East overtakes West in tomorrow's world

THE OECD is usually associated with short-term forecasts of the main industrial countries: last week it was warning there would be only very limited recovery in Britain this year. Yesterday it published the results of a rather different exercise: what a group of economists from around the world expect the global economy might look like a generation from now.

The result is both encouraging and alarming. It is encouraging in that the papers suggest the industrial world will be able to continue to become richer: the steady, gradual rise in living standards of countries such as Britain will continue, though the environmental implications of this are not fully considered. It is alarming, at least for anyone living in Western Europe or North America, in that the focus of world economic power will shift inexorably away from these regions towards the Far East.

Anyone buying a Walkman or a Honda car will be aware of the dominance of Japan as a producer of industrial goods, and the way in which industrial prowess has made Japan richer than the US and most of Western Europe. But it is not just Japan that is able to beat the longer-established countries at their own game. Korea, Taiwan, Hong Kong, Singapore are all reaching the same living standards as the industrial West. On present trends they, too, will pass us. Mainland China has begun to try to emulate the achievements of the overseas Chinese communities. This raises questions not just about our relative wealth, but about the durability of the power and influence associated with that wealth.

The OECD acknowledges that the world is dividing into three main economic blocs: North America, Europe, and Asia-Pacific. This last includes Japan, of course, plus the newly industrialised countries of South-east Asia, China and Australasia. It looks at the prospects for the rest of the world, but in terms of economic importance, these three regions will continue to dominate.

Its message for North America is of growth, but relative decline. The region will turn into a single trading bloc, combining Canada and Mexico, and may even develop into a common market. This will foster growth, but it will be uneven, for jobs will tend to migrate from the 'rust belt' of the northern US towards Mexico. The US, meanwhile, will have to make a number of adjustments. For example, it will need to find the resources to invest in its infrastructure, and allocating these will mean a greater role for the federal government. For that, read higher taxes. Despite the boost from regional integration, the US economy itself will grow at no more than perhaps 2.5 per cent a year.

For much of Europe, the message is also that integration will encourage growth, indeed rather higher growth than in the US. But the price for greater competitiveness may be greater inequalities between the regions. The more the EC countries follow similar economic policies, the less scope there will be to divert funds to poorer areas. And while prosperous Western Europe will become more prosperous, the farther east one goes, the farther the countries will have to travel to reach the living standards we have here now: Russia has the farthest to go.

Asia-Pacific, by contrast, will continue to soar away. While growth in Japan may slow somewhat, particularly because of the ageing of the population, it will remain an economic engine for the region, exporting jobs and plants to its neighbours: not just the advanced countries, but China and the various socialist countries such as Vietnam and Laos.

There are problems of pollution and infrastructure, and the region encompasses a variety of political systems, so it will not act as a single entity. But it will become of enormous economic importance.

At the moment this Asia-Pacific region accounts for about a quarter of world output. By 2010 it will be one-third, and on one projection will be half by 2040. That would put eastern Asia in the same dominant position as the US at the end of the Second World War. It may seem a long way off, but we are as close to 2040 as we are to 1945. These big global shifts do happen. How will Britons (or the French, or Germans, or Americans) feel were eastern Asia in the economic position of the US in 1945, but without the common cultural or ethical heritage of a liberal Europe?

Asia may be unlikely to present a common front to the world, because the various countries are so different, so politically its growth may be less significant than it might seem. But it would be uncomfortable were, say, the Japanese and the Koreans to become twice as rich as Western Europeans or North Americans.

This possibility of economic power shifting to the Asia-Pacific zone raises a further set of uncomfortable questions. Is there something in the cultural make-up of eastern Asia that enables the region to be more successful at running an

industrial society than Europe or North America? Is there something in the 'Confucian' approach to the world that delivers better performance than the Protestant ethic that drove the industrial revolution?

There are no answers to this in the OECD papers, and it would be absurd to expect there to be. The authors are very good, however, at pointing to pitfalls - why what seems likely to happen may not happen - and at setting out the various scenarios. In all the options, the bottom line is that Western Europe and North America will, in relative terms, be a less important part of the world economy a generation from now.

'Long-term Prospects for the World Economy', OECD, Paris.