Looking back in retrospect, how will history look back at the way we conducted ourselves as a global order and a financial force? What will be picked out as the one economic trend of the early 21st century? There are several candidates for this, from the great crash of 2008 that sent shockwaves throughout the financial world to the surfeit of debt we now find ourselves swimming in. But perhaps the single biggest thing to come out of all of this is the silent, almost undeniable shift of the shift of the center of power away from the Western world and more towards the east.
A decade ago, the developed world and the richer countries dominated the global landscape. The Americans reigned supreme and were a force unlike any other, militarily, financially and commercially speaking a juggernaut no one wanted to take on. They contributed approximately two thirds of the global GDP and now that share is down to 50%. Experts say that figure will be further eroded to 40% in another decade as the bulk of output flows from emerging economies that are looking to milk their moment in the sun. The shift has been so swift and decisive that it betrays the success of newer and emerging economies thanks to more open policies and globalization efforts.
And this can be borne out further still by seeing exactly how much developing countries are coming along when compared to their richer counterparts. From a period spanning 2002 to 2008, more than 85% of all developing economies grew at a faster rate than that of the United States. Contrast with less than a third over a period spanning four decades from 1960 to 2000. Trying to find out things anytime before that would be largely irrelevant and a fruitless exercise since there was nothing of any substance in the century preceding that. The rest of the world is finally catching up with the richer nations and it is a remarkable achievement that these achievements are coming through since it means that the standard of living for a majority of the planet.
But there is a very simple explanation for all of this, one that will not make the West very happy. There is simply a lack of any growth in the larger economies of the world, and we’re talking about nations such as America, European nations and Japan. These economies have been floundering along and not been performing optimally for a multitude of reasons. So you can say that this is as much a regression of the west as it is an emergence of the western world and the reasons for this is three fold. First of all, you just cannot ignore the sheer scale of the recession that has hit the western world. Since 2008-2009, western economies have had to face up to an output gap and a crisis the likes of which it has not seen since the 1930′s. There is a classic catch-22 situation on hand; there is a lack of demand, so companies cut back on investment and workers. Then because these workers have no income and no disposable income, they cut back on demand, making the cycle worse.
It’s also a problem with a slowdown in supply; as demand slows down, industries on the whole begin to mull over the supply of workers and their productivity and this is a genuine point of concern for the Western world. With the average age of their population rising, the pool of potential workers has been diminishing steadily all the time. America still isn’t faring that badly, but with India and China getting far more productive populations, it certainly won’t help the cause of the western world. Third of all, the recovery of the richer economies has been a bit stagnant, a bit of a hangover from a bad night out. There has been widespread unemployment across the US, to take one prominent example and the longer people stay unemployed, the greater the chance of them losing their skills. There is even the chance of workers getting disillusioned and dropping out of the employment pool.
Historically, economies such as those that have been traditionally larger have always managed to bounce back for problematic spells, but developed economies have taken such a huge hit this time around that it seems the engine of growth has moved to the eastern world. East is east and west and is west and it seems that the two of them will not meet for some time, at least in terms of developmental rates.
