… I believe that the old “North-South” economic model of the international economy of the 1960s and the ’70s is no longer very useful.
It is not very useful because it has tended to create a bipolar concept of world economic dynamics that glosses over—or completely leaves out—a whole series of other elements of economic activity that just do not fit into a rigid “North-South” dichotomy.
The perception itself—whatever its original value may have been to help us to understand the global economy a decade or so ago—has now reached a point of diminishing returns.
There is the added point that I don’t think it helps very much to apply dogma and ideology to global economic problems. What we all need are pragmatic economic strategies that result in plus-sum games in which all the parties benefit, and no one really loses….
The demonstrable economic fact is that we are living in a multipolar world—not a bipolar one….
So, without being dogmatic—and recognizing that the contours of the economic geography are in constant and dynamic movement—let me sketch out at least eight discernible poles of high economic significance in our current international environment….
Four of them are the centers of high industrialization: Western Europe, North America, Japan, and Eastern Europe. Another key group is that of the capital-surplus oil-exporting countries in the Middle East. There are the newly industrializing nations—some 20 of them—that I have already mentioned. Add to this the great populous countries of Asia: China, India, Indonesia, Bangladesh, Pakistan, and others. And finally, there are the severely poverty-stricken countries of sub-Saharan Africa.
Let me comment briefly on each of these eight economic poles, underscore their rate of change, and indicate how they interface with the global economy as a whole.
Western Europe—with a population of 300 million people, and a combined annual gross national product of over $3 trillion—is the largest global trading entity. It accounts for slightly more than 30 per cent of total world trade.
There are two features that distinguish it from other industrial areas. It is particularly open to trans-border commerce: many European countries export over 25 per cent of their gross national product.
And, secondly, after a period of quick growth in the 1960s, Europe’s momentum has slowed down. This, combined with rapid development elsewhere, has resulted in a dramatic loss of its share of world output: from nearly one third of the total to one quarter.
North America, a very different economic pole, has also seen its share of world output decline, but more modestly: from roughly 30 per cent in 1960 to somewhat less than 25 per cent in 1980. Of the many economic characteristics of my own home area of the world, there are two that are particularly relevant to this discussion: its use of energy, and its savings pattern.
By any international comparison, American consumption of energy is exceptionally high, and the United States alone buys roughly 15 per cent of OPEC’s [Organization of Petroleum Exporting Countries] total output. Were the United States to allow greater scope for domestic market pricing of petroleum, this situation could change. For the present, however, it remains a very significant international economic consideration.
The U.S. record on domestic savings surely needs improvement. It has slowed—and continues to hamper—the accumulation of adequate capital and business investment in order to insure strong productivity gains and faster economic growth.
As for Japan’s economy, well, I needn’t remind this particular audience that its performance over the last two decades has been incredibly dynamic. And the Japanese impact on the global economy has been so immense that what has transpired here in these islands has rightly been described as the world’s second Industrial Revolution.
Japan’s share in global product in 1960 was only 3.4 per cent. By 1980, it had tripled to 10.5 per cent. And during this brief twenty-year period the value of its industrial output alone increased almost fivefold in real terms: from over $100 billion in 1960 (in 1979 prices) to nearly $500 billion in 1980…. Today Japan exports nearly one fifth of the total output of its manufacturing sector….
Eastern Europe is another center of industrialized nations, but in contrast to the dynamism in many other parts of the world, its economic performance has been less dramatic. But notwithstanding this, it has tended to preserve its share in world output, which has remained at about 11 per cent more than two decades….
In contrast, the newly industrializing countries—those following in Japan’s foot steps—have over the past 20 years had a pronounced impact on the world economy. These roughly 20 countries, scattered throughout Latin America, Southern Europe, and East Asia, have doubled their share of the global product: from 5 per cent in 1960 to 10 per cent in 1980….
The direction they take may well be much the same that Japan charted in the 1960s and ’70s: moving out of the labor-intensive stage and into high-technology production. And they may well export a large proportion of that increased output, not merely to the industrialized countries, but to the other centers in the multipolar world that I am describing.
Now, another grouping comprises the capital-surplus oil-exporting countries of the Middle East. They have received, of course, an immense amount of economic attention, but most of it has focused on the surpluses themselves, and on the counterpart deficits in the oil-importing nations. What has received much less attention is the role that these capital-surplus countries have begun to play as another pole of intense economic activity.
These societies are short of labor resources. To sustain the huge domestic development programs they launched in the 1970s, they have had to import a very large number of workers: some three to four million of them.
These workers have demonstrated a high propensity to save, and they have remitted the bulk of their earnings to their families in their countries of origin: some $4 billion in 1980 alone.
Further, the concentration of foreign workers and their families in the capital-surplus countries has, in itself, created new markets for their home countries. Pakistan, for example, has increased its share of total exports to the Middle East from 2 per cent in 1970 to 14 per cent in 1980.
What is involved in all of this, therefore, is a complex set of economic relationships that are being forged between the capital-surplus oil-exporting countries and the labor-surplus nations on their periphery.
Now, the populous nations of nonindustrialized Asia represent a success story that has not yet received the full attention it deserves. Like the progress of the newly industrializing nations, these vast traditional societies of Asia have demonstrated the dynamism that can be achieved when the critical mix of domestic policies, indigenous effort, mobilized savings, and adequate investment are brought to bear on high-priority development objectives.
The great success story in these countries is agriculture, and it is leading this area of the world out of underdevelopment and into modernization. Instead of grappling with chronic shortages, many of these countries are now approaching not only self-sufficiency in food grains, but are likely soon to become grain exporters.
There is still, of course, poverty in populous Asia, and the population problem in these societies has emphatically not disappeared. But fertility rates have begun to decline and, hence, population growth rates will be gradually coming down.
Finally, the eighth pole I want to touch on is sub-Saharan Africa. It is by far the poorest part of the world economy. And hence it is in this region of the globe that the development community today faces perhaps its greatest challenge.
Sub-Saharan Africa is the one major area of the world in which 18 countries actually suffered a decline in income per capita during the 1970s. And present projections indicate virtually no growth in income per capita in the current decade for the majority of countries in the region.
Even this disappointing outlook rests on projections—not predictions. And in our recent World Bank report on the development problems of sub-Saharan Africa the analysis suggests that by more efficient use of resources, and more appropriate policy responses to both the world economy and to the domestic conditions in the individual countries themselves, these societies can do very much better than the projections.
In view of the scope of the changes required, and the magnitude of the investment programs these countries must undertake, we in the Bank have urged a doubling of aid to Africa. To reverse the decline and stagnation of the past decade will require a joint effort by the individual countries of Africa themselves, and the entire international development community….
The world trade in manufactured goods, the flow of private-sector financial resources, the movement of workers across international frontiers—all of this at historically unprecedented levels—mean that by 1990 the world may well be qualitatively very different from what it is today.
To grasp the significance of these possibilities, we clearly have to think in a dynamic—rather than in a static—sense. A qualitatively different world will require qualitatively different instruments of economic management.