Can the Poor Save the World?

That might be true in theory, but the length of this transition period, which is at the heart of the global financial crisis, has been badly underestimated. The inversion of scarcities – the new abundance of men and women actively participating in the global economy, combined with a once-abundant natural world’s increasingly visible limits – risk prolonging the transition indefinitely, for two reasons.

First, from a macroeconomic perspective, we can no longer count on declining prices for raw materials, one of the economic stabilizers in times of crisis. Given rising demand in emerging countries, the cost of natural resources is bound to be a growing constraint.

Second, from a social perspective, after a doubling of the workforce in the global labor market during the twentieth century, another industrial reserve army has arisen in China, and among the three billion inhabitants of the world’s developing countries.

A rapid rebalancing of global growth by reducing financial imbalances between OECD economies and their emerging-market creditors is risky, because it would cause a major recession for the former – and then for the latter. Moreover, it is unlikely, because it assumes that emerging countries will run trade deficits with OECD countries, and that their domestic markets will become drivers of global growth.

If this analysis is correct, a new global rebalancing strategy will need to begin somewhere other than the wealthy OECD economies. The implementation of new growth models in the developing world – the parts of South Asia, Latin America, and Africa that have not adopted export-led strategies – can provide at least part of the missing demand that the world economy urgently needs.

The success of this scenario depends on a combination of three dynamics. First, interstate trade between emerging-market and developing countries must accelerate, thereby building the same kind of consumer-provider relationship as that between emerging and advanced countries. Second, domestic markets in the world’s poorest countries must be developed in order to foster more home-grown growth. And, third, financial flows to developing countries – both official development assistance and foreign direct investment – must rise, and must come not only from industrialized economies, but also from emerging and oil-exporting countries.

Recycling global surpluses through the world’s bottom billions presupposes a complete overhaul of standard economic models, which essentially assume that the Asian economic miracle can be replicated. After all, even if the world achieves significant economic growth between now and 2050, two billion of the world’s nine billion people will still live on less than two dollars a day, and a further billion will have little more than that.

For emerging and wealthy economies alike, the world’s poor should not be viewed as a burden. In the current global economic crisis, they are the best exit strategy we have.

Jean-Michel Severino is Director of Research at the Fondation pour les Études et Recherches sur le Développement International (FERDI), and Manager of Investisseur et Partenaire. Olivier Ray is a development economist at the French Ministry of Foreign Affairs. They are the co-authors of Africa’s Moment.

Copyright: Project Syndicate, 2012.www.project-syndicate.org

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