Continuing my series on global mega trends, this article focuses on what the European Environment Agency describes as the Multipolar World. Put simply, this is the emergence of new economic and political powers and the relative diminishment of the West.
This gradual change represents a structural convergence with developing nations increasing in importance and developed nations decreasing. It is driven by globalisation – fast-growing workforces and trade liberalisation in developing nations are rapidly increasing their share of global economic output, trade and investment.
This transition in developing nations from rural agrarian societies through industrialisation to service-based and knowledge economies is occurring much more rapidly than original western nations. This is partly because they are able to import and adapt existing approaches and in many cases ‘leapfrog’ the various stages along the way.
These developing nations have been able to leverage their low wages and global transport links to become the manufacturing powerhouses of the global economy. Trade liberalisation has supported this with the average trade tariff having fallen from 50% in 1948 to just 3% in 2009.
During the initial industrialisation and transition to a service-based economy of the now developed nations there were no external lessons or finance to be found. Now, developing nations have been able to attract huge amounts of foreign direct investment, chasing the high growth rates of these economies. This has not only resulted in financial support, but also the provision of new technologies, skills, institutions and management expertise accelerating this growth.
In contrast to this accelerated growth, developed nations are experiencing lower birth rates in many cases resulting in populations plateauing or even contracting. Combined with the lower growth prospects of the service-based economy and the financial crash of 2008 and subsequent stagnation, the gap between developed and developing nations’ living standards has been shrinking rapidly (GMT 1). This is shown in the graph below (accepting that GDP is not necessarily a good measure of living standards).
This convergence has resulted in increasing competition for developed nations and a downward pressure on wages for low-skilled workers due to the risk of out-sourcing and also immigration in some regions. On the other hand, the resulting growth of the global middle class does support exports of developed nations’ specialisations in areas such as science and luxury brands.
The biggest impact from my perspective is the complicated new dimensions that this introduces to global efforts on a range of sustainability issues. The increasingly complicated global supply chains make it virtually impossible for the public and business to comprehend the full social and environmental impacts of the goods they buy. National governments too are hampered by a lack of jurisdiction and the international agreements that prevent states from differentiating between imports based on production methods.
Recent political outcomes in America and Britain also demonstrate how the former global powers are reacting to the reduction in their influence abroad and pressures resulting at home. With a move towards isolationism and nationalism how will global missions such as tackling climate change, ocean plastics, poverty and equality fare?
Whilst growing prosperity in developing nations may increase popular demand for improved local environmental and social protection, the timescales and population numbers projected will almost certainly mean this will come too slow to curb negative environmental impacts. To avoid the worst of this, developed nations must continue and even increase their support for these countries to bypass much of the polluting steps undertaken in former decades and centuries. They must counter the word “hypocrisy” so often used in conversations on climate change and other issues.
This could very well have a negative impact on the economies of developed nations so is it at all likely to happen?
Let me know your thoughts in the comments.