Economists at Price Waterhouse Coopers have been charting, through a complex statistical model, the growth of leading economies and what they will look like in 2050.
By that year, the leading G7 industrial nations of United States, Japan, Germany, United Kingdom, France, Italy and Canada will be replaced at the top by E7 ( Emerging Markets 7) – China, India, Brazil, Russia, Mexico, Indonesia and Turkey – in that order. This model was developed some three years ago. In PwC’s latest “ World in 2050” the E7 will in fact overtake G7 nations by 2020. The reason: the global financial crisis is accelerating the shift to emerging economies. And China will be the dominant player at No.1 position and the ground rules of trade and industry, of reserve currencies, of World Trade Organisations monolithic grip on global trade policies may all change. The economic, social, political and military dominance currently enjoyed by leading economies may undergo a major paradigm shift.
China’s development has been an absorbing mystery. It was in 1995 that I first landed in Shanghai, at the old airport. The airport itself had a run-down look and there were not many international flights either. I had some Australian dollars to change, and the girl at the Exchange did not recognize them as legal currency. Ever since Deng Xiaoping, that diminutive, chain smoking China’s paramount leader, protégé of Mao Tse Tung, flipped the communist philosophy of state control on its belly with his political declaration that “ communism and capitalism are not incompatible”, and set the stage for the huge dragon to spew out fires of economic growth and private sector engagement, China has fast-tracked its growth to unbelievable double-digits, year after year.
In the process, it has earned, reserved and invested trillions of dollars and has show-cased China as a production and profit model for the world. It rigidly held on to a devalued currency despite protests from Washington and its allies, and pushed Chinese products from heavy industrial machines to toys, from railway engines and wagons to fabrics and buttons right across the world. It was easy for China to stage that supersonic comeback from the backwardness with which China was constantly ridiculed as nation of peasants carrying and chanting Mao’s Red Book.
The Chinese understood the world from their own focussed and rigid ideological perspectives and felt that the nation had the opportunity to take on the world. Deng Xiaoping once said: “The United States brags about its political system, but the President says one thing during the election, something else when he takes office, something else at midterm and something else when he leaves” The Chinese choreography on economic imperatives, statehood, work and dedication remained the same for over 60 years. With over a billion people, rigidly controlled and trained to work anywhere in the world, from roads to construction sites with Red Army discipline, China has already gained the economic fire-power.
India too made strategic shifts in its economic directions. It quickly kicked out the British colonial past, embedded an agricultural revolution as the underpinning formula for growth, revived its steel industry and led by the Tatas and the Birlas, and later joined by the “Ambanis” of India, spawned thousands of big entrepreneurs, provided leadership in Information Technology, strengthened its manufacturing sector and encouraged exports of every conceivable product from aromatic soap to copper cables, from textiles to high fashion. It’s burgeoning middle class, its 27 million Indians overseas which formed a formidable Diaspora, gave India the financial kick-start India badly needed. Gujarat State, for example, led India’s industrial growth with some 17% of State GDP growth as compared to India’s 6.5% and triggered an inter-state rivalry which produced massive dosage of technical and financial inputs into each state.
And so the paradigm shift, triggered in China and in India, had its ripple effects in the rest of the E7 countries which sharply focussed on growth, savings, technology, manufacturing outputs, sales, reserves and astute investments in projects at home and abroad.
There has been a myth that much of this growth was fuelled by foreign direct investments, regarded in the sanctums of World Bank economists as essential for accelerating growth. In the case of China and India and much of the other E7 nations, it was not the case. Growth was charted through ingenious planning which took home-bedded and home-spun resources, driven by a desire to work to succeed.
Brazil, Russia, Mexico, Indonesia and Turkey are the other giants which have woken up from economic slumber and turmoil and are heading to lead the world’s economic movers and shakers. Each nation has its own unique resources platform, its unique political and social systems, but share one major common feature: large local market, ample supply of increasingly educated labour force and a growing control of their own economic destinies. Although Russia, China, India, Indonesia and Turkey may be diverting massive amounts of funds into strengthening their defence, they are not fighting any major wars and are able to apportion much of their income into productive forces on the fields, in the manufacturing plants and the research and development labs.
The paradigm shift toward a new power group is a also a by-product of collapse of the US hegemony on economic power, weakening euro zone economies, mounting uncertainties over mountains of debt and tax payer animosity toward bailouts of the sick governments within the EU, and a crippling contraction of GDP growth across most of the Western world. What is even more significant is the loss of credibility on the Western political system and its ability to predict and manage fall outs. Through a structured alliance of collective thinking and agreements, the European nations and the US have brought themselves to stalemating decisive steps necessary to avoid a global economic catastrophe. And to a large extent, decisions taken behind closed doors and expounded as recipes for avoiding fall outs and disasters, on account of the complexity of data and the decision making processes, never have full public understanding or ownership.
The emerging E7 power group may provide a counter-balance to the current fiasco, bringing about a more rational behaviour from banks and investors, from the altars of high politics to economic planners and decisions makers, providing a greater level of comfort to the struggling smaller nations that they no longer be the recipients of the damages caused by bigger economies.
The paradigm shift from the G7 to E7 will be seamless and healthy unless there is global resistance to an economic-social-cultural dominance by a third force.