Global Growth Generators:
A New Economic Picture for 2050
by Helen Sanders, Editor
In February 2011, Citigroup’s Chief Economist, Willem H. Buiter and Ebrahim Rahbari published a ground-breaking report that argued that the ‘BRIC’ countries, and subsequent groupings of emerging economies had become obsolete. Instead, they aimed to identify the generators of global growth (known as ‘3Gs’) and profitable investment opportunities for the next 40 years, with globalisation as a key catalyst for change.
Globalisation, a trend that the authors identify as starting in the 1950s,
“was driven by technology (improvements in information, communication and transportation technology) and by the deliberate removal of man-made obstacles to cross-border movements of goods, services, capital, people, business and ideas. Globalisation went hand-in-hand with the adoption of some form of market economy in many countries where markets had hitherto been suppressed, supplanted with various forms of central planning, or over-regulated.”
“One key insight was the distinction between growth at the technology frontier and catch-up or convergence growth.”
In other words, how long does it take for less developed economies to ‘catch up’ with those that demonstrate the most advanced technology, education and market infrastructure? While the most advanced countries typically demonstrate only modest growth, convergent growth can be much faster, as the fortunes of China over recent years have demonstrated. While globalisation is a catalyst for less-developed countries to catch up with the so-called frontier countries, this advancement process is not guaranteed. The authors argue that countries will remain economically backward unless there is a change in the causes of this backwardness,
“The causes of economic backwardness are bad luck, bad institutions, and/or bad policies. Bad luck includes such factors as geography, climate, unfriendly neighbours (and associated wars and other cross-border conflicts), and natural disasters, including pandemics.
Bad institutions can be institutions that were supportive of reasonable or even good economic performance at some earlier stage of technological, social, political, cultural and economic development but have become economically dysfunctional as these evolved. Slavery, serfdom, indentured labour, the caste system, guilds, feudalism and central planning all fit that bill.
The damage done by bad policies, including populist assaults on the incentives to work, save and invest, macroeconomic mismanagement leading to serial sovereign debt default and hyperinflations, ill-designed tax, public spending and regulatory policies that cause damaging internal conflict, are well-known.”
With these issues in mind, Buiter and Rahbari then constructed an index that ranked countries globally according to a number of measures, and concluded that the following countries will demonstrate the greatest growth and profitable investment potential in the coming years Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam. Of these, Vietnam has the greatest potential, followed by China.