“The UK failed the globalization challenge”

Should we fear China and India? Given the strength of these emerging giants, should British workers be worried about their jobs?" I put these questions to Tony Blair last week while accompanying him as part of the press party on a four-day visit to Beijing and Delhi. Billed as "a chance to see globalization in action", the prime minister's whistle-stop tour was – predictably – a blur of summitry, photo-calls and diplomatic bonhomie.

But the main purpose of the trip was to do business. British trade with China is already worth £13bn annually. Our trade with India tops £10bn. But the size of these potential markets - between them, they account for a third of the world's population - makes the commercial possibilities far bigger. Which is why Blair's chartered plane also contained 50 businessmen.

"The emergence of China and India presents huge opportunities for Britain," Blair said. But given their vast, highly-educated workforces - paid wages less then a tenth of those in Britain - he acknowledged there was a threat. "In the UK and elsewhere in Europe, there is a lot of worry about jobs – and I understand why," he said.

"As China and India grow, there will be great pressure on Western economies to change. We need to reconfigure our businesses, which means difficult short-term dislocation. But, the fact is, globalization is a reality."

Across the world, the spectacular economic ascent of China and India is being watched with a mixture of awe, anticipation and fear. For the past two decades, China has been growing, on average, by 9 per cent annually, India by 6 per cent. Faster than we secure access to their markets, they are selling into ours.

With their young populations, high savings rates and opportunity to "catch up" the Western world, most economists think they can keep expanding at 5 to 10 per cent annually for decades to come. Can we hope to prosper in the face of competition from them?

I put this to Sir Martin Sorrell, the chief executive of WPP, the marketing services group and one of the businessmen on the trip. WPP has grabbed the China-India bull by the horns. The battle to establish brands in these rapidly-developing economies makes for a vibrant advertising market.

So far this year, Sorrell's revenues in China have risen 22 per cent, and are expected to top £200m. In India, he's amassed a 50 per cent market share. In the two countries combined, WPP's interests employ close to 10,000 people.

But what about our workers? "There will, of course, be some short-term fall-out," he says. "That's common sense. So it's no surprise Western autoworkers, whether in Detroit or Birmingham, don't see the benefits of globalization. All they see is people losing their jobs."

Sorrell talks of "a fundamental shift of wealth taking place", from the "slow-growth West to the fast-growing East" – a process driven by population, investment and natural resources.

"It's easy for businessmen to see the plus-side of globalization – we're not the ones being put out of work. But I don't think you can fight these massive demographic and industrial trends," he adds. "Such powerful forces simply can't be beaten."

Iain Gray, the managing director of Airbus UK, also seems to be making hay. During the trip, Chinese and Indian airlines ordered 53 of Airbus's planes – worth a total of £2.3bn. This was "fantastic news" for Airbus's 13,000 UK employees, Gray says, and for the 135,000 workers at his company's UK suppliers.

But, won't Airbus eventually shift much of its manufacturing abroad? Over the next three years, the value of components it sources from China is set to triple.

"This is not about stealing jobs," he says. "It's about new markets. In five or 10 years' time, our UK staff will find it as normal to work with colleagues in China as it now is to work with those in Western Europe."

But, surely, Airbus will be forced to inflict deep UK cuts? "There is a threat – yes," says Gray. "But there's also the need to be competitive. We need to lift our guys higher up the food chain, so they can do the higher value-added tasks." Gray insists this can be done. He points out that Airbus has "the biggest apprentice scheme in Wales".

John Harris, the chairman of Alba, the consumer-electronics group, is also optimistic. "A service-led economy like the UK can only benefit from greater trading links with China and India," he says. "We are in a far better position than Germany, for instance - which is still a manufacturing-led nation."

But, says Harris, to "move up the value chain", the UK will have to do "much better" when it comes to skills. "Those doing A-levels and degrees need to focus far more on engineering, science, IT and languages," he says. "There are signs of improvement, but we have a lot further to go. When it comes to skills, you can never stop doing better."

Sorrell agrees. "There is definitely an issue about the quality and quantity of our education – especially engineering and science. This is a big worry." Along with failing to improve skills quickly enough, the WPP boss also feels the UK "failed the globalization challenge" during the "bra wars" dispute with China.

Earlier this year, under the UK's presidency, the EU placed limits on Chinese textile imports, despite agreeing, more than 10 years ago, to lift such restrictions by January 2005. This resulted in more than 80m Chinese-made garments that had been ordered by European retailers being blocked by EU customs.

"Western business has benefited for years from the opening up of emerging markets like China," says Sorrell. "Now, just when we start to feel the heat, we slap on protectionist barriers. That's not a good signal to send. It will make China and others far less responsive to us in December at the crucial [World Trade Organization] summit in Hong Kong."

During last week's trip, the EU and China announced a two-year textile compromise – involving more trade limits. I asked Blair why the UK – supposedly a staunch supporter of free-trade – had brokered a protectionist deal.

"Europe has important textile-producer interests to protect," he told me, "so finally ending these limits is a matter of negotiation. But, sure, if Europe doesn't gear up, if it thinks its future lies in protectionism, in the long-run it will lose."

Sir Digby Jones, the CBI boss leading the business delegation, called last week's bra-wars bargain "a sticking plaster". His view chimed with that of every other business leader I spoke to on the trip. "How can we expect the Chinese to play by WTO rules when the EU changes those rules on a whim?" Jones said. "European textile manufacturers need to do what those in the UK have done, concentrating on high-value, niche textile ranges and design."

In that sense, the response of UK business leaders to bra wars reflects their answer to globalization as a whole. As Blair's tour showed in stark terms, strong British companies and smart UK employees could gain handsomely from a resurgent China and India. But only if they avoid the race to the bottom, to use the jargon, while winning the race to the top.

But as Sorrell says, "the emergence of these countries will inevitably mean Britain's relative wealth declines. And, in that decline, there are bound to be casualties."