The New Titans: A Survey of the World Economy

Chaim Bodner International Marketing

The New Titans: A Survey of the World Economy

The Economist, September 16th 2006

Emerging economies led by the BRIC countries (Brazil, Russia, India, China) are looming larger on the world picture and growing faster every day. Their growth rate is an unforeseen phenomenon. The combined output of emerging economies from 2005 exceeded half of the world's GDP in terms of Purchase Power Parity. The world's GDP has grown by an average of 3.2% a year over the last five years which beats the 2.9% growth during the golden ages of 1950-73. This growth has been due to the growth in emerging economies. Their share of world exports has jumped from 23% in 1970 to 43% in 2006. What is it that is causing all this talk now if we know that emerging economies are growing faster than developed economies for a long time? The reason is that the gap in growth rates is larger than ever. What is causing this huge growth in emerging economies is their openness to trade and investment with the rest of the world. The sum of China's exports and imports amounts to 70% of its GDP as opposed to 25-30% in the United States. They are also less dependent on foreign capital due to the amount of money coming in from their growing exports. This allows them to spend more on imports from other countries furthering the effects of globalization.

Even though globalization should have a positive impact overall because of what economists call a "positive supply shock" many in developed countries are worried that there will be a major shift in jobs to developing countries where there is cheap labor. At the very least wages will fall dramatically in developed countries. Even though there is a lot of money coming in to developed countries from globalization it is being divided unfairly with high profits going to corporations and high earners, and not being passed on to the average worker. The inequality is getting larger, causing people to blame globalization. This may send developed countries into protectionist mode, thereby raising import barriers with the belief that it will increase living standards and incomes, as they stop the entrance of foreign goods and the outflow of jobs to emerging economies. By doing so, developed economies will not only be doing a misdeed to developing countries, but also would be locking themselves out from the gains of globalization. This is a big challenge for developed countries. Personally I think there is a limit to how much job outsourcing there could be. This is because I don't mind getting a foreigner on the line for a simple issue, but they very often are so hard to understand that for more complicated issues I would not bother and I would hang up. This could end up affecting a companies overall customer service driving customers away. In turn companies will have to limit their outsourcing. Companies understand this as well. As is well known, a customer can ask to be transferred to a local call center and the service provider is required to transfer them. This is because companies understand the need for strong customer service. I am sure many will argue with me about the limits for outsourcing. The challenge developed countries face is to spread the benefits of globalization fairly, while developing countries have to come up with a way to keep up export-led growth without stepping on the toes of developed countries.

I have found an article that shows that the United States is trying to balance the advancement of globalization with keeping jobs in the U.S. In the Washington Post on February 8th they wrote that the United States was renewing three U.S. trade benefits for Andean and other developing countries which were due to expire. The House of Representatives Ways and Means Committee Chairman Charles Rangel said, "These preference programs have been a centerpiece of U.S. efforts to spread the benefits of globalization to the world's poor and developing countries. They have created tens of thousands of jobs - jobs that are likely to be lost to countries like China if the programs are not renewed - and have created opportunities for workers and businesses in the United States."

Emerging economies already consume half of the world's energy consumption, and their thirst for energy has only just begun. Currently, most of this energy is being produced in emerging economies, but with growing demand, they will need to import much more, making energy prices rise even more. The real question is if the world can keep up with this surging demand. Emerging economies have been responsible for 85% of the increase in the world's energy demands. One study suggests that oil imports to China will jump from 91 million tons now to 1860 tons in 2020.

Some