A rapidly changing economic landscape of the world

Second comment on Ryo Sahashi “A three-tier approach to Asian regional architecture”, 20/05/2009, http://www.eastasiaforum.org/2009/05/20/a-three-tier-approach-to-asian-regional-architecture/

This is my second comment on this article. In this I will focus on a point regarding economic matters, as evident from the following excerpt from this article:

[Economically, the U.S., Japan, and other advanced economies - including EU countries - will maintain their global dominance, and their relatively strong position vis-à-vis newly emerging economies like China and India will continue for the foreseeable future.
It is unlikely that China and India (and possibly Russia) will form their own international institutions to provide an alternative for the established ones. It is important to keep a coalition of advanced economies in rule-based international institutions.]

While it is true that the US, Japan and the EU are now still world largest economies both individually and as a whole, the rise of some large developing economies is causing rapid changes to the world economic landscapes, with shifting in geoeconomic powers. The current financial and economic crisis is accelerating those changes. If anyone has any doubt about this, the G20 meeting in London in April can be a case study for people to derive some useful insights and helpful conclusions. It is not too difficult to see that the argument of “their global dominance, and their relatively strong position” of the US, Japan and EU is no longer necessarily correct.

Further, the trends of the relative shift of economic powers seen in the past decade or so will accelerate to an unprecedented degree over the coming decade, as the inevitable readjustments of large international imbalances between the US and some other countries in the wake of this world wide economic crisis. There are profound economic implications from these adjustments. The US is likely to see a lengthy period of slower growth with possibly higher inflation.

While this could, on the other hand, be a potential threat to some of the rapidly rising developing economies, some of them have advanced to such a degree that they can adjust their economic structure to accommodate their higher saving rates through channelling savings to more rapid capital accumulation. This may not be very easy and should take some time, but the result will be more rapid growth and faster shrinking of the gaps between the now advanced and developing economies.

Besides, an important consequence of the current crisis is that the authorities in many countries have to increase government deficits and debts to try to get the economies up and going again. The burdens of increased government debts are likely to be heavier in the US, Japan and the EU, relative to some of the rapidly rising developing economies. Efforts to reduce government deficits and debts will dampen the economy, further constraining its growth in the medium term. This headache is likely to persist in some advanced economies for some time to come.

Whether there is a need for the large and more rapidly growing developing economies to form their own international institutions to provide an alternative for the established ones is an open question. However, the existing main international economic institutions such as the IMF and the World Bank are likely to experience significant changes in their governance and approaches. Like it or not, the representations of developing economies in those institutions will strengthen at the expenses of the existing heavily represented advanced countries. This is not a rivalry between the advanced and developing countries, but simply a reflection of the new reality. The existing structure of governance simply cannot work effectively any more.

To conclude, the economic dominance of the three major advanced regions internationally will disappear at a frightening speed, if that has not happened already. The coalition of advanced economies is no more than a wishful thinking. Countries, advanced and developing alike, will seek every opportunity to advance their own economies. In that process, the more dynamic developing economies are more attractive than semi-stagnant ones. That is the beauty of evolution and human beings will continue to seek beauty and love beauty, among the laments and the noises of wingy from some minds who may feel the world is changing too fast for them to cope.