The reality which faces the West that
politicians dare not speak of
The rise of countries
such as China, India, and Brazil will be a tectonic shift in economic power but
it is also a change that is long overdue.
The relative dominance of Europe and the United States in the global
economy is a historical accident brought about by the early formation of
capitalist economies in these parts of the world. The response to these new challengers will
define the role that the United States and Europe play on the global stage in
the future and the initial signs do not look good.
The Western world spearheaded
by Europe and the United States have generated the bulk of the wealth in the
global economy for most of the past century.
As early ago as 1990, the United States accounted for around 23% of
global GDP and the countries which now constitute the European Union accounted
for roughly 32% while respectively only making up 5% and 9% of the world’s
population. Yet, growth in the countries
such as those grouped together under the label of BRICs (Brazil, Russia, India,
and China) is the beginning of the end to this distortion in the distribution
of global wealth. The BRICs countries,
who accounted for just 8% of global GDP despite making up 43% of the number of
people worldwide in 1990, have seen their share of global GDP increase to 18%
as of 2010. The figures for the United
States and the European Union have dropped back respectively to 23% and 26% in
2010 and this is a trend that will continue for decades into the future.
It is not that the economies
in the United States and Europe have not been expanding in size but growth is
not as easy to generate as elsewhere.
Loading up on debt helped to create a booming economy for a while but
excessive lending eventually brought about a deep economic slump (for more
info, refer to Tale of Two Recessions). The global financial crisis has instead
allowed other countries to catch up faster and to lay siege to the position of
the United States and Europe at the top of the global pecking order. The concentration of wealth in these Western
countries has allowed them easy access to resources such as agricultural
produce and mineral deposits from around the global as well as ready markets
for their manufacturing goods. But
industrialization in countries which were previously just mainly sources of raw
materials for the United States and Europe has given rise to competition – both
in terms of other countries snapping up resources and of creating rivals to
Western firms. Economic power has also
allowed Europe and the United States to shape global institutions to their
liking.
But this imbalance of
wealth was never destined to last. The gap
between the rich and poor became too great and plummeting transport costs meant
that goods could be manufactured anywhere.
The changes stemming from this will shape the world for generations to
come and in ways which cannot yet be grasped.
Rather than bracing themselves to face the reality of this new challenge,
both Europe and the United States have been embroiled in domestic issues as
politicians struggle to deal with growing levels of debt.
Economic theory
espouses the benefits of free trade and an open economy where countries should
specialise in what they are good at. For
the United States and Europe, this would be high-tech or high-value-added
sectors such as product design, computer software, and precision manufacturing
which make use of their skilled workers.
Yet, Western governments have shot themselves in the foot through mismanagement
of their finances. The resulting masses
of public debt have restricted the ability of governments to invest in, for
example, education which has suffered in many richer countries as governments
focused more on cutting taxes.
Politicians in the
United States and Europe need to be more honest with voters. It is easy to convince voters that the good
times will return and to try and hold off the inevitable. But this will merely delay the day of
reckoning and will make it so much worse than it needs to be when it does come
around. Many current policies, such as
reducing immigration even for skilled overseas workers, run completely against
what needs to be done and suggest that politicians either do not grasp the
changes already underway or prefer to pander to the preferences of a public who
is adverse to change rather than confront them with reality. Sooner or later, this inconvenient truth will
become apparent, but by then, it may be too late.
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