Uprising: Will Emerging Markets Shape or Shake the World Economy?

"This is an absolutely crucial overlay on everything that we’ve been discussing about human development and economic growth, and middle income traps. Let me give a little bit of perspective. I’ll obviously leave it for readers to decide for themselves what they think about this. But it is worth reflecting on the fact that the Japanese economic miracle basically came to an end in 1989-90 — more or less as the working age population, as a share of the total population in Japan, peaked. I’m not saying it was the only thing that mattered or that Japan’s trials and tribulations since 1990 are all attributable to a declining population and an ageing society, but it can hardly be dismissed as irrelevant. “It is worth reflecting on the fact that the Japanese economic miracle basically came to an end in 1989-90 — more or less as the working age population, as a share of the total population in Japan, peaked.” In the same vein, if we think about the rest of the West—the United States and Europe—they also reached the pinnacle of their economic boom from the 1980s onward for 25 years. That cycle burst in 2007-2008, more or less at the same time as the working age population, as a share of total population, peaked. It’s early days. It’s only been eight years since the collapse of Lehman’s, and demographics move glacially. However, we are confronting huge issues from a demographic standpoint, which influence economic variables in a very, very fundamental way. They impact on savings, consumption, investment, patterns of consumption and investment, public debt, pension fund liabilities and the viability of pay-as-you-go schemes all over the world. All these things matter a lot for us now. You can’t read a newspaper or a book about what’s going on in the West without seeing a huge focus on the impact of an ageing society. It has a universal application, although different countries will confront these problems at different times. For the most part, at this point in time, the economic, social and political challenges produced by ageing are the prerogative of developed market economies. But they also include the Asian ‘tiger’ economies: Singapore, Hong Kong, Taiwan, and South Korea. South Korea, in some respects, is ageing much more quickly. It’s not as old as Japan, but it is ageing faster. Also China: It’s certainly not the oldest economy in the world, but, by some metrics, it’s the fastest ageing country on the planet. If you extrapolate demographic projections and demographic data, then by 2035 to 2045 the old age dependency in China will be higher than it is in the United States. In other words, there will be fewer workers per one hundred of retirees in China than there will be in the United States. Unless these is some sort of major change either in fertility or in morbidity—and these things take generations to happen—this is something that is going to happen to everybody. “Of the 101 countries that were deemed to be middle income in 1960, only 13 of them actually made it into the rich countries’ league. The rest basically didn’t really get there.” The last place on earth where ageing will be a problem will be in sub-Saharan Africa. There, it will probably be from about the 2060s onward, so a long, long time away. But between now and 2030, 2040, a lot of countries in Asia and in South America will have to pay attention to this. Actually they have to pay attention to it now because if you leave it for another 20-30 years, it’ll be too late. The interesting phenomenon is that because of what’s happening to fertility and life expectancy, the tipping point for France, Germany, America, Britain, and Italy took between 75 and 110 years. To get to the point where their old age dependency starts to reach a critical level, in most emerging or developing countries now, that same critical moment will arrive within 20 or 25 years. It’s been telescoped to maybe a quarter of the time that it took most OECD countries to get to this stage. That’s because of the diffusion and profusion of lifestyle habits, diet, the availability of drinking water, and good public health, and so on and so forth. This has hatched a very important cliché which was originally made in respect of China but I think it applies to a lot of countries, which is, ‘getting old before you get rich.’ All of the decades and decades and decades that it has taken us in the West to develop social security and welfare systems as we know now are still inadequate for the purposes for which we anticipate. For most of the countries in the world with lower per capita income than what we have today, they face a huge, huge challenge. I’ve always been a bit of a sceptic about the idea that the whole world was converging. One of the things that has happened with globalisation in the last 25 years is that the world has removed so many people from poverty. The narrative of convergence was coined, and people still use it as though there was something inevitable about it. I don’t think there is anything inevitable about it. I think you can make it happen and I think there are ways in which it can happen. But it comes back to the phenomenon of the middle income trap, which is not something that has disappeared, in my judgement. A noteworthy detail early in the World Bank report we discussed earlier is that of the 101 countries that were deemed to be middle income in 1960, only 13 of them actually made it into the rich countries’ league. The rest basically didn’t really get there. Most of them didn’t regress or become substantially poorer. They are still deemed to be middle income. “Italy is a country that has had no economic growth since it joined the Euro in 1999.” So thinking about the future, we have to be cognisant that it is perfectly within our capacity to screw up global integration and put up barriers, and fight each other, and do all sorts of horrible things. We can set back the cause of progress with great ease, unfortunately. But leaving that to one side, the optimist in us should certainly hold out the prospect that over time, people will become more sophisticated, better off, healthier, and poverty levels will continue to fall. But that doesn’t necessarily mean that convergence will get to the point where everybody will have the same per capita income as the United States, or as Germany, or as Japan. There is a big difference between a rising level of income and prosperity and relative levels of income and prosperity. Convergence does not necessarily have to happen. Of course it could happen if the Western world itself regresses. Italy, for example, is a country that has had no economic growth since it joined the Euro in 1999. Institutions can go backwards too. That’s something that a lot of Western countries need to reflect on. In the West, we need to bear that in mind. So we could get a reverse convergence where some emerging countries are actually making progress, and the countries that they are trying to converge towards are actually falling back. That’s a possibility, and one that we would not welcome."