Editor's Note: Jean-Michel Severino is Director of Research at the Fondation pour les Études et Recherches sur le Développement International (FERDI), Manager of Investisseur et Partenaire, and co-author, with Olivier Ray, of Africa’s Moment. For more, visit Project Syndicate's website, or check it out on Facebook and Twitter.
By Jean-Michel Severino and Olivier Ray, Project Syndicate
Events in 2012 so far have confirmed a new global dissymmetry. Caught between unprecedented financial insecurity and a somber economic outlook, the rich OECD countries and their middle classes fear geopolitical weakening and downward social mobility. In much of Asia, Africa, and Latin America, however, optimism reigns.
Among developed countries, this unexpected shift of fortune has incited protectionism, exemplified by French calls for de-globalization. Meanwhile, among emerging economies, pride has sometimes manifested itself as conceit, tinged, after decades of Western arrogance, with schadenfreude. But, because the world’s developed, emerging, and developing economies are now so closely linked, they will either dog-paddle out of this crisis together or enter into a danger zone unseen since the 1930’s.
After World War II, a new global economy emerged, in which a growing number of developing countries adopted export-led growth models, thereby providing industrialized countries with raw materials and household goods. This new economy was an undeniable success: more people left poverty in the twentieth century than in the preceding two millennia. And it enriched OECD countries, as imports of cheap goods and services strengthened their purchasing power.
But this model also weakened rich countries’ social structures, widening inequalities and excluding a growing proportion of their populations from the labor market. Moreover, it is responsible for the financial imbalances that besiege us today: in order to counter the effects of widening inequality and slowing growth, OECD countries have boosted consumption by rushing into debt – both public (leading to Europe’s public-debt crisis) and private (facilitating the American subprime crisis).
This would have been impossible had the OECD countries’ main suppliers of energy and manufactured goods not, over time, become their creditors. In a remarkable reversal of history, the world’s poor now finance the world’s rich, owing to large foreign reserves. Indeed, the hypertrophy of today’s global financial sector largely reflects efforts to recycle emerging-market countries’ rising surpluses in order to plug the rich countries’ mounting deficits.
Until recently, this dynamic was considered transitory. Emerging countries’ growth would necessarily lead to convergence of global wages and prices, thus halting the erosion of manufacturing in the OECD countries. The demographic transition in the world’s emerging countries would encourage the development of their domestic markets, a fall in their saving rates, and a rebalancing of global trade.
That might be true in theory, but the length of this transition period, which is at the heart of the global financial crisis, has been badly underestimated. The “inversion of scarcities” – the new abundance of men and women actively participating in the global economy, combined with a once-abundant natural world’s increasingly visible limits – risk prolonging the transition indefinitely, for two reasons.
First, from a macroeconomic perspective, we can no longer count on declining prices for raw materials, one of the economic stabilizers in times of crisis. Given rising demand in emerging countries, the cost of natural resources is bound to be a growing constraint.
Second, from a social perspective, after a doubling of the workforce in the global labor market during the twentieth century, another “industrial reserve army” has arisen in China, and among the three billion inhabitants of the world’s developing countries.
A rapid rebalancing of global growth by reducing financial imbalances between OECD economies and their emerging-market creditors is risky, because it would cause a major recession for the former – and then for the latter. Moreover, it is unlikely, because it assumes that emerging countries will run trade deficits with OECD countries, and that their domestic markets will become drivers of global growth.
If this analysis is correct, a new global rebalancing strategy will need to begin somewhere other than the wealthy OECD economies. The implementation of new growth models in the developing world – the parts of South Asia, Latin America, and Africa that have not adopted export-led strategies – can provide at least part of the missing demand that the world economy urgently needs.
The success of this scenario depends on a combination of three dynamics. First, interstate trade between emerging-market and developing countries must accelerate, thereby building the same kind of consumer-provider relationship as that between emerging and advanced countries. Second, domestic markets in the world’s poorest countries must be developed in order to foster more home-grown growth. And, third, financial flows to developing countries – both official development assistance and foreign direct investment – must rise, and must come not only from industrialized economies, but also from emerging and oil-exporting countries.
Recycling global surpluses through the world’s “bottom billions” presupposes a complete overhaul of standard economic models, which essentially assume that the Asian economic miracle can be replicated. After all, even if the world achieves significant economic growth between now and 2050, two billion of the world’s nine billion people will still live on less than two dollars a day, and a further billion will have little more than that.
For emerging and wealthy economies alike, the world’s poor should not be viewed as a burden. In the current global economic crisis, they are the best exit strategy we have.
The views expressed in this article are solely those of Jean-Michel Severino and Olivier Ray.
No, but we can kill a whole bunch of rich people while the world ends! Hahahahahahahahaha.
You may very well be right, Hahahahahahaha. The world might end on Dec. 21 as we experience a 90 degree polar shift due to the destabilization of the current axis on which the earth rotates. Can you imagine Africa being at the South Pole while Greenland and Alaska lie at the Equator? It's possible!!!
Deglobalization of the world's economies is a good thing. Here in America back in the 1890's, the U.S. government introduced protectionism to boost industrial production and thus pulled this country out of the severe depression that it was undergoing at that time. Even today, the European economies are suffering due to the creation of the Eurozone!
Yes, the emerging economies had been able to export their way out of poverty by providing the West with cheap goods and services. Due to a long period of complacency in the West, the people didn't want to wake up from their slumber and face new challenges in our globalissed world. Instead – as indispensable electors – they rely on the state to provide for them. Their exports plummet as their goods of mediocre quality are too expensive. Yes, people in the emerging economies have the purchasing power and they also have a weakness for status symbols. While high-end products are only affordable for just a few, the masses buy counterfeit goods, which again are manufactured in the developping countries. Unless the – demographically weaker – West focusses on innovative products, it will have a tough time to compete.
I hate to beat the same old dead horse but the key phrase in the story for me concerned diminishing natural resources. Basically, more people chasing an ever smaller pie. As a species we have pushed beyond the limits of our planet to provide for us. There is no hope of growing our way out. We MUST consolidate our way out. We must embrace population declines, and husband our resources carefully while we transition to a less populated planet.
We the poor need a peaceful, unified, widespread consensus and initiative. Only this will invite the dialogue and negotiation necessary to change unfair social and economic policy. It will also hopefull invite the support only organized religion can offer with its numbing numbers and resources.
Leslie Lox on http://www.rdwins.com
Not a Christian, but; remember your Bible Studies, "the meek shall inherit the earth".
It simply means that the rich should get off their lazy bottoms and get back into the hustle of making their economies strong again!! It also goes to show that the rejected stone has become the corner foundation!!!
I really really really would love if someone pointed to me one of those alternative systems to export driven economies. Everyone keep talking about them as the future but no one describes what they are! My own country has no fossil fuel, and not enough water to sustain our population. We import all of our fuel, and most of our grains, vegetable oil, sugar and fodder. Not to mention other mineral resources. We need to export to enough to get our basic needs, then some more so we could get expertise, technology and machinery to develop. Even cutting reliance on energy imports with solar and wind needs to be paid for with hard currency, so what to do? And we're not the only country to be in this situation,so if anyone could point out to these promising models of development I'd be very grateful.
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