Re-emerging Economies
The industrial revolution fully involved only 1/3 of the world’s population. The current industrial revolution covers most of the globe.
Emerging countries’ share of world exports has jumped to 43%, from 20% in 1970. They consume over half of the world’s energy and have accounted for 4/5s of the growth in oil demand in the past 5 years. They ahold 70% of the world’s foreign-exchange reserves.
Measured at purchasing-power parity (which takes account of lower prices in poorer countries) the emerging economies now make up over half of world GDP. At market exchange rates their share is still less than 30%. But even at market exchange rates, they accounted for well over 1/2 of the increase in global output last year. China and India together made up less than 1/4 of the total increase in emerging economies’ GDP last year.
Until the late 19th century, China and India were the world’s two biggest economies. Estimates by Angus Maddison suggest that in the 18 centuries up to 1820 these economies produced, on average, 80% of world GDP. By 1950 their share had fallen to 40%. In the past 5 years, their annual growth has averaged almost 7%, its fastest pace in recorded history and well above the 2.3% growth in rich economies. The IMF forecasts that in the next five years emerging economies will grow at an average of 6.8% a year, whereas the developed economies will notch up only 2.7%. If both groups continued in this way, in 20 years’ time emerging economies would account for 2/3rds of global output (at purchasing-power parity).
Since 2000, world GDP per head has grown by an average of 3.2% a year. That would beat the 2.9% annual growth during the golden age of 1950-73. Between 1870 and 1913 world GDP per head increased by an average of only 1.3% a year.
When America and Britain were industrialising in the 19th century, they took 50 years to double their real incomes per head; today China is achieving the same feat in nine years.
The sum of China’s total exports and imports amounts to around 70% of its GDP, against only 25-30% in India or America.
Over 1/2 of the combined exports of America, the euro area and Japan go to the emerging economies. The rich economies’ trade with developing countries is growing twice as fast as their trade with one another.
As China, India and the former Soviet Union have embraced market capitalism, the global labour force has, in effect, doubled.
The integration of China and other developing countries into the world trading system is causing the biggest shift in relative prices and incomes (of labour, capital, commodities, goods and assets) for at least a century, and this, in turn, is leading to a big redistribution of income. For example, whereas prices of the labour-intensive goods that China and others export are falling, prices of the goods they import, notably oil, are rising.
Workers’ share of national income in developed countries has fallen to its lowest level for decades, whereas the share of profits has surged.
An alarming number of economic variables are currently way out of line with what conventional economic models would predict. America’s current-account deficit is at a record high, yet the dollar has remained relatively strong. Global interest rates are still historically low, despite strong growth and heavy government borrowing. Oil prices have tripled since 2002, yet global growth remains robust and inflation, though rising, is still relatively low. (House prices, however, have been soaring in many countries.)
America’s total imports from the rest of the world last year amounted to only 4% of world GDP.