TRANSITIONS: The New Economic World Order
The
economic world order is changing. Countries like China, India and
Brazil have been catching up with traditionally powerful economies
over a number of years.
BDO’s recent report TRANSITIONS: The New Economic World Order takes stock of the global picture, and predicts a dramatic redefinition of how economic power is distributed around the world.
The broadening horizon
Asian economies have undoubtedly weathered the financial storm better than Western economies, and China and India (as well as Brazil) are growing at almost double the rate of the global economy as a whole.
Although not a formal group, the BRIC – Brazil, Russia, India and China – recently held its first official summit. Rather than suggesting that the countries at the top of the world economic order were about to change, the summit concluded that the model itself was due to be redrawn. As the report puts it: “It’s not just a question of the developed nations sharing their stable with a few stallions. The stable itself is going to have to change.”
The G20 is fast becoming more influential than the G8. And it is no longer a question of whether and when China will take over from the US as the world’s leading economic power, but how we are likely to see an entirely new, much broader, multipolar power structure emerge.
Dollars and sense
The dollar’s position as the world’s preferred reserve currency will change. It will be very difficult for the US to significantly reduce its deficit without triggering another global financial crisis, and that fact will undoubtedly be a catalyst for a different approach to reserve currencies.
Likewise, nations in need of support are more likely to look to China than the US for help. This does not just come down to promised financial stability, but China’s “less judgemental, arguably less ideological, more action-focused” attitude to foreign investment.
This so-called ‘soft power’ is an important element in the shaping of the new economic world order. The influence any one nation has over others will not simply be defined in financial terms, but in its attitude towards the needs of others, its language, its ability to innovate, its allocation of resources – its adaptability and ability to exist within an economic world order with many different centres of influence.
Can we change?
In the UK, this emerging multipolar world order constitutes a significant threat. But our political landscape is undergoing unprecedented change, and so can our approach to international trade and investment.
It is essential to lower our trade deficit by shifting the balance away from consumer spending and on to international trade – particularly now, as demand for imports will inevitably rise as we emerge from recession. As this happens, it must be balanced by a dynamic export market – and that is where we must innovate and develop, particularly in industry and manufacturing.
The US, Germany, France and Ireland were the UK’s four biggest trading partners between 2005 and 2007. Between 2012 and 2014, however, the report predicts that of those countries, only the US will remain in the top ten. Our “old Europe” trading partners will be replaced by India, Libya, Ukraine, Russia, Romania, Korea, Mexico and Singapore.
This startling change emphasises the need for UK industry to refocus on the developing needs of its export market: it is not simply a question of asking “what can we provide?”, but “where will we send it?”.
Where to now?
The Government’s role is essential in creating an adaptable and innovative economy through its tax and foreign policy decisions. But, as BDO's report says: “Good business leaders have never waited for or relied upon politicians and regulators to initiate change. Furthermore, such business leaders will recognise that it is easier to effect change when times are hard.
"So, in short, we must encourage innovation and be ready to adapt in order to maintain and grow our position in the rapidly-changing new world order."
The full report can be downloaded here.
