Shifting wealth: does the developing world hold the key to building a stronger economy?

July 2, 2010

The following is a guest post by Angel Gurría, Secretary-General of the Organisation for Economic Co-operation Development. The opinions expressed are his own.

The world’s economic center of gravity is changing. Global GDP growth over the last decade owes more to the developing world than to high-income economies. If these trends continue, by 2030 developing countries will account for nearly 60% of world GDP on a purchasing-power parity basis, according to OECD calculations.

While high-income countries have been languishing in the worst recession since the 1930s, China and India have continued to power ahead. This is not a single stand-alone event, but a sign of an important structural transformation in the global economy, a process we call “shifting wealth.”

The tangible signs of shifting wealth are widespread. In 2009 China became the leading trading partner of Brazil, India and South Africa. The Indian multinational Tata is now the second most active investor in sub-Saharan Africa. Over 40% of the world’s researchers are now based in Asia. And by 2009, developing countries were holding USD 5.4 trillion in foreign currency reserves, nearly twice as much the amount held by rich countries.

Some commentators talk about these new trends with trepidation. But the “rise of the rest” is not a “threat to the west:” overall, the newfound prosperity in the developing world represents an enormous opportunity for citizens in the developing and developed world alike. Improvements in the range and quality of their exports, greater technological dynamism, better prospects for doing business, a larger consumption base – all these factors can create substantial welfare benefits for the world.

Moreover, imagine the consequences if the Asian Giants had followed the industrialised countries into recession? These large developing countries have helped soften the impact of the most serious global recession since the 1930s. Through their trade and investment links they have also mitigated the impact of the crisis on the rest of the developing world. Africa, for instance, is forecast to post growth of 4.5 percent this year – a figure below its pre-crisis level, but far in excess of that of the OECD average.

As world leaders work on the recovery and strengthening of the global economy and financial system, more attention deserves to be paid to South-South linkages, which promise to be one of the main engines of growth over the coming decade. Take trade, for example. Between 1990 and 2008, South-South trade multiplied more than twenty times over, while world trade expanded only four-fold. Yet trade barriers between developing countries are still high.

By reducing tariffs to the levels prevailing among advanced countries, our calculations suggest that developing countries could achieve substantial welfare benefits – worth more than double the gains from similar reductions on North-South trade. Policy makers also need to make sure that low-income countries are beneficiaries of the dynamism in South-South trade. Over recent years, Brazil, India and China have offered quota-free market access to less-developed countries. These schemes need to be extended and deepened.

Opportunities to benefit from South-South links are not limited to trade but also include aid, foreign direct investment, technology transfer and migration. Here we need to fully harness the power of peer-learning.

Therefore, we should not lose sight of the major challenges that still confront the developing world. Chief among them is poverty reduction. Since 1990, the number of people in the world living on less than a dollar-a-day has fallen by more than a quarter. Yet much of this progress has been concentrated disproportionately in China – which accounts for 90% of this drop. Other countries have made progress but at a pace insufficient to counter the effect of population growth. Inequality, too, has risen quite sharply in many countries over the last two decades.

For social development to match pace with growth, deliberate and determined interventions are necessary to make growth pro-poor and to establish social policies that protect and promote well-being. Once again, policy innovations in the South provide at least part of the answer.

Cash transfer schemes have been adopted by a number of emerging economies – Brazil, India, Indonesia, Mexico, South Africa and China – since the late 1990s, and they now benefit 90 million households. These schemes are not insurance-based or contributory-based schemes, but rather are financed through government taxes.

Thanks to the newfound wealth in emerging economies, governments can now afford to boost public spending on social protection. Without this, rising inequality will not jeopardise future growth and prosperity exclusively in the developing world, it will threaten the global economy as a whole. We need to seize this opportunity to create a fairer, cleaner and stronger global economy – for that to become a reality, the contribution of the developing world has become more essential than ever.


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in the meantime, let’s grow our own food, buy local, and take care of what we have and praise it..

Posted by gramps | Report as abusive

The weak economy worldwide, weak currency, and unemployment are symptoms, not the underlying problems, and can’t be solved by any administration band aid jobs programs, more spending and more taxes. Said Sahit Muja the President & CEO of Albanian Minerals

Mr Sahit Muja said “The worldwide special interest government’s policies heavily favor transfer payments and war expenditures, within an economy’s generally anchored by low paying service jobs, consumer credit, an unregulated banking industry and inflated housing prices.

The symptoms of the worlds economy are undeniable, plain to see, a economy increasingly dependent on massive deficits, foreign dependency’s, and an inflationary money supply”

Mr Sahit Muja said “The world’s economy will definitely improve if the government’s encourages successful businesses rather than punishing them with more taxes. The economy will improve if the government’s stop spending trillions of dollars that we don’t have and balance the budget. The world must be led and managed by a leader’s who really understands the economy. Bailouts for private companies usually mean that failing companies receive taxpayer money, while their more successful competitors do not”.

” Does that make any sense? In the real world, investors seek to put their money where it is most valuable; that is, in companies that succeed, not those that fail. In the alternate world of government bailouts in which lawmakers spend taxpayer money rather than their own, failure is rewarded and success is punished. World need new tax system a 10 percent flat tax like in Albania”.The Albanian economy has done very well under Prime Minister Sali Berisha, and government policy has been key. These economic gains are a big part of the reason he win re-election in 2009. Billions of dollars are currently being invested in all sectors”.
Albania announced that there was a 42 percent increase in the number of tourists in 2009.
The Albanian economy had the best growth in Europe last year, and this trend is expected to continue this year as well. Foreign investments in Albania have increased 59 percent in 2009

The Albanian government under Prime Minister Berisha, has created an excellent environment to attract investors to Albania. Special emphasis was paid on constructions of roads and improving infrastructure. The efforts on improving the legal system to protect investors also proved significant. Also that many Western European companies have chosen to escape the high taxes in Europe by investing in Albania as the latter offers the best tax system in Europe with a 10 percent flat tax”.

Mr Sahit Muja said “Government spending is like throwing gasoline on the smoldering fire. The only thing it can do is make it worse. The damage is done and it will take time to rebuild. Fix the specific things that lead to the damage occurring. Then adopt the same financial approach that a family would take after their house has burned down and they didn’t have insurance. You don’t run up the credit card bill any more than absolutely necessary and you cut all extravagances from your life. Otherwise, it will take you a lot longer to recover from the financial disaster”.

“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving.The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it”.

Mr Sahit Muja said “World have so much wealth in human and natural resources, food, water, energy, forests, oil, natural gas, gold, metals, cooper, aluminum, iron ore, chrome ore. World have everything we need to have a prosper live for any human in this planet.
Why world is so poor? why big economies like Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Korea, Turkey, United Kingdom and the United States of America don’t help the world.

More than 840 million people in the world are malnourished-799 million of them are from the developing world. More than 153 million of them are under the age of 5.
6 million children under the age of 5 die every year as a result of hunger. Of the 6.2 billion people in today’s world, 1.2 billion live on less than $1 per day”.
Albanian Minerals

Posted by SahitMuja | Report as abusive

Well written,shows keen insight of the global economic situation facing us.The strengthening of the developing economies act to serve as a crutch to the ailing developed ones,provided the crutch does not break against the crushing weight of debt laden developed ones.Equitable distribution of wealth is required across all sectors and regions of the economy for an eventual sustainable global growth.

Posted by schadha100 | Report as abusive

Deep recession indicates that the Gravity of Wealth is changing because The Lakshmi, Goddess of Wealth want to change her house. The developing countries are not fully ready to owe the reponsibilty being offered on faster inertia in present economic climate. The political leadership is not ready to make the system more transparent because of fear of loosing the fruits of governance. On the other hand, the general public is ready to take the opportunity being offered by present economic climate.

Posted by rajayagarwal | Report as abusive

It is always good to read the catalog cliche about SOUTH and North. However, the emerging situation in China tells a new story. The FUJITSU scandal trigered an inevitable shrinkage of cheap labor force in China. Instead, the rising group of skilled labors will eagerly realize their ideal stance concerning the labor right and other economic benefits, which is also highly supported by the authority. We can see the relavent structural movement in the Chinese industry booming in South coastal areas.

Posted by Agnesss | Report as abusive

Not sure there was any news in this piece. Not sure I share the author’s optimism about Asia ‘not going into recession’. Not sure I can go with any account that doesn’t address global capitalism’s enormous room-elephant: its capital-raising system is dysfunctional. al-economy-weekend-intervenes-to.html

Posted by nbywardslog | Report as abusive

I think world leaders missed the last chance to see the problem from a different angle. How long is growth going to be sustainable? Will China be able to hold out its grwoing social unrest after Expo Shanghai? Will poverty in India & Brazil not end being the very cause of a needed revolution that will upset any economic previsions?  /2010/06/23/g-20-toronto-summit-last-ch ance-to-see-the-crisis-from-another-angl e/

Posted by FernandoFF | Report as abusive

The emerging line of economic scheme between those developing countries does create a quite substantive effect not to mentioned their newly established cooperation with other countries as dialog partners to avoid such economic recession came accross. Came from one of those developing countries, I am very much eager to witness and involve in its progress.

Posted by sendyhermawati | Report as abusive

The emerging line of economic scheme between those developing countries does create a quite substantive effect not to mentioned their newly established cooperation with other countries as dialog partners to avoid such economic recession came across. Came from one of those developing countries, I am very much eager to witness and involve in its progress.

Posted by sendyhermawati | Report as abusive

If the 19th and 20th century models for building an industrial society are followed by the developing world, their success will be even more short lived than that of Europe and the U.S..

Posted by coyotle | Report as abusive

No matter. We’ll all be dead soon.

Posted by NiigaPleeez | Report as abusive