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