Religion, economics and politics – how will we define global governance in the 21st Century?

This weekend, while the Western world worries about how to bail out Greece, a group of eight developing nations will meet in the hopes of expanding industrial trade and investment across what could one-day be one of the world’s most important trade blocs.

The D8 – or Developing 8 – includes Iran, Bangladesh, Egypt, Indonesia, Malaysia, Nigeria, Pakistan and Turkey. Together, they represent over 970 million people, or 14 per cent of the world’s population today. Note that the G8 represent about the same amount of constituents. Perhaps more important, the D8 represents some of the fastest growing countries in the world, and over 60 per cent of the world’s Muslim population. I note this latter figure because I’m increasingly curious about the role ideology and culture will play in our evolving systems of global governance.  And given the homogenous religious composition of the D8, one can’t help but wonder what role religion will play in establishing both multilateral and global economic and political governance structures. Read the rest of this entry »

Looking for the next Dollar

For years, analysts have sought to predict the demise of the US dollar and its eventual replacement as the world’s preeminent global reserve currency. However aside from the ego boost of being in demand, and the not insignificant benefits of low-cost borrowing, being the world’s reserve currency carries significant mid- and long-term economic costs that history tells us may preclude any one currency from taking the lead in the 21st Century.

The role of the US dollar as the world’s reserve currency dates back decades, to the end of World War II, when the US sat as the world’s lone, relatively unscathed and economically powerful combatant and thus replaced the British Pound as the global currency of choice. The fact that US dollars rebuilt much of Europe and Japan in the years that followed significantly strengthened the global tie to the USD. In 1970, over three-quarters of global reserves were held in US dollars. Read the rest of this entry »

Chasing power and influence

Not long ago the world was divided into two neat groupings: those with power, and those without.

Identifying who belonged in which pile was easy.

In the wake of the Second World War, the U.S. and Soviet Union rose to global pre-eminence, both financial and ideological, as the rest of Europe, as well as Japan, slowly rebuilt themselves from the ashes of war. For nearly half a century that followed, the world was divided along an axis dividing the US and the USSR, the first and second worlds.

But with the bankruptcy and eventual fall of the Soviet Union in the 1980’s, the once bi-polar world of superpower regimes fall to a uni-polar one led by the near-hegemonic United States of America. Europe and Japan had long since rebounded, and while they grew to hold a large share of power and influence in the 1970’s and 1980’s, neither held the resources to dictate global affairs to such an extent as did the US.

Free-market and liberalist doctrines were thus de jour. The Washington Consensus ruled economic development. American culture and influence exuded soft power. American supremacy was unquestioned.

Yet fast forward two-decades and American economic decline, military over-extension and political divisiveness have left it looking a lot like the pre-collapse Soviet Union. A fragile house of cards seeking to spend its way out. Perhaps Obama is to the US, as Gorbachev was to the USSR: a Trojan horse of unavoidable decline. Read the rest of this entry »

Investment, innovation and the future

I had a great conversation with the President of one of KW’s academic institutions a few weeks ago to discuss the role of research, education and innovation in the Canadian economy. As a follow up to that conversation he passed along some fascinating research from Peter J. Nicholson, President and CEO of the Council of Canadian Academies, who recently penned an interesting article looking at Canada’s innovation environment, and for the interest of this post, at the relationship between firm level investment in ICT and company profitability.

In it he compares Canadian and US productivity levels, noting that Canada’s multi-factor productivity rate lags behind the American standard at less than 75% (it peaked in 1984 at 93%).

To explain this quite dramatic lag, he notes that Canadian firms invest only 80% of what their American counterparts do into ICTs, and that Canadian investment into R & D (as a % of GDP) has declined by 20% since 2001, and currently sits at approximately 1% compared to the US’ 2% and an OECD average of 1.5%.

In practice, we’ve been taught that such relative underinvestment in both ICT and more broadly, R & D, should lead to non-competitive or atleast less competitive Canadian industry. Yet, here’s the fascinating conclusion Read the rest of this entry »

Part IV – Why China won’t follow Japan

China might well suffer from the consequences of the after-effects of its aggressive lending in 2009 and 2010. Bad debts are certain to mount for Chinese banks. Might these rising losses, combined with inflationary pressures, lead to a sharp puncture of the bubble? Quite possibly.

However unlike in Japan where a speculative crash accompanied the country into two decades of recessions and stagnation, a short-term crash in China won’t nullify the country’s forward-looking economic policy and planning.

As I noted in Part II, Japan’s fall from grace was due to country’s stagnant labour market and overall inability to navigate its economy forward. Comparative advantage is always far from static, i.e. others catch up. Japan was never able to direct investment and competition policy in a manner to ensure its ongoing and sustained growth. Eventually component manufacture and design moved offshore and little else replaced it. Japan’s reign as the next great economic power was over before it ever began.

China’s future is likely different.

Read the rest of this entry »

Part III: China Today

China today plays the role Japan played in the late 1970’s: global economic bogeyman.

Having accumulated $2 trillion in foreign currency reserves through an export-oriented policy that  piggybacks on an artificially low fixed exchange rate, the Chinese economy is poised to become the world’s largest over the next two decades. It has grown, on average, approximately 10 per cent per year since Deng Xiaoping’s market reforms began in 1979. Ceteris paribus, it could be 20 per cent larger than the American economy by 2050.

Evidently, these stats obscure per capita figures that rank China as just above a low-to-middle income country. Its per capita income figure of $3,259 USD ranks alongside the Congo, Iraq and Cape Verde. Not exactly global superpowers. Not to mention growing income inequality in China, whose Gini coefficient (measure of income inequality) of .47 has some fearing outbreaks of social unrest.  So while the country boasts 130 billionaires, and nearly a million millionaires, another 150 million Chinese still live in abject poverty.  China is still very much a developing country. Read the rest of this entry »