The Great Shift East

As the East continues to rise, everyone must now be asking out loud not just what is good for the West but what is good for the world. You would think.

Yet, practically without challenge, ever greater policy discussion today turns on the West (or the US) retaining international economic dominance: “Is the West history? What must we do to respond?”

That challenger to continued US hegemony is, of course, China.

Towards the end of 2010 China became the world’s second-largest economy, along the way overtaking Germany, the UK, France, and all the rest of Western Europe. Today, the economic strength of China is exceeded only by that of the US. By some accounts China today already consumes half the world’s output of refined aluminium, coal, and zinc; and uses twice the quantity of crude steel as does the EU, the US, and Japan combined.

India, the only other billion-people nation on the planet, has launched itself onto a similar growth path, after a half-century of moribund quiescence. These two giant economies now grow at a pace previously recorded only in easier-to-ignore, special-cased, tiny Far East Asian island nations. This emergence of the East has, in the last three decades, yanked the world’s economic center of gravity nearly 5000 km out of its 1980 mid-Atlantic location eastwards past Helsinki and Bucharest, onto a trajectory aimed squarely at India and China.

That global economy activity has moved east in this graphic fashion shows the rapid growth in incomes going to the large chunks of humanity who live in China, India, and the rest of East Asia. (Population itself changes much more gradually; this sharp east-directed rise of the rest does not come from just population growth.)

Together with this growth has been the lifting from extreme poverty of over 600 million people—a large and rapid improvement in the well-being of humanity unprecedented in the history of this planet.

But more is to come. Today, the income of the average person in the East is still lower than that of his counterpart in a dozen countries in Africa; his carbon footprint is less than one quarter that of the average American; and he is intent on making not just refrigerators and running shoes, but solar panels, wind turbines, and nano-cars cheaply enough that yet more of humanity can afford them.

What’s not to like?

But many policy-makers and observers in the West fail to share this optimism on the shifting global economy. Instead, they ask: Will emerging Asia now buy up all the West’s assets and use up all the world’s raw materials? Will emerging Asia soon command the entire world’s jobs, absorb the entire world’s investment? This is Rise of the Rest on a massive scale: What must the West do to respond?

Contrary to this alarmist view, there is, of course, always the possibility that this shift towards the East might, in truth, be only beneficial to the West.

But, independent of the eventual outcome, if now the East is indeed viewed as challenging the West, the correct question should not be what is good for the West or indeed for the East, but instead what is good for the planet. And if one side loses while the other side gains, compromise is needed: What contours frame that bargain?

In the alarmist scenario the West is overtaken in the next 10 years: So, how much would people in the West be willing to pay people in the East to prevent that? How much would the East have to be compensated to keep the West ascendant? How much of a disruption in the East’s development trajectory would the West consider justified for the West to remain Best?

The tradeoff, unfortunately, seems far from favourable.

China today faces possible trade reprisal even though its average citizen remains poorer than his counterpart in Belarus, El Salvador, and Jamaica, or for that matter, across 9 countries in Africa. If China kept its current average income but had the same population as, say, Namibia and were located on the African continent, China would today be a candidate for US foreign aid, not a potential rival for global hegemony. In the last 30 years China has lifted over 600 million people from extreme poverty: this is double the population of the US or the EU, ten times the population of the UK. In the last three global economic downturns, China has provided a growth boost to the world economy multiple times what the US failed to do. What good does it do the world if the West disrupted so successful a poverty-reducing machine, so effective a stabilizing influence for the global economy?

No one yet knows answers to the difficult questions on what is best for the world. But I suspect that considering them seriously will lead to optimism and hope for the changes given in the Figure. That shifting global economy has improved the well-being of humanity for the last 30 years: to overturn or even slow these changes now for short-term domestic gain can reveal only a tragic failure of global political vision.

How can hundreds of millions of something - anything - be scarce?

I sat next to Jim Rogers on a panel once (so you don't think I'm just making this up), and he told me that right up there with all the other unstoppable so-unbelievably-massive-you-don't-think-it's-possible changes sweeping the world is how China's gender imbalance will soon make young Chinese women among the world's rarest commodities. Yes, all hundreds of millions of young Chinese women will be relatively scarce.

[Today I read about quality on top of the quantity effect. To be clear, this is a parody of Amy Chua - so this part in brackets at least is in jest).]

Hand in hand with this increase in the market's shadow price - economic power - will be a steep escalation in the real power of women, both personal and political. This is not to deny the harrowing experiences documented in Leslie Chang's Factory Girls but there is, at the same time, no question that there has been a dramatic upgrading of the position of women throughout Asian society, and therefore of women worldwide.

No legislation was involved. No protest movement occupied a city square. All this occurred simply through the power of economic growth, the balance between demand and supply, and the force of market equilibration. If you don't yet see this, just come take a look at the confidence, poise, and ambition of the tens of thousands of young Mainland Chinese women studying in secondary schools, junior colleges, and universities in Singapore, elsewhere in Southeast Asia, or in the West. Come take a look at LSE, for that matter.

Perhaps once again China's headlong rush for economic growth and the staggering power of markets adjusting to demand and supply in the hundreds of millions will quietly, brilliantly do what the rest of the world has found so difficult. China lifted over 600 million people out of extreme poverty over the last quarter of a century, when no one else was looking - and therefore when no one was giving China foreign aid or telling it how to run its schools.

This time, for elevating yet another disadvantaged community will China, once again, quietly using just growth and markets achieve more than all other efforts micro-managing around the edges of global poverty?

PS Many readers, of course, quickly link in their mind this gender imbalance to the many horrific tales one hears emerging from China's one-child policy. If 119 boys are born for every 100 girls - as usually reported for China - then that works out to 840 girls to 1000 boys. Given China's population of 1.3 billion, this means 24 million Chinese men of marrying age without spouses by 2020.

It is instructive if grim to note this gender bias is seen as well in the very differently-governed India where the 0-6 age group now has 914 girls to 1000 boys (down from 927/1000 in 2001), confirming how the country has become "a terrifyingly hostile place to be conceived or born a girl", pointed out to me by Vinayak @kayaniv.

Amy Farrah Fowler and soft power

The Wall Street Journal ran this report last week: "Fleeing the Dollar flood: The world tries to protect itself from US monetary policy ."

Time was, it was with some pride and hope that one read "When America sneezes, the world catches cold" - because US policy didn't threaten the world; it saved the world.

So what if it was hubris? It was only the same kind of hubris you saw motivating the best MIT engineering student or Google software coder. That student coder---like any Amy Farrah Fowler---would quickly enough solve whatever problem you threw at her.

But now even the Wall Street Journal documents how much the traditional global economy has shifted in perception.

Who's running the pool on how long before conventional soft power goes too?

Contrast this with what brains and goodwill such as those at Facebook, Paul Butler for one, achieve:

Facebook 2010 - The Social Graph. A weightless-economy world of digital connections without borders

Or, look at Jon Chiu's version with national boundaries drawn in:

Facebook 2010 - The Social Graph, with national boundaries. Superfluous?

Just two quick observations: First, it's known that Facebook is, while not impossible, difficult to access in China for reasons of policy: That's why China appears dark in these images; the competing renren.com is used enough there.

Second, as far as I can tell, both these renditions were coded by Canadians.

Not what is good for the West but for the world

The editor decided to lead with "As the economic center of gravity shifts East, the question should not be what is good for the West, but what is good for the world as a whole."

That's what I should have written up front in The Shifting Global Balance of Power.

The global economy's shift. Follow-ups all over

In January 2011 Martin Wolf wrote an introduction to my article The global economy’s shifting centre of gravity in Global Policy but decided not to follow it up himself.

Recently, the article has seen some coverage in the international media.

I'm not lazy, not really. But if I divert all these writeups into just this blog, reader comments are lost as they remain on the original website. And those comments are, well, some of the most interesting things I get to read regularly.

So WSJ's Chris Shea The pull of economic gravity 2011.03.19, CNN's Global Public Square 2011.04.07, NYT's Catherine Rampell 2011.03.24, FT's Alphaville 2011.03.23, and even FT's John Gapper 2011.03.24, who calls me "Mr Shah" (Damn you, Autocorrect), are best left in their native domains. There are items to aid teaching (econlife 2011.03.27), posts in languages I don't completely understand (Javier Andres's East Wind, West Wind 2011.04.14), versions souped-up into colorful alternate projections (Anders Sandberg's 2011.04.15), interpretations from different parts of the world and therefore providing, literally, different perspectives (2.6 billion 2011.03.25), and, not least, reactions from friends like Bill Easterly, as in his Should the West get hysterical?2011.03.23.

Of the many different comments, I found particularly memorable:



By the way, it's intriguing to find people saying that what you write are things they already know, and when you ask them how they know it, they say, Everyone has been saying these things for a while now. In my experience, just as many people say the opposite. Either way, whatever you find with hard work on real data, you can't win.

I'm not complaining. Just saying.

The global economy's shifting centre of gravity

Define the global economy's centre of gravity to be the average location of economic activity across geographies on Earth. If you go grab incomes and geographical location data across nearly 700 identifiable places on the planet (World Development Indicators Online, Asian Development Bank, Google Earth, Brinkhoff; Grether and Mathys) you will see that in 1980 the global economy’s centre of gravity was mid-Atlantic. You will also see that by 2008, from the continuing rise of China and the rest of East Asia, that centre of gravity has drifted to a location east of Helsinki and Bucharest. Extrapolating growth in almost 700 locations across Earth, gives you the world’s economic centre of gravity shifting by 2050 to literally between India and China. Observed from Earth’s surface, that economic centre of gravity will move from its 1980 location 9300 km or 1.5 times the radius of the planet.

A graphic illustration of this is given in the Figure. The dots in black are 1980-2007; those dots reduced and in red are for 2010-2049 in an extrapolation. The center of gravity calculations are performed in 3-dimensional space and then projected onto the normal cylinder tangent to the planet at the equator.

My paper with the same name as this post describes more fully the ideas here.

(Thanks to Google Earth for help with this. To transform a 3-dimensional sphere into an unfolded 2-dimensional flat plane, the mapping is not a Hilbert space projection. For one, the tangent normal cylinder is only locally linear; it is therefore not a linear space. I calculated the dynamics using R; I generated the sequence of world maps in python; and I then used gimp and ImageMagick batch-processing to produce the final animation.)