It was just another day in 1914 when the Winston Churchill took the stand in the English Parliament to say:
“We are not a young people with an innocent record and a scanty inheritance… We have engrossed to ourselves an altogether disproportionate share of the wealth and traffic of the world. We have got all we want in territory, and our claim to be left in the unmolested enjoyment of vast and splendid possessions, mainly acquired by violence, largely maintained by force, often seems less reasonable to others than to us.”
The transfer of wealth and power from the West to the countries that were once considered “emerging” is an extremely long-term topic, and it is well under way – as we have been able to easily see every day for several years in these parts.
It is one of the aspects that make management of the financial crisis so difficult:
“When you’ve had money and lost it, it can be much worse than never having had it at all!”
As stated by the beautiful Daryl Hannah (in the role of Darien Taylor) in the 1987 film Wall Street. Western civilizations are becoming impoverished as they give back some of the excesses that they enjoyed while living above their means, and while the rich get poorer, another part of the world grows and becomes richer.
Things do not proceed linearly in this trend of long-term growth, however. One example is the Shanghai stock exchange, which in 2007 was at more than 6,000 points, while today it sails closer to 2,100. The Indian Sensex has dropped from a high of 21,000 to less than 16,000 at the low point of the crisis. Similarly the Russian index Micex has seen both 1,900 and 600 in recent years. Oscillations this strong in the stock market certainly depend on the fact that, despite being the real engines of worldwide trends, the primary end users of their production are western consumers, whose difficulties have rebounded on the producers: growth of China’s GDP has slowed for a full seven consecutive quarters.
But signs of a recovery have slowly come from China and India, with improvements in the PMI’s of the manufacturing and service sectors exceeding expectations. The manufacturing PMI in India is at its highest point in five months (53.7 points) while in China it has finally surpassed 50 points (after 13 months in purgatory), which is the mark that distinguished expansion from contraction.
The financial stimulus from the People’s Bank of China, with a duplicate cut of discount rates (and several reductions in mandatory bank reserves, in other words the concession of greater leverage) have restarted the motor of the economy that, according to the predictions of OCSE, will be – along with India – the economy that will grow the most, relative to the global economy, over the next 30 years.
As can be clearly seen in the above chart, the OECD countries will change place with the non-OECD nations: if the primary countries today are worth more than 60% of global GDP, 30 years from now they will “weigh” little more than 40%, barely more than what the non-OECD countries do today. It is surprising to see how different the BRICs are from each other, with Brazil remaining largely unchanged, while Russia seems more like Spain.
To follow this “destiny,” Beijing must continuously stimulate its internal demand: Western consumers are becoming marginalized, and China’s growth cannot continue to depend so heavily on the health of global trends. The reevaluation of the Yuan, as imports begin to structurally surpass exports, will become an instrument to put ever more “value” into the pockets of Chinese workers without increasing wages and turning them into an army of consumers.
Getting back to Churchill and the House of Commons, the politician Bessie Braddock addressed him, saying “Winston, you are drunk,” to which he replied, “Madam, you are ugly. But tomorrow I will be sober.”
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