

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in just over 25 years.

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That's a breakdown of basic morality.

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These CEOs don't deserve these compensations.

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Typically, the highest-paid ones

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lose the most money for their companies.

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So it's really...

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corporate theft.

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Pure and simple.

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Overwhelmingly, the benefits went to the top people,

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the most sophisticated people, the managers,

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the people who were plugged into the benefits of the global economy,

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whose companies were making very high profits.

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But what about the rest of us? How did we do?

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Real wage growth, in terms of take-home pay,

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of the typical American worker,

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has been zero since the mid-'60s.

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As Britain deindustrialised, over the same period,

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you had the service sector expand and high-end skills

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were better rewarded and valued.

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So that meant that, of course,

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if you were not a high-skilled worker,

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your income would have fallen

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cos the work that you previously did

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would have been done by developing countries

0:21:550:21:58

who could do it more cheaply.

0:21:580:21:59

What was happening was incomes were going down.

0:22:020:22:06

People would have been very unhappy

0:22:070:22:10

if their standard of living went down as their incomes went down or stagnated.

0:22:100:22:15

So, in effect, we came up with a solution.

0:22:150:22:18

We said...

0:22:180:22:19

.."Consume as if your income was going up."

0:22:210:22:24

Well, now, how do you consume as if your income is going up

0:22:240:22:28

when your income is going down? Only one way - debt.

0:22:280:22:32

-Are you sure you've got everything, Money?

-Let me see. Wine, Camembert...

0:22:330:22:37

The financial revolution spawned a debt revolution.

0:22:370:22:41

In the new, deregulated world,

0:22:410:22:44

everyone could have a loan, a credit card.

0:22:440:22:47

-I'm so glad you came along, Access.

-That's what friends are for.

0:22:470:22:50

Our incomes may have been rising relatively slowly,

0:22:500:22:55

but we could boost our living standards by borrowing to buy.

0:22:550:22:59

Debt changed from a risk to a must.

0:22:590:23:01

Suddenly you had a society in which

0:23:010:23:04

the ruling elite increasingly were obsessed with money

0:23:040:23:07

and that fed down through the media in all sorts of ways.

0:23:070:23:11

Barclaycard! You're not in Macclesfield now, Bob.

0:23:110:23:14

'It became the case that we were absolutely obsessed

0:23:140:23:18

'with the pursuit of money, possessions, appearances, fame.'

0:23:180:23:21

Crucially, if the people at the top are offering that as a model,

0:23:210:23:25

the people at the bottom are going to be influenced by it.

0:23:250:23:28

-It's a Barclaycard, Latham.

-Yes.

-'Our values had completely changed.

0:23:280:23:32

'We wanted more, we wanted better.'

0:23:320:23:34

We were encouraged to spend, spend, spend

0:23:340:23:37

and we borrowed, borrowed, borrowed.

0:23:370:23:39

This is part of the house that was added, I think,

0:23:450:23:48

in Victorian times. This is maybe about 100, 110 years old.

0:23:480:23:52

But really this is why we bought it,

0:23:520:23:54

because we just wanted somewhere to bring up the children

0:23:540:23:57

which gave them more space, somewhere to play in the garden.

0:23:570:24:00

James Hunter Johnson bought his dream house in the early 1990s.

0:24:000:24:06

In those days, it wasn't difficult to borrow money to buy property.

0:24:090:24:13

I think everyone was confident property values would go on rising.

0:24:130:24:18

So taking on a big mortgage - which we did in order to buy this -

0:24:180:24:22

didn't seem to us to be a great risk.

0:24:220:24:25

I think we were just generally confident

0:24:250:24:28

that salaries would continue to creep upwards,

0:24:280:24:30

that would give us the money that was necessary

0:24:300:24:33

to either make improvements or to,

0:24:330:24:35

in due course of time, pay off the mortgage.

0:24:350:24:39

I think people felt themselves getting richer

0:24:410:24:43

because their houses were becoming more and more valuable

0:24:430:24:46

and that gave them the sense of confidence to borrow more

0:24:460:24:49

for consumption, for credit,

0:24:490:24:51

and that kept the whole thing bubbling,

0:24:510:24:54

the whole machine turning.

0:24:540:24:56

WORKERS SING IN MANDARIN

0:24:560:24:59

Meanwhile, China was building new factories and selling more overseas.

0:25:050:25:10

Vast amounts of cheap and initially low-quality Chinese goods

0:25:100:25:14

were making their way to Western markets.

0:25:140:25:17

But the road towards liberalisation stalled,

0:25:210:25:24

in 1989, when the Chinese authorities

0:25:240:25:26

ruthlessly suppressed students demonstrating for democracy

0:25:260:25:30

in Tiananmen Square.

0:25:300:25:33

The whole country froze.

0:25:400:25:42

And economic work of all types

0:25:420:25:44

was put onto a backburner and many of the economic reforms

0:25:440:25:48

that had begun in the 1980s were effectively stalled.

0:25:480:25:52

With resentment building inside the country,

0:25:520:25:56

the Communist Party realised something drastic had to be done

0:25:560:26:00

to accelerate growth and boost living standards.

0:26:000:26:02

In the summer of '92, Chairman Deng

0:26:020:26:05

went on a historic tour of China's southern economic zones.

0:26:050:26:09

'The situation was getting so bad

0:26:090:26:12

'that eventually the leadership in Beijing realised'

0:26:120:26:16

that if they didn't do something to generate economic growth,

0:26:160:26:20

they perhaps would not be able to create enough jobs

0:26:200:26:24

to keep the population acquiescent.

0:26:240:26:26

And it was then that Deng Xiao Ping -

0:26:260:26:29

by this time an old and frail man, hard of hearing -

0:26:290:26:33

decided to take matters into his own hands.

0:26:330:26:36

-TRANSLATION:

-I remember he gave a speech on his southern tour.

0:26:420:26:46

Obviously, he encouraged us to be open-minded.

0:26:480:26:53

He wanted us to try new things...

0:26:530:26:56

..to move fast and not be afraid.

0:26:590:27:02

Wu Changjiang is the founder

0:27:080:27:10

and chief executive of Rena's company, NVC.

0:27:100:27:13

'19 years ago, he was a penniless student.

0:27:130:27:17

'Deng's tour changed his life.'

0:27:170:27:20

-TRANSLATION:

-It was a big encouragement

0:27:240:27:26

for college students like me.

0:27:260:27:28

That was the reason I moved to Guangdong at the end of 1992.

0:27:280:27:32

The things that he said lit a kind of prairie fire

0:27:330:27:37

under the Chinese economy

0:27:370:27:39

that really got it moving in the second half of 1992.

0:27:390:27:43

The whole country just wanted to get going

0:27:430:27:45

and he'd given them the permission to engage in, as it were,

0:27:450:27:49

capitalist economic activity.

0:27:490:27:52

As China's growth accelerated in the 1990s,

0:27:530:27:57

Wu scraped together the £1,500 he needed to start his own company.

0:27:570:28:00

Today he's worth over 300 million.

0:28:000:28:04

There are literally thousands of such industrial success stories

0:28:060:28:10

across a country whose economy

0:28:100:28:11

has expanded six-fold in the 20 years since Deng's famous tour.

0:28:110:28:17

-TRANSLATION:

-My success is not a big deal.

0:28:170:28:20

My generation just had more opportunities than my parents'.

0:28:200:28:23

Reform and the Opening Up policy

0:28:230:28:25

gave us the opportunities which they didn't have.

0:28:250:28:28

MUSIC: "Alive And Kicking" by Simple Minds.

0:28:280:28:32

While Mr Wu was scrimping to create and build his business,

0:28:320:28:36

Britons had begun spending in earnest.

0:28:360:28:39

The era of big money and big consumption

0:28:390:28:42

was epitomised by our national game.

0:28:420:28:44

The Premier League was launched in 1992 and back then,

0:28:480:28:52

the average wage of a Premier League player

0:28:520:28:54

was six times that of most fans.

0:28:540:28:57

Today, our top stars are paid around £200,000 a week,

0:28:580:29:02

-an incredible

-400

-times what a typical British fan earns.

0:29:020:29:06

The 1990s spending spree was the start of the longest period

0:29:090:29:12

of rapid uninterrupted economic growth in our history.

0:29:120:29:16

But in a way we were cheating to win,

0:29:160:29:19

although the ref didn't notice till the game was over.

0:29:190:29:22

Under normal circumstances,

0:29:270:29:29

the carefree spending of the 1990s would have led

0:29:290:29:32

to sharply-rising household inflation

0:29:320:29:34

and interest rates would've shot up to hold inflation in check.

0:29:340:29:38

But, in the 16 years before the crash of 2008,

0:29:380:29:42

none of that happened.

0:29:420:29:43

And if that was a good thing, we have the Chinese to thank.

0:29:430:29:46

The prices of the things we wanted to buy,

0:29:460:29:48

many of them made in China, became cheaper and cheaper.

0:29:480:29:53

Every one of our pounds bought more of the stuff we coveted

0:29:530:29:56

thanks to the industry of the Chinese working 18-hour shifts

0:29:560:30:00

and earning just a few dollars a day.

0:30:000:30:03

I came here to talk about the economy today with Mr Greenspan.

0:30:080:30:11

If he wants to express his opinion on that subject,

0:30:110:30:14

-I'll be glad to hear it.

-LAUGHTER

0:30:140:30:17

Western leaders of all persuasions

0:30:170:30:19

didn't worry whether rapid growth fuelled by debt might be dangerous.

0:30:190:30:23

No surprise there -

0:30:230:30:24

elections are easier to win if we're all feeling richer.

0:30:240:30:28

'Even politicians of the centre left -

0:30:300:30:32

'the Tony Blairs, the Bill Clintons - embraced globalisation.

0:30:320:30:36

'In fact, that was one of their badges of modernity

0:30:360:30:38

'that they weren't bad old lefties,

0:30:380:30:40

'they were people who "got it", who got the modern world.'

0:30:400:30:43

They wouldn't, er... accept the argument

0:30:430:30:46

that actually competing with Chinese workers

0:30:460:30:50

would have a deleterious effect on the incomes of people in the West.

0:30:500:30:54

That was regarded as backward, old thinking.

0:30:540:30:57

I think the most that Clinton or Blair and their advisors said is,

0:30:570:31:01

"Yeah, there'll be a transitional problem."

0:31:010:31:03

Of course you can see, you know, if a factory closes here

0:31:030:31:07

and reopens in China, there's a pretty clear cause and effect.

0:31:070:31:11

But the argument was, "You can't stand in the way of that.

0:31:110:31:14

"That's standing in the way of progress."

0:31:140:31:16

CHEERING

0:31:160:31:17

Our leaders insisted that consistent growth of around 3% a year

0:31:170:31:21

was no more than our right.

0:31:210:31:23

High inflation was gone for good. Boom and bust had become boom and boom.

0:31:230:31:28

The good times would go on and on.

0:31:280:31:31

Borrow only for investment,

0:31:320:31:35

hold debt down,

0:31:350:31:37

earn before you spend,

0:31:370:31:39

don't live on tick.

0:31:390:31:40

I want this to be the New Labour government

0:31:410:31:45

that ended Tory boom and bust forever.

0:31:450:31:50

But the year Tony Blair came to power

0:31:570:31:59

was actually to witness the first cracks in globalisation.

0:31:590:32:02

Some emerging economies of the East,

0:32:020:32:04

the so-called Tiger economies like Thailand, South Korea and Malaysia,

0:32:040:32:09

had borrowed heavily from overseas to finance their development.

0:32:090:32:12

The markets took fright.

0:32:120:32:15

Could they repay those debts?

0:32:150:32:17

Countries that had been saving quite a bit,

0:32:200:32:22

that had run reasonably responsible governments,

0:32:220:32:25

hadn't run up large budget deficits

0:32:250:32:28

but had borrowed to finance their growth,

0:32:280:32:30

suddenly found the banking sector under attack,

0:32:300:32:33

the currency under attack...

0:32:330:32:35

wholesale unemployment without unemployment insurance.

0:32:350:32:39

As Western investors began to dump local currencies

0:32:390:32:43

and call in what they were owed,

0:32:430:32:46

the Asian Tiger economies slumped.

0:32:460:32:48

'The IMF marched in, took away their sovereignty,

0:32:480:32:51

'converted downturns into recessions, recessions into depressions.

0:32:510:32:55

'The result of that, as one of the prime ministers of one of the countries said to me,'

0:32:550:32:59

"Never again. We were in the class of '97.

0:32:590:33:03

"We will never let that happen to us again."

0:33:030:33:05

And many of them said, "Never again.

0:33:050:33:07

"Never are we going to get into a position

0:33:070:33:10

"where outside financial markets have this kind of sway over us."

0:33:100:33:14

Western protesters saw the crash of the Tiger economies as evidence

0:33:170:33:21

that globalisation was a new way for the rich West

0:33:210:33:23

to exploit the developing world.

0:33:230:33:26

But if they were right, the tables were about to be turned.

0:33:260:33:30

Those emerging economies of the East,

0:33:300:33:32

burned by the experience of borrowing money on world markets,

0:33:320:33:37

pledged never again to be dependent on Western speculators.

0:33:370:33:41

Across Asia, governments vowed to generate growth from resources,

0:33:430:33:47

to save and invest, to export far more than they imported.

0:33:470:33:52

And nowhere did the cult of thrift become stronger than in China,

0:33:520:33:56

at the level of the state and of the individual.

0:33:560:34:00

'Rena may earn a third of her British counterpart,

0:34:020:34:04

'but she still manages to save.'

0:34:040:34:07

TRANSLATION: I usually spend at least half of my salary on my family,

0:34:100:34:15

including education fees for my daughter Lin Lin.

0:34:150:34:18

I manage to save £6,000-£7,000 a year.

0:34:200:34:24

I save the money for my parents' healthcare.

0:34:270:34:30

They are getting older and China's healthcare system

0:34:300:34:33

is still not good enough. On top of that,

0:34:330:34:35

I want to send Lin Lin to study abroad in the future.

0:34:350:34:39

So I need to start saving for her as early as possible.

0:34:390:34:42

The high savings rate in China

0:34:470:34:49

really comes down to the lack of social welfare.

0:34:490:34:53

People fear that when they get old, they won't have a pension,

0:34:530:34:57

when they get ill, nobody will be able to pay for them in hospital

0:34:570:35:02

and so they save like crazy at the moment for that rainy day.

0:35:020:35:06

Under the umbrella of an expensive welfare state

0:35:080:35:11

and national health system,

0:35:110:35:14

we seem less worried by rainy days.

0:35:140:35:17

So how much do WE save?

0:35:170:35:19

I save about...

0:35:190:35:21

Zero. Absolutely none of it at all.

0:35:210:35:23

Hardly anything. Nothing much at the moment, unfortunately.

0:35:230:35:26

Very little at the moment. Yes.

0:35:260:35:29

Most of my salary is taken from me before I even get it, to be honest.

0:35:290:35:33

I'd say probably about 10%.

0:35:330:35:35

-Not a lot, to be honest.

-Nothing at the moment.

0:35:350:35:38

Fraction-wise?

0:35:380:35:40

About a sixth.

0:35:420:35:43

-None.

-None.

0:35:430:35:45

And what are they saying about their saving habits

0:35:470:35:50

on the streets of Shanghai?

0:35:500:35:52

TRANSLATION: I save at least 50% of my salary. It's true!

0:35:540:35:59

How could I survive?

0:35:590:36:01

I have to save money to buy a house and for my children's education.

0:36:010:36:05

About 50%.

0:36:050:36:06

My husband and I, we both earn our living,

0:36:060:36:09

so we spend one salary and save the other.

0:36:090:36:12

About 30%.

0:36:120:36:15

About 40%.

0:36:160:36:18

I save for a rainy day, in case something comes up.

0:36:200:36:24

Saving is a safe and stable way to manage my money.

0:36:240:36:28

The Chinese consume half as much as we do,

0:36:340:36:37

relative to the size of their economy.

0:36:370:36:39

They save much, much more.

0:36:390:36:42

What's more, in the decade before the crash,

0:36:420:36:44

the great producing and exporting countries -

0:36:440:36:47

China, Japan and Germany -

0:36:470:36:49

leant their vast savings or surpluses

0:36:490:36:51

to the consuming economies - the US and much of Western Europe -

0:36:510:36:55

at a rate of a trillion dollars every year.

0:36:550:36:58

The global economy was becoming dangerously, grotesquely unbalanced.

0:36:580:37:03

The West was saying,

0:37:040:37:07

"Let's encourage consumption. That will encourage growth."

0:37:070:37:10

China says, "Yes, we are a high-savings economy.

0:37:120:37:15

"We have a trade surplus. We are a developing country.

0:37:150:37:18

"We want to sell a lot overseas."

0:37:180:37:21

This is how you grow, this is how you catch up.

0:37:210:37:24

And so you had a meeting, in some sense, of minds here.

0:37:240:37:27

The developing economies, especially in Asia, saying,

0:37:270:37:30

"We want export-led growth.

0:37:300:37:33

"We are going to produce for consumers elsewhere."

0:37:330:37:35

And consumers in countries like the United States, the UK, Spain,

0:37:350:37:40

increasing the consumption fuelled by credit,

0:37:400:37:43

some of that credit coming from these very exporters,

0:37:430:37:46

who are now saving much more and willing to finance.

0:37:460:37:49

The painful legacy of all that lending by the producing countries,

0:38:020:38:05

such as China, is the millstone round our necks

0:38:050:38:08

of record personal indebtedness.

0:38:080:38:11

Our mortgages, credit card debts,

0:38:110:38:14

personal loans and overdrafts have soared from £177 billion

0:38:140:38:19

at the time of Big Bang to £1.5 trillion today

0:38:190:38:24

that's more than the value of everything the UK produces in a single year.

0:38:240:38:29

And here's what's particularly worrying.

0:38:290:38:32

If interest rates return to anything like normal levels, well,

0:38:320:38:37

the interest burden for millions of families would be crippling.

0:38:370:38:42

On average, every single British adult owes £30,000 -

0:38:440:38:48

or a burdensome 165% of after-tax income.

0:38:480:38:53

That has come down a bit, but our personal debts

0:38:530:38:57

are still the biggest they've been in our history

0:38:570:38:59

and unaffordable for many.

0:38:590:39:01

My attitude towards debt is I try not to worry.

0:39:060:39:10

I suppose, at times, we have to live beyond our means now

0:39:100:39:12

because the way prices are going,

0:39:120:39:16

it's a struggle to keep afloat, if you like.

0:39:160:39:19

As regards to our bills, and our credit card,

0:39:190:39:21

we try to pay the card off as quickly as possible.

0:39:210:39:24

We are getting squeezed from every direction.

0:39:240:39:27

I like to live in quite a large, spacious house

0:39:310:39:35

with a large and spacious garden

0:39:350:39:37

and that always seems to need something to be done to it.

0:39:370:39:40

Unfortunately, the house is mortgaged.

0:39:400:39:42

I'd much prefer if it were not,

0:39:420:39:44

but our monthly outgoings to service the mortgage

0:39:440:39:48

is of the order of about £500 per month.

0:39:480:39:51

There were times when, really, one went to the hole in the wall

0:39:510:39:56

and I wasn't quite sure if any money was going to come out.

0:39:560:40:00

It absolutely got to that stage.

0:40:000:40:03

That's not the situation we're in at the moment but, even so,

0:40:030:40:06

with the mortgage payments and the children, it's pretty close to the bone.

0:40:060:40:10

There is really very little spare at the moment.

0:40:100:40:12

But it wasn't just consumers who took on excessive debts.

0:40:180:40:22

Western banks borrowed recklessly to lend to us,

0:40:220:40:25

taking dangerous risks to inflate their profit and pay.

0:40:250:40:29

On the face of it, the story that was told

0:40:320:40:35

was of these institutions having achieved

0:40:350:40:39

a much greater level of profitability

0:40:390:40:43

than ever previously seen.

0:40:430:40:46

Almost all of that increase was driven

0:40:470:40:50

not by banks having miraculously discovered

0:40:500:40:54

a money-making machine,

0:40:540:40:56

but rather by them gearing up their balance sheet.

0:40:560:41:00

If you go back just 10 years,

0:41:000:41:02

the UK banking system had almost no external borrowings.

0:41:020:41:06

By the end of 2007, it had £800 billion or so.

0:41:060:41:09

So the banks went on their own borrowing binge

0:41:090:41:12

in order to finance consumption in the economy generally.

0:41:120:41:15

They should not have done that.

0:41:150:41:17

For the UK and other banks,

0:41:170:41:20

a large chunk of that borrowing came from overseas.

0:41:200:41:24

So it was global imbalances

0:41:240:41:28

that were providing the fuel for this money-making machine.

0:41:280:41:32

It was debt, borrowed from overseas,

0:41:320:41:36

that was providing the fuel for this machine.

0:41:360:41:38

People, banks, governments and companies all borrowed

0:41:410:41:44

while money was cheap and plentiful.

0:41:440:41:48

If you add all that debt together, it's equivalent to almost five times our national output,

0:41:480:41:52

more than for any other big economy, except possibly Japan.

0:41:520:41:55

Capital, money, was surging to those parts of the world

0:41:550:41:59

where mainstream economic theory said it shouldn't be going.

0:41:590:42:03

Money was flowing not to those parts of the world

0:42:040:42:08

where investment opportunities were greatest - the East -

0:42:080:42:13

but instead it was flowing uphill

0:42:130:42:17

to finance not investment, but consumption in the West -

0:42:170:42:22

in the US and in the UK.

0:42:220:42:24

It's both a deficit problem and it's a surplus problem.

0:42:250:42:30

These big, emerging economies have fixed exchange rates.

0:42:300:42:34

To keep their currencies cheap, they buy up dollar assets.

0:42:340:42:37

What does buying dollar assets do?

0:42:370:42:39

It pushes down borrowing costs in the United States,

0:42:390:42:42

making it cheaper for the Americans to borrow,

0:42:420:42:45

even though they're really indebted.

0:42:450:42:47

The endless flow of cheap credit from the producing countries -

0:42:580:43:01

not just China, but also Germany and Japan

0:43:010:43:05

meant that consumers in the UK, the US and much of Western Europe

0:43:050:43:11

could keep on spending, even though we were not paying our way.

0:43:110:43:16

We were not producing enough of the goods and services

0:43:160:43:19

that the rest of the world wanted to buy.

0:43:190:43:23

And every time our consumption-dependent economies

0:43:310:43:34

hit a bump in the road, the policy response -

0:43:340:43:36

led by the free-market prophet Alan Greenspan -

0:43:360:43:40

was to cut interest rates so that we could borrow even more!

0:43:400:43:43

Let's be clear -

0:43:460:43:48

things in the West seemed pretty good. OK?

0:43:480:43:52

We had growth around trend and inflation around target.

0:43:540:43:57

OK, we were spending a bit more than we were earning

0:43:570:44:01

and that meant a current account deficit.

0:44:010:44:03

That meant borrowing from overseas,

0:44:030:44:05

but we could do that at spectacularly low global interest rates

0:44:050:44:10

because the East was saving so much.

0:44:100:44:14

So I think it was perhaps understandable

0:44:140:44:17

that the global imbalances,

0:44:170:44:19

that these deficits, that excess borrowing,

0:44:190:44:21

wasn't being taken as that much of a problem during the go-go years.

0:44:210:44:27

By the early 2000s,

0:44:280:44:29

lending and borrowing was going into overdrive.

0:44:290:44:33

Everyone wanted a piece of the action.

0:44:330:44:36

Houses weren't places to live in, they were investments -

0:44:360:44:39

our pension pots.

0:44:390:44:41

So you had a tremendous housing boom picking up,

0:44:420:44:45

across industrial countries.

0:44:450:44:48

The ECB? No, kept interest rates low.

0:44:480:44:51

The Fed kept interest rates low.

0:44:510:44:52

No wonder Ireland went on a spending spree,

0:44:520:44:57

building tonnes of housing. Spain went on a spending spree.

0:44:570:45:01

You can correlate it to the interest rates

0:45:010:45:03

that people faced in those countries.

0:45:030:45:05

And the housing boom added further fuel to the consumer boom.

0:45:070:45:11

People who are borrowing against rising house prices

0:45:110:45:15

didn't actually feel they were going into debt -

0:45:150:45:17

they were just taking out the home equity.

0:45:170:45:20

And so, you know, I borrow to buy another car

0:45:200:45:24

or borrow to take a vacation,

0:45:240:45:26

but it's my money because my house went up in price.

0:45:260:45:30

And, of course, the financial sector was saying,

0:45:300:45:32

"House prices are never going to fall across the board.

0:45:320:45:35

"Don't even worry about it.

0:45:350:45:37

"It hasn't happened since the Great Depression."

0:45:370:45:39

Well, it did happen, and that's when the party came to an end.

0:45:390:45:43

Lehman Brothers has filed for bankruptcy after billion-pound losses.

0:45:460:45:50

'5,000 staff at Lehman Brothers' London office had no work to do, except look for another job...'

0:45:500:45:55

The property crash, the paralysis in financial markets,

0:45:550:45:58

huge losses incurred by bloated banks, like Lehman Brothers and RBS,

0:45:580:46:02

led in 2008 to the worst global financial and economic crisis

0:46:020:46:07

since the 1930s.

0:46:070:46:09

But the collapse of the banks was when our problems began, not when they ended.

0:46:110:46:15

The crash was the moment when it became clear that our golden age

0:46:210:46:25

was based on an illusion -

0:46:250:46:26

the illusion that sustainable prosperity could be built on debt.

0:46:260:46:31

When the economies seized up as banks stopped lending,

0:46:310:46:35

governments filled the breach by continuing to spend

0:46:350:46:38

despite collapsing tax revenues.

0:46:380:46:41

So, as banks repaid their debts,

0:46:410:46:43

the indebtedness of governments exploded.

0:46:430:46:46

And in that sense,

0:46:460:46:47

banking sector debt was simply shuffled off to the public sector.

0:46:470:46:51

That's why today's anxiety

0:46:510:46:54

is about whether governments, especially in the eurozone,

0:46:540:46:57

can repay all they owe.

0:46:570:46:59

Public sector borrowing surged in Britain,

0:47:050:47:07

the US and the eurozone

0:47:070:47:09

as governments kept spending to keep the economy going

0:47:090:47:12

when tax revenues were collapsing.

0:47:120:47:15

The great fear of investors is that some of those governments,

0:47:150:47:19

especially in the eurozone, won't be able to repay their debts.

0:47:190:47:23

Western consuming companies

0:47:250:47:27

owe trillions of dollars to the great producing nations.

0:47:270:47:31

The crash of 2008 began to topple an unbalanced global economic system.

0:47:310:47:36

The fact that there are imbalances

0:47:390:47:41

is not itself a concern.

0:47:410:47:45

The concern is the direction of the imbalances.

0:47:450:47:48

A country like the United States, a rich country,

0:47:480:47:51

ageing population should have a surplus to save for

0:47:510:47:56

as the older people come to retirement age.

0:47:560:48:01

Developing countries like China should have a deficit.

0:48:010:48:04

They should be borrowing to finance their infrastructure,

0:48:040:48:08

their housing and so forth.

0:48:080:48:11

The problem is it's just the opposite.

0:48:110:48:13

In the new global free market,

0:48:150:48:18

the rich developed countries of the West

0:48:180:48:20

believed everyone would be a winner.

0:48:200:48:22

But they - we - have become the victims

0:48:220:48:25

of what is perhaps the world's first truly global economic crisis.

0:48:250:48:30

I think that in the aftermath of 2008,

0:48:310:48:33

in the aftermath of the financial crisis, there's a fear,

0:48:330:48:37

a growing sense among politicians,

0:48:370:48:39

that maybe this isn't just a transitional problem,

0:48:390:48:43

and that we're going to be stuck with a large part of our population

0:48:430:48:46

that can cope in a globalised world,

0:48:460:48:48

but also a fairly large part of our population

0:48:480:48:51

that can't cope in a globalised world.

0:48:510:48:53

That doesn't have, er...

0:48:530:48:56

the skills to move upmarket to find this fantasy technology job,

0:48:560:49:01

but that cannot work at the wages that a Chinese worker will work at,

0:49:010:49:06

and therefore they're sitting there on the dole

0:49:060:49:09

because the dole in Britain is a lot higher than the wage in China.

0:49:090:49:13

We realised too late that it was time to get back to work.

0:49:150:49:20

The party went on and on.

0:49:200:49:22

Growth was unsustainably stimulated by a frenzy of borrowing

0:49:220:49:26

as regulators failed to stem reckless lending by banks

0:49:260:49:31

and central bankers kept interest rates far too low.

0:49:310:49:35

Few wanted to see what was really happening.

0:49:350:49:39

I can remember having Christmas lunch with the Prime Minister in 2006

0:49:390:49:44

and saying, "Nobody looks at the money supply any more.

0:49:440:49:47

"You say inflation is only 2%, but the money supply

0:49:470:49:49

"is going up at 12% per annum. What's it going into?"

0:49:490:49:52

Of course it was going into an asset bubble.

0:49:520:49:54

Many of us were complicit.

0:49:540:49:56

No-one forced us to binge on spending and borrowing.

0:49:560:50:00

Perhaps naively, we didn't question whether we could afford it all,

0:50:000:50:04

whether the growth in our economy and living standards

0:50:040:50:07

was real and sustainable.

0:50:070:50:09

How much of that growth was, in your view,

0:50:110:50:15

due to unsustainable increases in borrowing?

0:50:150:50:17

A lot of that growth was unsustainable.

0:50:180:50:20

It was to some extent a bit of a fool's paradise.

0:50:200:50:23

The government went round claiming

0:50:230:50:25

we'd got the best growth since the year of Hanoverians,

0:50:250:50:28

but it was actually based on very, very insecure foundations.

0:50:280:50:32

And when you get an enormous build-up of people

0:50:320:50:35

borrowing way beyond what they can sustain on the basis of cheap capital -

0:50:350:50:39

you know, house prices were getting out of control,

0:50:390:50:42

the banks were not properly managed -

0:50:420:50:44

and all this was going to come to a very sticky end.

0:50:440:50:47

As indeed it did.

0:50:470:50:49

One of our most senior bankers, Sir Philip Hampton,

0:50:510:50:54

concedes the role played by banks in pumping up our debts.

0:50:540:50:57

People can only consume as people did consume

0:50:580:51:01

because they were able to borrow and borrow very cheaply,

0:51:010:51:04

either to buy homes, to buy consumer goods,

0:51:040:51:06

all the things that they were enjoying

0:51:060:51:09

without necessarily earning.

0:51:090:51:10

I would say the banks were at the heart of it

0:51:100:51:13

-as the key transmission mechanism.

-What's your view about

0:51:130:51:15

why we just didn't see the risks that we were taking?

0:51:150:51:19

I think we became convinced that markets would always find a solution

0:51:200:51:25

and that if we let markets operate, they would be self-correcting

0:51:250:51:29

and that turned out to be the wrong judgement.

0:51:290:51:32

In some respects, we should've seen this coming.

0:51:350:51:38

Why didn't we? Well, there is this psychological phenomenon

0:51:380:51:42

called disaster myopia, which means that the further away

0:51:420:51:47

you are from a disaster, the more you discount it.

0:51:470:51:50

I think this disaster myopia

0:51:500:51:52

was a core cause of us turning a blind eye

0:51:520:51:57

to what with hindsight

0:51:570:51:59

were very obviously over-leveraged balance sheets

0:51:590:52:03

across all spectrum of society.

0:52:030:52:05

We started to consume without doing the work.

0:52:070:52:10

And consumption without the work means borrowing,

0:52:100:52:12

and we all had a part to play in that,

0:52:120:52:15

I think, if we're honest with ourselves.

0:52:150:52:18

We have become a big consumer society and not a big producing society.

0:52:180:52:22

China's model is the opposite -

0:52:270:52:29

they produce SIGNIFICANTLY more than they consume.

0:52:290:52:33

And for the Li family and for hundreds of millions of Chinese,

0:52:330:52:36

globalisation has delivered real rewards.

0:52:360:52:39

TRANSLATION: There has been a huge change in our lives.

0:52:430:52:47

It's like heaven now.

0:52:490:52:52

We eat better,

0:52:540:52:55

we have enough money, you can wear any clothes you like.

0:52:550:52:58

In the past we didn't have enough to eat,

0:53:010:53:04

and the clothes were all black or white, very few were colour,

0:53:040:53:08

and we couldn't afford them anyway.

0:53:080:53:11

Perhaps Rena's 15-year-old daughter Lin Lin shows the attitudes

0:53:170:53:21

we'll need if we're to win in the global economic race.

0:53:210:53:25

-TRANSLATION:

-I've heard that in the West, people chase their dreams.

0:53:290:53:32

But it's difficult to do that in China.

0:53:320:53:35

Most people are quite busy with their daily lives.

0:53:370:53:40

They need to work and make money.

0:53:400:53:43

In the past, you could beat your fellow students

0:53:470:53:50

by studying very hard.

0:53:500:53:52

Now you put the same effort in just to keep up.

0:53:540:53:57

So you have to study harder, harder and harder to stand out.

0:53:570:54:02

Rena is optimistic as she looks ahead.

0:54:070:54:09

-TRANSLATION:

-China has changed a lot over the past few decades,

0:54:130:54:17

but it's not such a big shock to me.

0:54:170:54:20

I believe China will be stronger in the future,

0:54:200:54:23

but this strength is only for itself

0:54:230:54:26

and it won't be a threat to other countries in the world.

0:54:260:54:29

What about Rena's colleagues in the UK, NVC's British staff?

0:54:360:54:40

I think it's a shame a lot of industry in this country

0:54:410:54:45

seems to be going down the pan or being shipped abroad,

0:54:450:54:48

or being owned by foreign countries.

0:54:480:54:50

It's as if we're becoming a giant warehouse,

0:54:500:54:52

just distributing to the rest of the world,

0:54:520:54:55

and not actually making, creating, which obviously brings jobs.

0:54:550:55:00

It seems as though the children are going to face

0:55:010:55:04

a much tougher future,

0:55:040:55:06

but I always try to put a positive spin on things,

0:55:060:55:09

and no-one's got a crystal ball.

0:55:090:55:12

It might pick up. It looks dire at the moment,

0:55:120:55:14

and if you listen to what they're saying out there,

0:55:140:55:17

it most probably will be dire.

0:55:170:55:19

But I'd like to think that there might be a chink of light at the end of the tunnel.

0:55:190:55:23

We might go through a rough patch,

0:55:230:55:25

but we'll come out on the other side, fruitful.

0:55:250:55:28

James Hunter Johnston sees the bad and good of globalisation.

0:55:300:55:35

'The children are going to have to compete their fellow villagers

0:55:360:55:40

'in Shanghai or Beijing or Mumbai, no question about it.

0:55:400:55:43

'But there's another side to the coin.

0:55:430:55:46

'The global economy has brought them'

0:55:460:55:49

lower cost and higher quality goods

0:55:490:55:53

than I or my parents could ever have dreamed of possessing.

0:55:530:55:57

# Turn out the lights

0:55:580:56:00

# The party's over... #

0:56:020:56:04

Whatever the benefits of globalisation,

0:56:050:56:08

there can be no return to debt-fuelled capitalism in the West.

0:56:080:56:12

We've reached the end of the road -

0:56:130:56:15

I mean, the particular way of doing capitalism for kind of 30 years

0:56:150:56:19

has actually proved to be dysfunctional and has failed.

0:56:190:56:22

And now we have to ask ourselves big questions

0:56:220:56:25

about how to how to do better capitalism.

0:56:250:56:27

What we didn't pay as much attention to

0:56:270:56:30

was the possibility that the cheap money

0:56:300:56:33

flowing into industrial countries

0:56:330:56:36

was actually making the financial sector more fragile.

0:56:360:56:40

The same lesson the emerging markets learned in the 1990s

0:56:400:56:45

is something the industrial countries have to learn now,

0:56:450:56:49

which is you cannot push

0:56:490:56:52

your own demand fuelled with credit too strongly.

0:56:520:56:56

Modern financial markets, even for strong industrial countries,

0:56:580:57:02

-are unwilling to tolerate that.

-I think many people in the West

0:57:020:57:05

are seeing the downside of globalisation

0:57:050:57:08

that many people in the emerging markets saw before.

0:57:080:57:12

The principle of globalisation, international trade,

0:57:120:57:16

was that when it is managed well, everybody could benefit.

0:57:160:57:20

Increasingly, particularly in the West,

0:57:230:57:25

the growing inequality that has often been associated with globalisation

0:57:250:57:30

is actually undermining social cohesion.

0:57:300:57:33

When you consume far more than you earn, as we did for many years,

0:57:370:57:41

eventually there's a reckoning.

0:57:410:57:43

The best way of seeing the crash of 2007-08

0:57:430:57:47

is as that reckoning, the moment when the penny dropped

0:57:470:57:50

that much of the rich West

0:57:500:57:52

had borrowed far more than it could ever repay.

0:57:520:57:56

The global economic system,

0:57:560:57:58

which had seen the producing countries,

0:57:580:58:00

many of them relatively poor, lending to the consumer countries,

0:58:000:58:04

which in its heyday had produced record amounts of growth,

0:58:040:58:08

well, that system was bust.

0:58:080:58:10

The party is over.

0:58:100:58:12

In the next programme,

0:58:160:58:18

I'll be look at what this economic crisis

0:58:180:58:21

means for us over the coming decade.

0:58:210:58:23

If we are going to build a sustainable economy,

0:58:230:58:26

what kind of sacrifices will we have to make?

0:58:260:58:28

What does it mean for our living standards?

0:58:280:58:31

And can we respond properly to the challenge of China?

0:58:330:58:38

# Turn out the lights

0:58:380:58:39

# The party's over

0:58:420:58:43

# They say that all

0:58:450:58:47

# Good things must end

0:58:490:58:51

# Call it a night

0:58:520:58:54

# The party's over... #

0:58:560:58:57

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0:58:570:59:00

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0:59:000:59:02

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