This can be illustrated by the following example: If a perception that oil has made us so wealthy that we can to some extent relax leads to a reduction in annual productivity growth of a quarter percentage point, i.e. a reduction in trend GDP growth from the current level of about 2 per cent to 1¾ per cent, the income base would be reduced by more than the entire return on petroleum wealth. Societies that suddenly gain access to wealth deriving from natural resources have a tendency to spend the money and then fall into decline. A very clear example of this can be found in Spain already in the 1660s. The colonisation of South and Central America gave this country access to a wealth of natural resources, and to gold. Spain chose to spend a large portion of the windfalls on luxury and war. The attitude to working that this led to did not make it easy for these countries to get back on their feet again when the gold came to an end. Many countries have had similar experiences in more recent times. The expression “Dutch disease” comes from the turn of events in the Dutch economy in the 1970s and 1980s after the revenues from the large gas finds in the Groningen field were used to finance strong growth in public spending. When the gas revenues declined, economic growth came to a halt and economy policy had to be tightened.
This means: maintaining the right approach in areas like labour flexibility, low taxation and regulation; and continuing to foster open markets and to welcome foreign firms. Among such firms, we hope that many of the largest Japanese financial institutions will continue to see London as their natural European home. London is determined to remain internationally competitive as a centre for innovation and excellence in the 21st century. And we hope that it will also continue to be Japan's gateway to the euro. *  4  *  *  BIS Review 11/2001