Globalization continues. Its effects are somewhat different now than they were fifty years ago.
A co-worker suggested this thought.
The old economic adage,
“When the US gets a cold, the rest of the world comes down with pneumonia.” That was likely almost true when the US economy was a huge share of the world economy. Not so true now.
The proposed amendment:
“When China catches a cold, the US sneezes, Europe stays in bed with chills and commodities cough up a lung.”
World economic factors are dynamic and old ideas about how they works will soon be overtaken by events. Demographics change. Attitudes to work change. Capital formation changes in ways that are nearly magic. It is safe to say that the future will rhyme with the past but will be unlike the past in important ways. There are some evolving changes that will profoundly affect what the world becomes.
- Population growth will slow down and world population will level out around 10 billion people. Hans Rosling has an excellent TED Talk on this.
- The US economy will continue to grow but more slowly than other places in the world. It is much harder to increase a giant economy or business by 7% than it is a small one. The others will catch up, the US will not fall behind.
- China will slow down for the same reasons.
- India will grow more quickly than China.
- In percentage terms most of Africa will grow quickly.
- The world gini coefficient will continue to fall.
- Outside Europe and North America, women will achieve a more prominent place in the world. It is foolish to waste resources. See declining birth rates in 1)
- In places where capital formation is impeded by the absence of property law, growth will be slow. Peruvian economist Hernado de Soto Polar has valuable insight. In other places, like India, there is sufficient capital, but it is not in the form of financial assets. When the need arises and the rules permit, Indian family gold will reappear as financially useful capital.
- Capitalism will become the norm in countries that have not yet become rich, because capitalism is the only system that creates wealth. All others concern themselves first with distribution and that is an entirely different platform. Socialism is a luxury good.
- Western Europe will diminish its impact because of weak decisions from the past. In the ivory towers, economics is nuanced. On the ground, economics is objective and ruthlessly biased towards what works.
- Fossil fuels will diminish in importance in developed countries. Not because that makes sense environmentally, recall how economics is objective, but because solar energy will be cheaper per unit. For the less developed countries, fossil fuels will continue because the capital requirement for their production will be affordable while others will not.
- Water will be an issue. Oil is for talking, water is for fighting. Cowardly politicians are mishandling this one as we speak. Water conservation is not especially difficult and it will have a payback.
Change has meaning for your decisions. Come back in fifty years and we can discuss what other things happened and what of these did not. I have marked it in my calendar. Should be fun.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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