Who will be the new Masters of the Universe?


The current debate on the size of bankers’ bonuses and new regulation approaches emerging from both the US and EU may miss the most important point. The most important point is that the developed economies’ grip on the international institutions that shape the working of the global economy will weaken and faster than you may think. Just take a look at a new 40 year study of economic prospects published by the Carnegie Endowment[1]. If we look at their low growth scenario (and being a contrarian I think that may be the one to look at) we can see that:

(a) Only the BRICs exceed an average annual GDP growth rate of over 2% during the period 2010-2050.

(b) Some of the developed economies actually go into reverse post 2030 (Japan, Germany, Italy) – the remainder of the developed economies barely growing at all post 2030. The UK manages only some 6.7% total real growth during the period 2030-2050, France 4.7%. The US is the only battle-hardened survivor to achieve significant growth in this period. Brazil, India and China are all achieving stellar growth rates of over 60% whilst all this is going on.

Ah, but 2030 is too far ahead for the warning bells to be ringing you may say. Well, let’s look at growth rates projected 2010-2030. Here we see this picture emerging:

(I) Italy, Germany and Japan’s total real GDP growth 2010-2030 is in the region of 12-15%.
(II) Brazil, India and China all enjoy at least 60% growth.

Using the proposition that economic growth rates are a good leading indicator of the balance of political power, there are some big changes going to occur over the next decade. The BRICs will emerge as the true architects of regulation and as this article reveals[2], they are on a mission. To quote Brazil’s President:

At the Group of 20 summit, we [the BRIC members] proposed anticyclical policies, market regulation, curbing tax havens, and renewal of the Bretton Woods institutions. On this last score, we are determined not to let the incipient signs of recovery in the global economy serve as an excuse for abandoning a democratic remodel of these organizations. The BRIC members have not injected nearly $100 billion into the International Monetary Fund just to leave everything as it was before.

The collapse of financial markets revealed the failure of paradigms previously considered to be unquestionable. Truths about market deregulation collapsed. The ideal of a minimal state also collapsed. The easing of labor rights is no longer a mantra to fight unemployment.

When all these orthodoxies collapsed, the visible hand of the state protected the economic system from the failure created by the invisible hand of the market.

So, we had better listen to what the BRICs have to say now if we want to get a glimpse of what regulation and the global business environment will look like 5 plus years from now.

There are three messages here:

Message #1: The real influencing architects of the business world will be China, India, Brazil and potentially Russia. Those developed economies in bloc #3 (see this post) will fade quickly in terms of influence.

Message #2: Are the above views of  “Capitalism 2.0” considered in your strategy?

Message #3: What growth assumptions are in your business plan?

References
[1] U. Dadush and B. Stancil, The World Order in 2050, Carnegie Endowment for International Peace.
[2] L. da Silva, “Brazilian President Lula: BRIC countries must forge a transparent system of global governance,” The Christian Science Monitor, Apr. 2010.

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