Wednesday, October 20, 2004
The changing geography of the global economy
Posted by David Smith at 08:33 PM
Category: David Smith' s magazine articles

Another part of the The Geographer feature

The world economy is dominated by the G7 (Group of Seven) countries – the United States, Japan, Germany, Britain, France, Italy and Canada – who gather at the top table for their regular summits. But the world is changing, and we are witnessing the rise of some economic giants of the past.

In the early 19th century, when Europe was in the full throes of the industrial revolution, which two countries dominated the world economy? The answer is perhaps surprising. Two hundred years ago China and India accounted for 45 per cent of global gross domestic product. With their huge populations, even then, their economic weight was enormous.

The story of most of the two centuries since then, of course, has been the economic rise of Europe, followed by the United States and Japan. The European century may have given way to the American century but both continents were where the economic action was.

Today, the world’s biggest economy is America, accounting for more than fifth of global GDP, followed by Japan, Germany, Britain and France. America, Europe and Japan, as well as dominating trade and investment, are the domiciles for most of the big multinational companies. Big negotiations on world trade are hammered out between these three blocs. Talks on agriculture founder because of the power and influence of Japanese rice farmers or modern French peasants. The G7, which has taken to inviting Russia to its gatherings, makes its declarations on the big economic and geopolitical issues of the day from the lofty heights of its summits.

But the world is changing, and it is not fanciful to believe that we could be on the way to a revival of the status quo of the early 19th century. “Through the 19th century, China shunned progress and closed its economy to the outside world, distrustful of foreign traders,” points out Gerard Lyons, head of research at Standard Chartered, a bank which has long operated in both China and India. This continued, and was reinforced, by Communist rule in the 20th century.

China and India are now, however, open to the world, and the effect is dramatic. In 2002 and 2003, when global economic growth was subdued, China’s contribution was vital, accounting for more than a third of the rise in world GDP. India, while smaller in both population (1.05 billion versus China’s 1.3 billion) and GDP, is also coming up fast. India has also raised deep concerns in Britain and elsewhere about a newly-named global economic phenomenon, so-called “offshoring” of call centre and other jobs.

Projections from Goldman Sachs, the investment bank, put some flesh on the likely rise of China and India. They took the four biggest and fastest-growing emerging economies - Brazil, Russia, India and China, which they call the BRICs - in a paper by Dominic Wilson and Roopa Purushothaman entitled ‘Dreaming with BRICS: The path to 2050’.

The exercise was not mere straight-line extrapolation, factoring in some slowdown from present rapid growth rates (China has grown by more than 8 per cent a year since the late 1970s). Even so, the results were intriguing.

China has already overtaken Italy (which has a seat at the G7 table), and will this year overhaul France. Chinese GDP will be bigger than Britain’s next year, and by 2007 China will be bigger than any European economy, leaving behind Germany. The Goldman Sachs’ projections foresee Chinese GDP becoming bigger than Japan in 2016 and, finally, America in 2041.

This does not mean, of course, that in 40 years time the Chinese will be better off than Americans. A large population is an advantage in terms of economic weight but it also means there are more people around whom the wealth has to be spread. Even by 2050, per capita GDP in China will be less than half that projected for Britain at that time, and under 40 per cent of that in America. On that basis, the real Chinese catch-up may not occur until the 22nd century.

Similar caveats apply to India, projected to become the world’s third biggest economy, behind America and China, in the 2030s.

Is this tilting of the world economy to the east preordained? Demography is as big as a disadvantage to Europe – Spain, Italy and Germany will see their working populations drop by a third by 2050 – as it is an advantage to China and India. As long as these countries, with their huge populations, remain engaged in the world economy, a prolonged period of growth seems guaranteed.

The challenges go beyond those of economic diplomacy. China and India will be massive consumers of world resources. They will also pose a significant environmental risk, not least if they want to emulate America in this respect too.

From The Geographer, September 2004

Comments

this is an article about China really intersting.

Posted by: Nayara de Sousa at October 24, 2004 12:45 AM

This is an article for my individual project. Geography class due on November 23, 2004.

Good luck!!!!!!

Posted by: Nayara at November 23, 2004 05:17 AM