According to a recent study, the “National Intelligence Council - 2020: Mapping the Global Future” report, substantial change is taking place in the economic landscape of the world. This change is the increased weight of developing nations in terms of the combined size of the world economy.
To be sure, developed countries have been growing at robust rates recently, but the performance of developing nations has far outstripped them. China has been growing more than 10 percent a year for over two decades, a phenomenon only comparable to the Japanese miracle of the 1970s. China has accumulated a massive 2 trillion dollars worth of foreign reserves in the last couple of years. This amount is far larger than the total invested in rebuilding Europe after WW II during the Marshal Plan. With exports that surpass those of the United States and Germany, China is bound to become the world’s leading exporting nation by 2008. Brazil and Russia have also accumulated huge foreign reserves (200 and 500 billion respectively) in recent years and have become net creditors in the world economy.
India is growing fast, and so are Russia and Brazil. The so-called BRIC group (Brazil, Russia, India and China) is expected to surpass the G7 industrialized countries in terms of GDP by the middle of the century, according to Goldman and Sachs. This massive shift of wealth is altering the political and economic landscape of the world. In fact, according to a recent report by The Economist, this shift represents a return to an old pattern of wealth distribution.
In ancient times, nations such as China accounted for a significant proportion of world wealth. This pattern changed after the industrial revolution took hold in Europe and in the US, and the end of World War II established a very uneven pattern of wealth distribution with industrialized western nations accounting for an unusually large share of wealth. Therefore, it seems the world economy today is returning to a more balanced distribution of wealth.
Developing countries tend to gain much more leverage during this process. A new economic age is dawning which will require increased cooperation between developing and developed nations. The first symptoms of this new age are already evident: food and oil prices are soaring due to the unprecedented demand shock from millions of Chinese who are getting out of poverty. As more and more people in China, India, and other developing nations make their way out of poverty, the demand for raw materials, food, oil and other products will increase considerably. In a situation of constant or slow growing supply, inflation is the inevitable outcome. Oil prices had hit all time highs (before the current financial turmoil) and so had commodities prices. With demands expected to rise further and with no imminent supply relief in sight, inflation seemed to have become a leading concern. It is still unclear which effects will the recent financial woes of the world economy have on prices, whether inflationary or not.
In political terms, Brazil, India, Japan, and Germany (G4) are already demanding a permanent seat in the UN Security Council. Being large contributors to the UN budget and representing almost half of the entire world population, the G4 claim is starting to gather momentum. The US has signaled it is willing to accept the proposal and has offered enhanced cooperation with nations such as Brazil. The G7 is considering expanding to incorporate Brazil, China and India, after Russia was included in it (G8). As wealth becomes more evenly distributed, the pressure for more equal distribution of power will mount. The world is no longer the way it was in 1945, when almost half of the world populations (including China, India and almost all of Africa) still lived under colonial rule.
The recent gathering of the G-20 represents a seminal event in this process of change. Amidst the worst financial crisis since the great depression, all eyes turned to developing countries, which are expected to account for almost all growth in world output this year. Undoubtedly, new financial relations between developed and developing are taking hold. The Bretton Woods post war financial architecture has proven incapable of handling the complex challenges posed by finances in the age of Globalization. It is clear that substantial change is taking place in the economic landscape of the world.