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World economy at a watershed

  • Published at 04:15 pm August 20th, 2013
World economy at a watershed

Rapid economic growth in not only China and India but also in Brazil, Turkey and a number of African countries is resulting in a historic shift in the spatial distribution of global economic power.

The nineteenth and twentieth centuries saw the dominance of a metropolitan ‘North’ with the countries of Asia, Africa and Latin America forming the peripheral “South.” The 21st century is witnessing the rise of the South. By 2050, Brazil, China and India alone are projected to account for 40 percent of world output. This watershed moment in history is pregnant with the possibility of devising new concepts, institutions and policies for shaping a more humane future for the world.

The Human Development Index (HDI), published in the UNDP Human Development Report 2013, under the leadership of Dr Khalid Malik, has delved into these new trends in the world economy. This powerful report has the potential to influence policy thinking and public action at the global, regional and national levels. This article considers some of the key empirical trends and conceptual issues raised.

Significant improvements have taken place in life expectancy, education coverage and per capita incomes among countries falling in the low and medium categories of the HDI. Yet wide disparities remain. Ominously, income inequalities both between and within states are increasing, creating a basis for conflict. It also constrains poverty reduction and attempts to build cooperation for protection of the environment. Thus the question of equity has entered centre stage in debates on designing development policy.

There has been a major change in the orientation and origin of global production, with developing countries being a key driver, with their share in merchandise trade increasing from 25% to 47% over the period 1980 to 2011. At the same time, South-South trade increased from 8% of global merchandise in 1980 to 26% by 2011. These facts make looking at regional economic integration in South Asia, for instance, an important element of future development strategy.

The lessons that emerge from the success stories of the South, challenge the orthodoxy in economics. For example, rather than evicting the state and relying on the market alone to conduct growth, case studies suggest human development, social welfare and the nurturing of new export industries, can benefit from deepening the role of the state.

My own work in development action and analysis shows how organised and empowered communities can become a force for economic growth and development. Indeed organised villages and communities which provide better access for individuals to markets and public services, are a form of social capital.

I would suggest that economic analysis needs to take into account communities and the relationships between them. This is necessary in so far as community based innovations and social change are vital to economic development.

This is why I think a democracy that provides opportunities for discussion as a mode of resolving disputes is so important. Social integration and institutions for consensus building have become essential to development.

The measures of Human Development need to be broadened in the face of this new world. The UNDP Report argues the need to shift focus from measuring individual capabilities to incorporate capacities of social groups.

The UNDP Report does well to recognise that social conditions and conflicting perceptions about progress can hinder development.

The Report documents with commendable rigour that the geographic distribution of economic power has shifted from the North to the South.

But what the Report ignores is the potential disorder that could arise out of the fact that the institutions of global governance, international finance and political power are still concentrated in the North. There is an incongruence between the distribution of economic and political power with respect to the South and the North. Therefore a change is required in the architecture of global finance and governance so as to give a greater voice to the South.  

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