Can the Poor Save the World?

PARIS – Events in 2012 so far have confirmed a new global dissymmetry. Caught between unprecedented financial insecurity and a somber economic outlook, the rich OECD countries and their middle classes fear geopolitical weakening and downward social mobility. In much of Asia, Africa, and Latin America, however, optimism reigns.

Among developed countries, this unexpected shift of fortune has incited protectionism, exemplified by French calls for de-globalization. Meanwhile, among emerging economies, pride has sometimes manifested itself as conceit, tinged, after decades of Western arrogance, with schadenfreude. But, because the world’s developed, emerging, and developing economies are now so closely linked, they will either dog-paddle out of this crisis together or enter into a danger zone unseen since the 1930’s.

After World War II, a new global economy emerged, in which a growing number of developing countries adopted export-led growth models, thereby providing industrialized countries with raw materials and household goods. This new economy was an undeniable success: more people left poverty in the twentieth century than in the preceding two millennia. And it enriched OECD countries, as imports of cheap goods and services strengthened their purchasing power.

But this model also weakened rich countries’ social structures, widening inequalities and excluding a growing proportion of their populations from the labor market. Moreover, it is responsible for the financial imbalances that besiege us today: in order to counter the effects of widening inequality and slowing growth, OECD countries have boosted consumption by rushing into debt – both public (leading to Europe’s public-debt crisis) and private (facilitating the American subprime crisis).

This would have been impossible had the OECD countries’ main suppliers of energy and manufactured goods not, over time, become their creditors. In a remarkable reversal of history, the world’s poor now finance the world’s rich, owing to large foreign reserves. Indeed, the hypertrophy of today’s global financial sector largely reflects efforts to recycle emerging-market countries’ rising surpluses in order to plug the rich countries’ mounting deficits.

Until recently, this dynamic was considered transitory. Emerging countries’ growth would necessarily lead to convergence of global wages and prices, thus halting the erosion of manufacturing in the OECD countries. The demographic transition in the world’s emerging countries would encourage the development of their domestic markets, a fall in their saving rates, and a rebalancing of global trade.

©RIPRODUZIONE RISERVATA