Megatrends in the World Economy
by Džemal Hatibović [1]
article published in Danubius 3-4/1997
In the shadow of the radical changes which have occurred in the global sphere and in particular in the European political and military ones such as: the end of the cold war, the beginning of nuclear disarmament of the two nuclear super powers - the USA and Russia (and completion of nuclear disarmament of the Ukraine, Byelorussia and Kazakhstan) break-up of the Soviet Union and unification of Germany, very significant changes also take place in the world economy on the threshold of the 21st century.
Dynamization of the Overall Growth of Asian Developing Countries
One of the most dramatic and far-reaching changes in the world economic scene in the last two centuries has certainly been the historical turning point in the dynamics of growth of the gross national product in a large number of Asian countries, including all five ones with the most numerous population. This change has occurred in the last decade of this century. Moreover, the country with the largest population in the world - China - became the world champion by the dynamics of growth of the gross national product in the first half of 1990s, while the other four countries with the most numerous population in Asia, and they are: India, Indonesia, Bangladesh and Pakistan, recorded in mid-1990s the rate or overall growth of about 6 per cent or even more, what until recently seemed as something unattainable. If we add to this the exceptional dynamics of growth of "the Asian tigers" - the Republic of Korea, Taiwan, Hong Kong and Singapore, one learnt about earlier, and Malaysia, Thailand and Vietnam that have joined them, while their rate of growth is often even greater, and Philippines and Sri Lanka which are on their way to join them, then we have a clear picture of the impressive economic rise of Asia. It is more impressive or actually, faster and more comprehensive than any that has ever and at any place happened in the economic history of the world. There is no doubt that Asia is rapidly becoming "a world workshop" and the 21st century will be the century of this continent as the 19th belonged to Europe while the 20th is of America.
The most impressive performances in 1990s in the circle of the economically most successful countries of Asia are undoubtedly those of China. In the 1960-87 period China recorded a proportionally fast overall growth with an average rate of 7 per cent, while in 1990s it has recorded a real growth boom with the rates which amounted to 13.2 per cent in 1993, 11.4 per cent in 1994, 10.5 per cent in 1995 and 9.7 per cent in 1996. In nominal terms, in 1996 the gross national product per capita amounted to about $680 while the gross national product totalled $816 billion. However, in real terms, in 1996 the gross national product per capita amounted to $4,500 while the gross national product totalled $5,500 billion what was 80 per cent of the American one. Actually, as early as in 1980s China was ahead of Japan and the Soviet Union by the value of its real gross national product, and it took the second place after the USA, what entails great, manifold and far-reaching global implications.
This acceleration of growth of Asian developing countries results from several significant facts such as: rapid development of education and establishment of competent elites, internal and foreign economic liberalization and great inflow of foreign capital and technology, export-oriented strategies of the economic development as well as openness of the American and Japanese markets to their products, etc.
Rapid economic rise of Asia also has its seamy side. The beginning of the dynamic overall growth of a large number of Asian countries is still more a hope for the future than a comfort for the cruel reality. Asia is, actually, still an ocean of misery and poverty. Although China has for half a century pursued the policy of equality and reached record rates of the overall growth, in mid-1990s there live 65 million people below the limit of poverty while the number of such people in India is 370 million. Second, for disregarding the negative effects of the unselected industrialization and rapid development of the industries which heavily destroy the environment some regions of Asia will face an ecological disaster of enormous proportions. Third, although it is inconsistent with their realities and needs, the Asian developing countries adopt foreign models of consumption and production. This makes a part of their industrial growth counterproductive as is the case with the growth of output in car industry.
Equalization of Dynamics of Growth of Super Industrialized Countries
While in the period from the end of the World War I till late 1980s super industrialized countries were characterized by prominent differences in the dynamics of growth of the gross national product, today it is markedly equalized and is most likely to remain as such in the near future. For example, in the 1950-1990 period the gross national product of Japan rose by the annual rate that was three times greater than the one of the USA. In the above mentioned period the gross national product of Germany and Italy rose by the rate twice greater than the one of the USA, and in 1990s their average annual rates of growth have been very similar. It is anticipated that there the same trend will remain in the near future.
More even overall growth results, on one hand, on "the exhaustion", or the economic and technological maturing of once very dynamic economies such as the Japanese, Italian and German ones, and on the other hand, on the ability of the American and British economies to retain the dynamics of growth from the previous several decades.
Equalization of the dynamics of overall growth among super industrialized countries produces great effects on the relations between the economic powers within the group as a whole, both in the world and in some regions. This has made illusory the anticipations and expectations that Japan will, for example, in the near future be ahead of the USA by the real gross national product per capita, and in not so distant future by the gross national product, too. However, in the light of the new megatrend it becomes clear that even in the near future the USA will keep on being by far the most powerful economic power among super industrialized countries. Concerning the overall economic power its rival at the global level will no longer be Japan but China. However, Japan will remain the main rival in international financial as well as many other fields of technology, being high and medium too. The equalized rates of overall growth keep fixed for a long period of time the economic supremacy of Germany in Western Europe as well as in Europe as a whole. Only, if one observes this from a long-term aspect Russia could become a rival to Germany if the former one finishes its transition successfully, achieve political stabilization and elect leaders who would be able to accelerate progress in all fields, and above all, technological and economic ones.
Transition of Ultra Statist Economies to Market Ones
One of the key global megatrends is transition or the accelerated process of transition from ultra statist to a mixed capitalist-socialist society. In some countries transition involves almost all spheres of the social organization and work while in the others it involves only some of them. In all the countries, for example, the economic systems are subdued to transition, but in China and Vietnam, for instance, the political systems have not been taken by this process.
Key elements of transition of ultra statist economic systems to market ones are turning of the state property in the legal, half-legal and illegal ways into various other forms and they are as follows: private property (individual and collective), personal (individual and collective) and public or a mixture of them, as well as introduction of market laws instead of predominant or exclusive state administration of economic activities.
Economic transition is a giant process, not only by the radicalism of changes (regardless of the fact how they are called - "revolutionary" or "counterrevolutionary") it leads to, but also by the number and significance of the countries in which it is going on. The transition deserves the epithet "giant" even in the case it is limited to Central European, East European and states created by the break-up of the Soviet Union. This in particular if Vietnam and China are included since as early as in late 1970s China applied "transition" and "four modernizations" in its development.
The process of transition is followed by great differences in economic performances achieved by some countries. In that sense there is a wide spectrum on which one end are China and Vietnam that in 1990s have recorded high of growth of the gross national product which averagely amount to about 10 per cent, while on the other end of it are Bosnia-Herzegovina, Georgia and Armenia. Good performances have been achieved in mid-1990s by the economies of Poland, the Czech Republic, Slovakia and Slovenia. Out of all former Soviet republics Turkmenistan has achieved the best results in economy, while Uzbekistan has also not recorded a drastic fall in production, while Russia and the Ukraine are in the middle of the spectrum. The result of such development is that in the 1989-1996 period the gross national product of Russia was halved while that of China doubled. While in early 1980s the Soviet Union was the first in Europe and second in the world by the value of its real gross national product, Russia is today the fifth in Europe and tenth in the world by this indicator of economic power.
In the light of these facts the question arises: why the economic transition in some countries has been followed by a great acceleration of the overall growth, in some by a small decline while in the third by a drastic fall of the gross national product and what is the causality between the economic transition and economic performances. As the performances achieved by the countries on whose territories the wars have been waged are disastrous, they should be excluded from the analysis. Since Russia freed itself from enormous military expenses and commitments to "assist" the members of the Warsaw Pact and other republics of the Soviet Union one could logically expect that it would make a fast progress. However, this did not occur since by dissolution of the CMEA and break-up of the Soviet Union many economic ties were broken. At the same time with the end of the cold war and dissolution of the Warsaw Pact the military-industrial complex had to reduce its production drastically. Apart from this, the transition in Russia proved to be very expensive since it chose a wrong strategy unlike China which choice was a much better and rational strategy for its economic transition.
Globalization of the World Economy
There has never before existed or could be anticipated until recently such vigorous growth of all kinds of economic relations between such great number of countries as is present today. To be true, it had neither been the World War I, nor the October Revolution nor the Chinese and other revolutions that could make the economic ties between the warring parties fully break. It was neither the case with the USSR and its block as well as with China and the outside world. However, these events had made their relations take rudimentary forms and were reduced to the smallest possible degree. With the beginning of the Chinese reforms in 1970s, the end of the cold war in 1980s and commencement of transition in East and Central European and Central Asian countries as well as with a great opening of a number of Asian developing countries in 1990s the world has entered a quite new era. That era has been characterized by intensification of all kinds of economic relations between almost all countries of the world. This means that globalization has been taken by a new momentum which began to subside in 1917.
The main form of international economic relations and the principal way of integration of the world economy as well as the major driving force of the economic growth - international trade, is on a continuous, and in the last two decades, very fast rise, growing in 1990s twice as much faster than the world gross national product. Developing countries, and newly industrialized ones in particular, make a great contribution to the fast growth of international trade. In the 1991-1993 period when most of super industrialized countries faced a deep recession developing countries absorbed three fourths of the world exports growth, thus making a great contribution to the economic recovery of super industrialized countries.
With its fast economic growth and incorporation of Hong Kong in mid-1997 China has grown into one of four greatest world exporters, taking the second place in the world by the amount of its foreign exchange reserves. Moreover, it is becoming the country which, together with Japan, records the greatest surplus in its trade with the USA, however, provided that Chinese goods re-exported by Hong Kong and Singapore within their export quotas to USA are included in the "Chinese" exports as well as the goods exported to America by South Korea, Taiwan, Hong Kong and Singapore from their plants located in China.
After international trade, foreign direct investments are the most important form of a genuine integration of the world economy, showing a new tendency since early 1990s. They are actually more and more rechanelled to developing countries. While in mid-1980s these countries had absorbed 23 per cent of the total foreign direct investments, in the 1992-94 period they absorbed 40 per cent of them.
Foreign capital is attracted to developing countries by increasingly favorable terms and more and more liberal attitude towards it. But, by all this, the most important is the economic success achieved by some developing countries and, above all, high profits which are in average three times higher than in the Group of 7 member countries. Hourly wages in the Indonesian industry are, for example, 118 times lower than in Germany while they are 44 times lower in China than in America. The negative aspect of rechanelling of foreign direct investments to developing countries is their concentration to a small number of countries - in the 1991-1994 period 12 out of 140 developing countries absorbed 89 per cent of all private investments to developing countries, of which China absorbed 29 per cent.
Although a bit slower than in the earlier period Japan keeps on consolidating its positions of a financial superpower. It can achieve it thanks to its still great surpluses in trade balance and balance-of-payments current account (they are actually even much greater than the statistics can show due to its great foreign investments and small investments to Japan). The USA keeps on being the greatest gross investor and creditor, while Japan, in net terms, is as great direct investor as the USA is. As an indirect investor Japan is a creditor while the USA is a debtor. Thus, for example, in late 1993 the cumulative amount of foreign direct investments of the USA totalled $993 billion while foreign investments to the USA totalled $746 billion. The cumulative amount of Japanese foreign direct investments totalled $260 billion and foreign investments to Japan totalled only $17 billion.
Simultaneously with globalization there is also going on the process of even faster growth of all forms of intra-integration economic cooperation and expansion to new regions of the already existing integrations as well as creation of megaintegration entities and multi-continental integrations tending to include some other, neighboring continents.
After it has absorbed EFTA the European Union is on its way to make penetration to the East. It also makes preparations for accession of Central and East European countries to this association, and in the future there should not be excluded its stepping forward to Asia Minor (one has already been made by establishing a customs union with Turkey) and Northern Africa.
After the accession of Mexico the North American Free Trade Association (NAFTA) has embraced the whole North American continent. Through various forms of cooperation it begins to expand to some countries of the South American continent tending to gradually turn into a bicontinental integration, which can include, but not necessarily, all Latin American countries.
In a formal sense there are no large integrations in Asia, except if ASEAN is conceived in such a way. However, actually, there are three significant process that are simultaneously going on there, interweaving and encountering with each other. The first one is creation of the Chinese economic commonwealth through incorporation of Hong Kong (1997) and Macao (1999) to their mother land, then through development of closer and closer economic and technological ties between China and the countries with Chinese population (Taiwan and Singapore) as well as with the countries where the Chinese minority controls a major part of their private sector (most of the countries of South-Eastern Asia). The second is a continuous promotion of economic cooperation between ASEAN member countries and inclusion of Vietnam, Burma and Laos into this process. The third is creation of "the zone of Japanese yen". This is a zone which, apart from Japan, also includes the Asian and Pacific countries with domination of Japanese capital in them.
1990s have brought another form of establishment of symbolic transcontinental ties (apart from the traditional one in the form of annual summits of the Group of 7+1) by organizing annual or ad hoc summits of the countries of North America, Asia and Pacific, the European Union and Asia, North and South America, the USA and European Union.
From what has been said above it could be concluded that the last decade of this century is a great turning point in development of the world economy, being perhaps the greatest one in its history.
[1] Research Fellow at the Institute of International Politics and Economics, Belgrade, SCG
Address: Makedonska 25, 11000 Belgrade, SCG
This article was downloaded / printed from www.danube-cooperation.com