Hamish McRae: The G8 countries may run the old world economy. But it's the new one that matters

Why should we care about the G8 and what they say about the future of the world economy, carbon emissions and all the other stuff that is emerging from their summit meeting in Hokkaido?

So they are the world's eight largest economies and that must matter? Well, no. There was a time when the Group of Seven as it then was, did indeed represent the world's largest economies – Russia was later co-opted into the club as a reward for dumping Communism – but not any more.

For the G8 represents the old economic powers, not the new ones. If you are worrying about the scale of the forthcoming global downturn, what China does is as important as what the United States or the European Union does, for China is adding more demand to the world than either the US and Europe.

If you are worried about the price of oil, what matters is the capacity of the Middle East to produce more of it, and the additional demand from China and India. If you are worried about carbon emissions in 2050, well, what the present G8 pledges or does not pledge is only marginally relevant to what happens. In the world economy, the times they are a-changin'.

To try and get a handle on this I have been looking at the latest numbers from Goldman Sachs. Jim O'Neill, the chief economist at Goldman, coined the acronym "BRICs" to describe the four largest emerging economies – Brazil, Russia, India and China – and he and his team built an econometric model to try to project how these countries might grow vis-à-vis the G7 over the next half-century.

A model is only a model but so far at least the BRICs have been gaining ground on the G7 even faster than the model predicted, so if anything it understates the shift of power that is taking place. The pecking order last year in the size of the economies ran: US, Japan, Germany, China, UK, France, Italy and Spain. So Canada and Russia ought not to be in the club, and China most certainty and arguably Spain should. But Canada and Russia are huge energy producers so the really important missing member is China.

But fast-forward to 2050, and the world order looks utterly different. According to the Goldman model the top eight will be: China, US, India, Brazil, Russia, Indonesia, Mexico and the UK in that order. Yes, no Japan, no Germany, no France. The UK still would squeak into this new G8 club because we would have become the largest Western European economy, but obviously our relative position in the world would have slipped a lot.

The US would still matter a great deal as the world's second largest economy but also because of its technical and educational competence. It would tie with the UK as the world's richest country in terms of GDP per head. But of course power would have shifted not only to the BRICs, but also to what Goldman has dubbed the "next 11", a next tier of emerging economies led by Indonesia and Mexico, and with Turkey, the Gulf states and Nigeria cracking along too.

Anyone in the West faced with such data will have a number of reactions. One is disbelief: that this cannot be right. Surely the social and environmental pressures on China and India will restrict their growth? Surely the demographic difficulties of Russia – its falling population – will hold it back? And what about the chaos that Indonesia has recently experienced? And could Turkey (as well as the UK) really become a larger economy that Germany? Huh?

My response to that would be that the Goldman model will not be right as to detail and there may be some great economic or environmental catastrophe that will render all economic predictions worthless. Certainly any prediction of the world more than 40 years on has to be has to be taken with the appropriate quantity of salt. But short of such a catastrophe, this sort of new world order is a plausible outline of what might happen.

That leads to another type of response, one of fear. It will be very tough for the US to accept that it is no longer top dog, and that will give rise to all sorts of efforts to try to restrict China's progress. Within Europe there will be rising pressures to use protectionism to try to maintain its share of world output, or at least delay the decline. You can see a lot of this already in both the US and parts of Continental Europe.

Here in the UK there is an acceptance that we can and should try and benefit from the shift of power. We are, for example, prepared to have India's Tata to come and buy Jaguar and Land Rover, and I think most of us would wish them very well. If the Goldman predictions were to prove right, it would certainly be nice to become a larger economy than Germany to France, and a considerably richer one in terms of living standards. But a "two fingers to Europe" would be a rather childish reaction, even if an understandable one. It would be much better to see our role, more positively, as a bridge between a slow-growing Europe and the fast-growing BRICs.

In any case the UK relationship with Europe is a side-show when set alongside the huge shift of both power and influence captured in the Goldman forecasts. Some of the most interesting data there is on the explosive growth of the new global middle class and on the associated decline in global inequality. By 2030, Goldman reckons that another two billion people may have joined the middle class and that while there is a lot of focus on rising inequality within the emerging economies, if you look globally the reverse is true.

I think the best way to grasp what is happening is to see a shift of power on two levels. On the one level there is the shift away from the political leaders of the G8 towards the leaders of the BRICs. To take a very simple but current issue, what the G8 said about carbon emissions in 2050 is pretty unimportant. Not completely unimportant – that would be to go too far. But much less important than what the BRICs do.

But that is obvious. What is less obvious is the way the tastes and values of this new middle class will shape the way we old middle class live our lives. For example, it is in some measure because the new middle class want to drive around in cars that we are having to pay so much for our petrol. What I am suggesting will happen, however, is more subtle. It is that values of middle-class Asia, such as self-discipline, the thirst for higher education and the driving work ethic, will shape our own values. We will have to brace up a bit – and we will.

Meanwhile there are a few obvious things we should do to embrace the shift of power that is taking place. One would be to co-opt China and Indian on to the new G10. That means more people, but it need not mean for fuss. We could make the whole shebang less formal, have fewer bods in each delegation, so that it went back to its origins as a simple way of getting heads of government together every now and again to talk about economic problems, rather than having a great PR fest. But more deeply I suggest we need to acknowledge that what we in the West think about the way the world economy should develop is much less important than we like to admit. A bit less arrogance, a bit more sensitivity, a bit more awareness and a bit more respect.