Economics: Here come the famous five

Quite suddenly, people are becoming aware that a giant rebalancing of the world is taking place. The world economy, which has for the past 150 years been dominated by Europe and then North America, is rapidly shifting towards what we still think of as the developing countries. At the beginning of the last century the world's largest economies were China and India, countries with large populations. Then the process of industrialisation, powered in the developing countries, changed the balance towards Europe and North America. Outside those two areas only one country, Japan, made significant progress as an industrial power. Now, the big-population countries are catching up.

In the next few days at the International Monetary Fund and World Bank meetings in Hong Kong, one of the dominant themes will be this rebalancing of the world economy. A report by the World Bank last week put the point sharply by identifying five new economic powers, which it dubbed "the big five", whose share of world exports, currently about 9 per cent, would rise to more than 26 per cent by 2020.

This big five - China, India, Brazil, Indonesia and Russia - account for 46 per cent of the world's population and will account for half by 2020, so it is unsurprising that this group is forecast to account for a quarter of the world's exports. Nevertheless, it will represent a dramatic change from the present, particularly with regard to western Europe. At present this big five's exports are less than one third of the EU's; by 2020 the World Bank forecasts they will be 50 per cent greater. Within the present developed world only the US ranks among this group in terms of population (see the left-hand chart).

This process of world trade shifting to these "new" countries has already begun. The second chart shows how the hold of the Group of Seven over world exports is slipping. In the 1970s the G7 dominated world exports. Now Hong Kong has shot up the league to pass Canada, and China is just behind. Hong Kong is shown on the chart as a separate entity from China though, of course, it is in practice the principal outlet for Chinese- made goods, so I suppose the two should be added together, in which case they would pass France and become the world's fourth largest exporter.

But in a way the more remarkable thing is what has been happening further down the league. Look at the way those east Asian "tigers" have shot up the league. You can explain Hong Kong's performance in relation to the great hinterland of south China, but it is astonishing that fewer than 3 million people in Singapore can generate 2.5 per cent of world exports.

You cannot project Singapore's performance (or Taiwan's) for China because it is much easier for a unit of 3 million, or even 21 million, to generate export-led growth than it is for one of 1.2 billion. The world market will accept a surge of imports from tiny countries where it would not and could not accept a similar surge from a giant. Nevertheless, even if China and India advance at a fraction of the speed of Singapore, they will still become vastly more important, a point that the "big five" tale of the World Bank brings out.

It is easy to see the mechanics of the shift - the practical issues like the world market share of various types of export. What is quite hard to envisage is the secondary and tertiary effects. For example, though the big five will be more important in world trade, their economies will be qualitatively more like those of the present developed world. Their stock markets will be larger; many of their companies will be foreign investors in the same way that Japanese companies have large foreign manufacturing plants; there will be more joint ventures. In other words, though "they" will be more important relative to "us", they will be more like us. The world will be on a single global standard not just of finance, but in management techniques and to an increasing extent business ethics too.

This process will not be one way. Until now virtually all the technology transfer has been within the developed world, or from the developed world to the developing one. Increasingly, expect there to be transfers of technology from the new developed world to the old. Just as Japanese car manufacturers imported the idea of lean production from the US, refined and applied it, then exported it back not just to the US but to the UK and east Asia, so too will the Singapores and the Taiwans become exporters of ideas.

The idea of physical exports being the principal component of trade will gradually change. Trade is still, to a large extent, shipping goods around the world. But most years the proportion of world trade in physical goods shrinks, vis-a-vis the trade in invisibles. Japan exports now not so much by moving the cars around the world, but by moving the money and ideas with which the cars are made: manufacture is increasingly local.

Even where goods are shifted, the act of physical transfer may just be an electronic signal. For the moment items like pop videos and CDs are moved in physical form, though of course the value of the product is 99 per cent the information on the disc or cassette, rather than the item itself. But soon the sale will involve just the transfer of some digital signals and will appear as royalties or rights rather than exports.

So the rise of the big five as exporters will to some extent overstate their real importance. It will, for a while at least, overstate their influence on the world of ideas, for in the next 25 years they will be net importers of know-how. They may generate a quarter of world exports but that will not give them a quarter of world economic power. A lot of those exports will rely on foreign know-how and foreign money.

It will overstate their importance because physical exports will be less important in world trade than they are now. The various types of invisible exports - income flows from investments, payments for services, payments for intellectual property - will soon be larger than the flow of visible exports. Nevertheless, no one should doubt that a great shift in the balance of power is taking place. This is not just a once-and-for- all shift that, having happened, will stop. Look 25 years ahead and it is easy to see that the big five will be quite a lot more important. Look another 25 years, to the middle of the next century, and they will be more important still.

It is hard for people in any one age to regard the age in which they grew up as anything other than normality. So we regard the dominance of the G7 as normal. But on a long historical viewpoint the past two centuries have been abnormal, for power has been unduly centralised. The new, more evenly balanced, world is really more normal than the G7-centric world we still have - but will not have for much longer.

It so happens that last week China announced its own leap away from socialist dogma by abandoning state ownership of industry - as the Independent put it, "the world's ultimate privatisation". The Hong Kong meetings are in a way the launch pad for China to become the world's largest economy, but an economy - pretty much - operating on the same system as the rest of us.

Copyright: IOS & Bloomberg

Suggested Topics
Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Kellie Bright as Linda Carter and Danny Dyer as Mick Carter

EastEnders Christmas specials are known for their shouty, over-the-top soap drama but tonight the show has done itself proud thanks to Danny Dyer.

Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Arts and Entertainment
Life and Style
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Call The Midwife: Miranda Hart as Chummy
tvCall the Midwife Christmas Special
Laura Trott and Jason Kenny are preparing for the Commonwealth Games in Glasgow
Arts and Entertainment
Sir Bruce Forsyth with Tess Daly in the BBC's Strictly Come Dancing Christmas Special
tvLouis Smith wins with 'Jingle Bells' quickstep on Strictly Come Dancing's Christmas Special
Arts and Entertainment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there