- 2018-11-01
What happened to the world economy?
What happened to the world economy? The world is undergoing major changes.
The most important change in recent decades is the declining weight of high-income countries in global economic activity. The "great divergence" of the 19th and early 20th centuries-at that time, the wealth and power of today's high-income economies surpassed that of other countries-was clearly and quickly reversed. Once the "differentiation" has stalled, what we are seeing now is the "great convergence." However, this convergence is also a limited convergence. This change is all related to the rise of Asia (and most importantly China).
Nothing can better reflect China's progress than its huge savings. Part of the reason why China has accumulated such a large amount of savings is that the size of the Chinese economy has become so large, and part of the reason is that Chinese households and businesses save so much. The influence of China's capital, capital markets and financial institutions in the 21st century world economy may be the same as the influence of the US capital, capital markets and financial institutions in the 20th century world economy.
Emerging and developing countries have not only increased their weight in world output, but also in the world’s population. The weight of high-income countries has dropped significantly. By 2050, the United Nations predicts that the proportion of sub-Saharan Africa in the global population will be almost as high as that of all high-income countries in 1950. The challenges posed by the rising proportion of the poorest countries’ population in the world’s population are obvious.
Economic convergence and changes in population proportions are the core elements of this economic panorama. The third is technological change. The convergence of data processing and communication has brought us the Internet, which is the most important technology of today's era. The plunge in the relative cost of semiconductors supports this technological revolution. It is interesting and worrying that this revolution seems to be slowing down now.
Robert Gordon, a professor of social sciences at Northwestern University, said that the U.S. economy is currently not reaching the remarkable productivity it achieved between 1920 and 1970. He also showed that from 1994 to 2014, there was a sudden and substantial increase in productivity—often due to the Internet—but productivity in the subsequent period was extremely low. Measurement errors seem to explain at best only a small part of this disturbing slowdown. Another one-sided explanation is that investment has been sluggish since the financial crisis.
The world economy is not going global. But the rapid growth of trade and cross-border financial assets and liabilities relative to global output has stalled. As far as finance is concerned, the reasonable explanation is risk aversion and deregulation. As far as trade is concerned, the last major event in trade liberalization was China's accession to the World Trade Organization (WTO)-something that happened as early as 2001. Many of the opportunities provided by cross-border supply chain integration are now exhausted.
Rapid changes in relative economic power and major changes in the relative size of the population have shaped our world. At the same time, the sources of growth engines — new technologies, productivity growth, and globalization — have also slowed to worrying levels. One consequence is stagnant real income growth in many high-income countries-the financial crisis has greatly intensified this consequence.
The increasing populist pressure in high-income economies makes it more difficult to manage these changes. The most important events include stagnation or decline in real income since the financial crisis. Between 2005 and 2014, the real income of up to two-thirds of the population in many high-income countries seemed to stagnate or decline. No wonder so many voters are grumpy. They are not used to this situation and do not want to get used to it.
Significant change-7 indicators to measure change
output value
The International Monetary Fund (IMF) estimates that from 1990 to 2022, the share of high-income countries in world output will drop from 64% to a mere 39% in terms of purchasing power parity. What is striking is that the rise in the share of emerging and developing countries is entirely contributed by emerging and developing countries in Asia: Therefore, it is expected that the share of emerging and developing countries in Asia in world output will rise from 12% to 39% during the same period.
It is estimated that by 2022, Asia’s emerging and developing countries will account for the same proportion of world output as high-income countries. The rise of China is the main reason for this major shift in relative economic power, although the rise of India is just as important. By 2022, China’s share of world output is expected to rise from 4% in 1990 to 21%. India’s share is expected to rise from 4% to 10%.
Savings
Based on market exchange rates, China’s total savings is almost the sum of the United States and the European Union. China saves almost half of its national income. This unusually high savings rate may decline, but this decline will be gradual, because Chinese households may remain frugal and the share of corporate profits in national income may continue to be high.
population
From 1950 to 2015, the current population of high-income countries as a proportion of the world's population dropped sharply from 27% to 15%. Even the proportion of the Chinese population dropped from 22% in 1950 to 19% in 2015. India is expected to become the most populous country in the world by 2025. The United Nations predicts that the population of sub-Saharan Africa will account for 22% of the global population by 2050.
technology
The plunge in semiconductor prices is the driving factor behind the communications and data processing revolution. Measured in this way, the relative price of information processing has fallen by nearly 96% since 1970. This downward slope on a logarithmic scale indicates the rate at which relative prices have fallen-the rate of decline has slowed significantly after 2010.
productivity
Economist Robert Gordon said that since 1970, the United States has not been able to catch up with the productivity performance between 1920 and 1970-as shown by the growth rate of "total factor productivity." Total factor productivity measures the growth of output per unit of input (also known as the rate of technological progress-Translator's Note). He also showed that between 1994 and 2014, the United States experienced explosive growth in productivity, but then entered a period of extremely slow productivity growth.
Globalization
The rapid growth of trade and financial assets and liabilities relative to global output has stalled after the financial crisis. Protectionism may be part of the reason, but it does not seem to be the dominant factor. The exhaustion of many trade opportunities, the slowing pace of liberalization, and sluggish investment seem to explain this slowdown.
income
An analysis published by the McKinsey Global Institute in July 2016 showed that between 2005 and 2014, approximately two-thirds of the population in 25 high-income countries came from real income stagnation from wages and capital. Or down. This type of income stagnation is particularly common for Italians and Americans.