Economy & Finance

Emerging economic order

21 st Century seems to be the millennium of India and China. The economies of both the countries are growing so fast that the whole world is envious about them. Though the growth story of China started a couple of decades back, India has come on the fast track just in the last few years. The countries had to give up their prevalent political ideologies and embrace reforms to be able to ramp up this growth. Now they have reached a fairly sustainable stage. It seems that in spite of the economic direction of the world in the near and medium term, these two economies will continue to grow at a high speed. Two other nations namely Brazil and Russia have similar potential and they are growing fast. I expect India and China to do better than them in the near future due to their high population and consequent large domestic markets which gives them ability to survive any global slowdown.

The global capitalism, which has over the years matured to a sober capitalism, has brought all the change around the world. The word capitalism was hated in many parts of the world and was considered to be the symbol of ruthlessness, selfishness and human greed. In the last couple of decades the scenario has changed. The world has realized that for economic growth, motivation is very important and capitalism motivates. This capitalism has made North America and Western Europe accumulate wealth over the last couple of centuries. The wealth in those countries was initially created by trading and in some cases by even exploiting the other parts of the world. This wealth allowed these countries to improve their technology, which gave them strong manufacturing base. These economies matured over the years; but their natural resources got depleted. Their population growth slowed down and the nations started ageing, which reduced their potential of sustaining high economic growth. Now, most of the Western European nations have mainly one resource and that is the accumulated capital. They also have an advantage of technology but nowadays technology is becoming available to everybody for a price and the ability of the world to copy any technology has improved dramatically. High costs have watered down the benefit of technology available to these countries and they are struggling to keep up the pace of economic growth.

This phenomenon has given a boost to the development of nations like India, China, Brazil and Russia who had abundant unexploited natural resources, young labour force to produce various products at a reasonable cost and a vast population to consume the products. The economic liberalisation adopted by these nations allowed the accumulated capital of the rich countries to flow in and be used for more production and more consumption by the whole globe. It is a win-win situation for whole world as never before. Capital of the developed countries, natural resources of developing countries and young consuming population of countries like India, China and Brazil has made all the difference for the world. The world is growing and growing at a high speed. It is growing in more sustainable and balanced manner. Probably we are going through a golden century of the human history.

The current economic growth is all encompassing. The whole world is growing and so nobody is complaining. The current growth is not a growth solely dependent on the economic growth of United States. The dependence of the world on United States has come down. The world may get more dependent on the growth of India and China. These two economies have a potential to grow bigger than U.S. economy during the current century. This may became a major concern for the western world and even cause imbalance.

China is not a democratic country. China does not depend much on United States for its resources except for capital and soon it is likely to save adequate capital of its own. Though, China is a major supplier to U.S. market, it has a large and fast growing domestic consumer base. With high growth, India and China will emerge as significant consumers as nearly 50% of the population of the world stays in these two countries.

As these economies grow and have larger capital of their own, they are likely to come out of the shadow of developed nations and that can cause a major political issue. The U.S. has been dominant economic power and after the collapse of Soviet Union, it has become the most dominant military power as well. India and China may not grow like Japan as only an economic power. For strategic reasons, they will also grow as military power. China can challenge the dominance of U. S. as a war power. This will become more prominent after a couple of decades from now. It will pose a larger concern to U.S. politicians as well as public. It can cause trauma. The global political balance can become vulnerable. To keep on growing and for the betterment of the mankind, the world will have to emerge politically correct. The situation may arise in the middle of the current century.

U.S. Government has been providing liquidity to the globe. Still, this Government may be one of the most indebted Government in the world. At the same time American companies control major assets across the globe and their wealth is growing. U.S. has been the major source of technological development for the world. As the emerging economies will keep concentrating on development through manufacture and supply of services; the U.S. will do well to concentrate on development of technology. Today, it is way ahead of rest of the world and this dominance of U.S. is its core competence and the key to future growth.

In the new order of the world in the current century, India, China and Brazil will be the suppliers as well as the consumers of the world. The U.S. will be the major supplier of the technology and the developed countries and the oil rich Middle East countries will be the suppliers of the capital. This order will work in balance manner so long as the nations are worried about the economic well being of their subjects. However, the political or religious ambitions and disrespect to others can play a spoil shot and may end up the golden era.