Future imperfect

2011-05-26 00:00

THE economists, the statisticians and the investment bankers have done their work, and everybody­ in the financial world now has more or less the same picture of the future in their minds. The predictions are so consistent that even the general public thinks it knows where the trends are leading us: Asia and Latin America up, Europe­ and North America in a holding pattern, Africa and the Middle East down. But maybe the predictions are wrong.

Goldman Sachs started the game almost a decade ago with its study predicting that the Bric, the four largest emerging economies (Brazil­, Russia, India and China), would overtake the rich countries of the G7 (the United States, Japan, Germany, Britain, France, Italy and Canada) some time in the 2030s. The world’s economic centre of gravity, the study implied, was shifting from the West to Asia.

Hardly anybody disputes this model any more. The pundits just differ on the details, like when China­’s economy will pass that of the U.S. As soon as 2020, said PricewaterhouseCooper; 2027, says the latest Goldman Sachs prediction; 2035, says the Carnegie Institute, as late as the mid-2040s, according to Karen Ward’s recent study for HSBC. But they all agree it’s going to happen.

Ward’s study, “The World in 2050” is particularly interesting for two reasons. One, because it is more realistic about China, whose economy is currently the biggest bubble in world history. And two, because it offers predictions for the world’s 30 biggest economies, not just the top 10.

China’s economy, at $25 trillion annually, is only a couple of trillion ahead of the United States in 2050. (All calculations are in constant dollars­ of the year 2000.) Then there is a long drop to India at $8 trillion and Japan at $6 trillion — and no other country reaches $5 trillion.

Places five to 11 are mostly filled by the rest of the G7 countries, with only Brazil and Mexico breaking into the magic circle. The rest of the top 20, however, are almost all developing countries (Turkey, South Korea, Russia, Indonesia, Argentina­, Egypt and Malaysia), with only Spain and Australia from the developed world. So in this model­, Asia and Latin America really are taking over, with 11 out of the top 20 slots.

Now, you can quibble with bits of this, like categorising Russia as an emerging economy. In terms of infrastructure, average education level and birth rate, Russia is clearly a developed country. But if these predictions are roughly correct, then it is definitely Asia and Latin America up, and Europe and North America (plus Japan) in a holding pattern.

And are Africa and the Middle East really down? Up and down are purely relative, of course, and there are certainly some large African countries with quite respectable projected growth rates, like Nigeria and South Africa. But despite the world’s highest population growth rates, no African country’s economy makes it into the top 20 by 2050.

Of the Middle Eastern countries only Egypt scrapes in at number 19, just ahead of Malaysia (which has only a third of Egypt’s population). Most of the non-oil economies face virtual stagnation, and there are big question marks over the claimed oil reserves of a number of the oil states. Africa and the Middle East down.

It’s only a game: only the very brave or the very foolish would base major investment decisions on such a long-term extrapolation of current trends. But it’s the sort of thing that the strategists and the geopolitics experts love — and it could be wrong. Not just wrong in detail, but utterly, spectacularly wrong.

All of these predictions assume that global conditions will remain essentially unchanged for the next 40 years. That is highly unlikely.

The predictions are not simple-minded straight-line extrapolations. They all assume, for example, that China’s economy, which has grown at 10% for the past 20 years (and therefore doubled in size every seven years), will drop to about half that growth rate (doubling only every­ 14 years) well before 2050. But they do assume that energy — especially oil — will remain plentiful and relatively affordable for the next 40 years.

Even more implausibly, they also assume that global warming will not cause serious disruptions in the world’s economies over the next two generations. Yet there is already enough warming locked into the system by past, current and near-future emissions that severe disruption is virtually guaranteed, especially in the tropical and sub-tropical parts of the planet.

The old-rich countries of the G7 are all in the temperate zone, which may get away with relatively minor damage from global warming in the period to 2050. All the big emerging economies, except Russia and Argentina­, are located wholly or largely in the tropics and/or the sub-tropics. That means they will almost certainly suffer very serious disruption, including huge losses in food production.

This is monstrously unfair. Just when the poorer countries finally start to catch up economically with their former imperial masters, the warming caused by two centuries of greenhouse gas emissions by the rich countries knocks them back yet again. Which may also knock all those predictions that the emerging economies will soon overtake the developed ones into a cocked hat.

 

• Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.

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