28 July 2008
By Gwynne Dyer
You have to hand it to the economics team at Goldman Sachs. It was they who came up with the concept of the “BRICs”: the four big economies, in Brazil, Russia, India and China, that were going to catch up with and then overtake the big economies of the developed world. More recently they added the “Next Eleven”: middle-sized developing countries like Turkey, Indonesia and Mexico that will also grow fast enough to overtake their old-rich counterparts in the next generation.
Back in 2006, Goldman Sachs predicted that the Chinese economy would surpass that of the United States in the early 2040s, with the Indian economy not far behind. But now the Goldman Sachs team has put out a new set of forecasts.
The Chinese economy, they predict, will overtake the US economy around 2025, not in the 2040s, and will be twice as big by 2050. India’s economy by 2050 will still be slightly smaller than that of the United States, but the economies of Brazil, Russia, Indonesia and Mexico will all be bigger than that of the next-largest old-rich country, Britain.
The changes in the pecking order are equally dramatic further down. Turkey’s economy in 2050 will be bigger than Japan’s, France’s or Germany’s, and both Nigeria and the Philippines will have larger economies than Canada and Italy. Korea, Iran and Saudi Arabia will all have bigger economies than Spain.
The predicted changes in per capita income by 2050 are less radical, though still impressive. The United States and the United Kingdom are neck-and-neck at the top, just as they are now, with Canada only slightly behind. Koreans are substantially richer than Japanese — $80,000 per annum versus $63,000 — and the Chinese still bring up the rear in East Asia with a mere $50,000 a year.
But hang on a minute. $50,000 a year is slightly higher than the present per capita income in the US or Britain. In 2050 there will be around one and a half billion Chinese, and if they have an average per capita income of $50,000 a year then most of them will be leading a fairly lavish middle-class lifestyle. How is this compatible with what we know about the world’s resources of energy, food and other commodities, and about the likely course of climate change?
Goldman Sachs is providing surprise-free projections of current trends. This is a useful exercise, because it sets the larger framework in which the inevitable surprises will take place. But that is all it is, because no forty-year stretch of history is free of surprises.
In the past forty years we have seen the rise to great wealth of the oil-exporting states of the Arabian peninsula, but a crash in the predicted Iranian growth rate after the 1979 revolution. We have seen the disappointment of the high expectations most people held for newly independent African countries in the 1960s, and the sudden high growth rates of most Asian countries in the 1980s and 1990s. We have seen the collapse of the Soviet empire and the expansion of the European Union into Eastern Europe.
Few economic analysts in 1968 predicted any of this, any more than they foresaw globalisation, the internet or the rise of the euro. History does not run on rails, and none of those things was certain to happen (though some had a much higher probability of happening than others). The same applies to the relationship between the present and the future: Goldman Sachs is offering us a point of departure for thinking about the future, not a map of it.
So what are some of the things that could derail this simple picture of a richer future in which the gap between rich and poor has narrowed sharply except for Africa? A mere shortage of oil or other commodities wouldn’t change the pecking order much, although it might lower everybody’s average income (except in the commodity-exporting countries). Local political upheavals might knock specific countries out of the running, like Iran in the 1980s or Russia in the 1990s, but that wouldn’t change the broader picture either.
The one “known unknown” that could do that is large-scale climate change, because it would strike some countries much harder than others, at least in the early phase. And the hardest-hit countries would include most of those that are now climbing rapidly in the rankings.
Countries in the tropics and the sub-tropics are likely to be hit early and hard by climate change, while most of those in the temperate climate zone will suffer relatively little until a good deal later in the process. Countries like Turkey, Mexico, Indonesia, India and Iran will suffer diminished rainfall and declining food production, and even China, although mostly in the temperate zone, will struggle as the glaciers on the Tibetan plateau that feed most of its major rivers melt away.
Since the countries that suffer least, like the US, Canada, Britain, France, Germany, Russia and Japan, are also the ones that produced most of the greenhouse-gas emissions that have caused the current warming, this will probably result in some very bitter exchanges between North and South. But it also means that the economic pecking order in 2050 may be less different from today’s than Goldman Sachs predicts.
To shorten to 725 words, omit paragraphs 8 and 9. (“In the past…map of it”)