A major challenge for our new majority government — and for our businesses large and small — will be to make the transition from a unipolar world, where the United States dominated, to a multi-polar world, where some half dozen emerging-market economies will become much more powerful, industrially and financially.
U.S. power and influence will still be significant. But by 2025 (just 14 years from now), countries such as China, India, Russia, Brazil, Korea and Indonesia will be much more powerful and wealthier than they are today.
The competition for a new managing director for the International Monetary Fund reflects this changing global dynamic.
It will be between candidates from the emerging-market economies who say it’s time for them to fill this post, and those from the advanced economies, which have traditionally held the post.
Bank of Canada governor Mark Carney addressed some of these challenges in a recent speech, entitled Canada in a Multi-Polar World.
“The major advanced economies, particularly the United States, were Canada’s future once,” he said. But the slow-growth legacy of the financial crisis in these countries, combined with the much stronger growth potential of the emerging-market economies, means that much of the world’s future growth — and opportunity — will come from these emerging-market economies.
The economic and financial transformation of the global economy is spelled out in a new and significant report from the World Bank, Mulitpolarity: The New Global Economy.
In itself a sign of change, the report was prepared under the direction of Justin Yifu Lin, a prominent Chinese economist who was recruited to become chief economist at the World Bank.
The growing power of emerging markets, the World Bank report says, “is paving the way for a world economy with an increasingly multipolar character. The distribution of global growth will become more diffuse, with no single country dominating the global economic scene.”
By 2025, it projects, “global economic growth will predominantly be generated in emerging economies.” The developing world will be growing twice as fast as the advanced economies.
At the same time, the U.S. dollar will lose its unique status as a reserve currency, with the euro and the Chinese renminbi also serving as international reserve currencies.
Multinationals from the emerging-market economies will play a bigger role globally as these countries become more innovative and high-tech, with more takeovers of Western corporations by businesses from the developing world.
By 2025, the World Bank says, “a luxury sedan is as likely to be a Hyundai or Tata as a Mercedes or Lexus, is as likely to be powered with fuel from Lukoil or Pertamina as from ExxonMobil or BP, and is as likely to be financed by China’s ICBC (Industrial and Commercial Bank of China Ltd.) or Brazil’s Itau as it is by Citi or BNP Paribas.”
At the same time, major financial centres are expected to emerge in the emerging-market economies, “reshaping cross-border corporate finance, transforming emerging-market firms into significant participants in international capital markets.” Businesses in Canada and other countries in the developed world can be expected to seek access to capital in these new financial centres, including listing on stock markets in these centres to tap into their large pools of savings.
For Canada, a major impact of the rise of the emerging-market economies has been to increase the demand for commodities and drive up our exchange rate. But as Carney points out, aside from commodities we are not major players in emerging-market economies — our non-commodity export share in these economies has been almost halved over the past decade.
In economic policy, as Carney says, “increasing market share in emerging markets will require sustained efforts to develop trade, technical and academic partnerships,” Carney says. “In tandem, Canadian business needs to improve its competitiveness, source new suppliers, and prepare to manage in a more volatile environment.”
But this will be a foreign policy challenge as well. Canada will have to invest more diplomatic effort in the emerging-market economies as well as helping strengthen international organizations, like the IMF and the World Trade Organization, for global governance.
Economist David Crane is a syndicated Toronto Star columnist. He can be reached at email@example.com.