New Big Five to leads the world

New Big Five to leads the world

Developing countries, not industrialized states, are the engine of growth for the world economy, says the World Bank. Abid Aslam of Inter Press Service reports.

WASHINGTON: Developing countries are seen to set the pace of the world's economy over the next 25 years and five of them could fundamentally change the way business is done around the globe, says the World Bank.

The five countries: Brazil, China, India, Indonesia, and Russia -- are set to far exceed the European Union's (EU's) share of world trade by 2020, the Bank says in its latest report on Global Economic Prospects and the Developing Countries. The Big Five are the most populous of developing countries.

Russia, not traditionally considered a developing country, is one of those so ranked because its per capita income puts it in the ranks of the low and middle-income countries, says Milan Brahmbhatt, the report's principal author.

Assuming the future unfolds as the Bank's economists think it will, at least one conventional view -- that poorer countries' economic health depends on aid from richer countries and favorable access to their markets -- stands to be overturned as it becomes increasingly clear the North needs access to Southern markets.

By 2020, says the Bank, the poor will buy four-tenths of what the rich produce. (At present, about 25 percent of industrialized countries' exports are to developing countries.)

In the intervening years, the wealthy member states of the Organization for Economic Cooperation and Development (OECD) will depend on consumers in developing countries for 50 cents of every dollar of export growth across the board, with specialized technology and service exports -- for example, in telecommunications -- expected to be the main moneymakers.

Developing countries have been the engine of growth for the global economy, says World Bank chief economist Joseph Stiglitz, and the extent to which rich and poor depend on one another will become increasingly clear in the next 25 years.

Along with conventional wisdoms, trade relations will be transformed, the Bank says. The current Big Five share of world trade is set to expand from barely one-third of the EU's today, to 50 percent greater than the EU's share in 2020.

In many instances, this expansion will not be driven by local producers, but by multinational corporations, which already account for one-fifth of world manufacturing output. One-third of total world trade is between different operations of the same multinational firm, the report says.

Benefits will not reach everyone, Brahmbhatt concedes. A number of countries in the Middle East, Africa, Eastern Europe and Central Asia still lack the basics for investor confidence, and their companies remain cut off from private capital markets and real competition, he says, blaming their problems on weak national policies and institutions and inadequate transport and communications services.

Increased competition in trade and investment will highlight the vulnerability of developing countries dependent on aid, loans, or bond issues to finance current account deficits rather than productive sectors, he warns.

Developing countries in general should benefit from the rising fortunes of the "Big Five", the report argues, because the leading developing markets increasingly will influence the prices of internationally-traded goods (presumably, at more broadly affordable levels). Exporters of primary commodities -- chiefly, African and Latin American countries -- should enjoy the rewards of rising demand for their exports among the Big Five themselves.

Could increased consumption of food and fuel by the Big Five -- home to about half the world's population -- actually drive prices up? Not if technology helps to boost production, says the Bank.

The Bank's vision is what Brahmbhatt prefers to call a scenario rather than a forecast because it looks further into the future than the Bank normally does. It assumes that developing countries will heed its advice and establish macroeconomic order, open their markets, and run a market- friendly state. It sees agricultural tariffs being halved in the coming years.

The agency also assumes a favorable international economic environment -- acknowledgment that its model rests on factors as uncontrollable as the weather and the whims and perceptions of investors as much as it relies on the fundamental soundness of investment opportunities and government policies.

The Bank is feeling bullish. It sees developing country growth rising to 5.4 percent in 1997-2006, from 2.6 percent in the 1980s. Last year's growth topped 5.5 percent, the highest level in 20 years. One in five developing countries have experienced a fall in per capita incomes so far this decade, compared to half in the 1980s. And private capital flows to developing countries last year hit a record $245 billion, with foreign direct investment -- considered real investment in physical plant -- exceeding US$100 billion for the first time.

Virtually all of that money has gone to a dozen or so emerging market economies, however, and is subject to its own risks. Stronger growth in industrial countries over the next year, for example, could push interest rates up. In turn, this could slow the flow of private money to developing countries.

Yet, the Bank has been forced to acknowledge the increasing importance of private finance -- and to limit its own future role as a lender to one of plugging gaps left by private financiers, Stiglitz told IPS. Among other things, this should mean less Bank lending for infrastructure projects, and more for social safety nets. These, the Bank report says, will be necessary to defray the social costs of economic integration.

Workers in some sectors may become unemployed for a while, but the social costs will be small and temporary, Brahmbhatt insists. He concedes that increased competition among developing countries -- and especially the Big Five -- could touch off fierce competition in labor markets. The most flexible labor markets -- those with the lowest wages and the greatest ability to move workers from industries in bust to those in boom -- will win out, while the losers will eventually catch up, he argues.

In promoting trade liberalization, the report pays scant attention to the question of poverty. In an accompanying statement, the Bank states simply: By contributing to improved economic growth in the longer term, trade liberalization is likely to make a substantial contribution to poverty reduction.

-- IPS