Understanding the Paradigm Shift in the Global Economy

For a long time in the 20th century, the global economy was divided into the developed West and the Third World or the developing economies of Asia and Africa. Any discussion about the economy would invariably be around how many poor people are there in Asia and Africa compared to the affluence that the West enjoyed.

However, things began to change starting from the late 1970s for Asia where China and then India liberalized their economies and opened them up for competition. Especially in the decade of the 1990s there was an accelerated thrust by China and to a lesser extent India to jump into the global economy and grow at phenomenal rates. This resulted in a massive uplifting of millions of people out of poverty and changed the perceptions of Westerners towards Asia.

It was no longer the case that Asia was a supplicant and indeed, it had arrived to take its place at the high table of world nations.

This can be likened to a paradigm shift in global economics with hitherto laggards like China, South Korea, Thailand, Indonesia and India saw their growth rates soaring because of investments in infrastructure and education.

The combination of economic capital and human capital along with a relatively young population as opposed to the aging economies of the West meant that these countries were on their way to achieving economic prowess.

No wonder some of these countries were called Asian Tigers whereas the others were called the hottest emerging markets. The integration of the global economy and the globalization phenomenon added to the growth story of these countries and hence, they were accordingly represented in the global groupings like the G20.

The other aspect is that the ongoing global economic crisis has impacted the West more than it affected Asia which meant that there was a true Powershift happening from the West to the East. However, this does not mean that China and the other Asian countries should take it easy or rest on their laurels.

As past experience shows, all it takes for relegation to backwardness is a few years of tepid growth which would put the brake son their success story. However, China seems to be following a good path of development whereas India seems to be lagging behind because of policy paralysis and the compulsions of democracy.

Indeed, China’s rise is also illustrative of another paradigm shift where it was previously thought that only democracies could sustain high levels of economic growth.

Finally, the emergence of Brazil, South Africa and a rejuvenated Russia has meant that the BRICS or the grouping of these countries with China and India is the next shift in balance of power in the global economy. It remains to be seen whether this grouping of nations is able to sustain their growth rates and challenge the west seriously in terms of power and prestige instead of being just countries that are still growing.

The point here is that in a few years, it would be time for these emerging economies to go beyond the status quo and emerge as alternative economies to the West.