The world economy is in the midst of a profound transformation in technology and income distribution. Political power is also shifting. Historically, changes of this magnitude have come with economic depressions and big wars. Such calamities may still befall us, but that they have been avoided so far is a miracle. Over the last three decades, there has been a global combination of technologies, trade, and development strategies, and political power that has enabled unprecedented economic growth. But that combination has reached its limits.
The current wave of globalization began in the 1980s. That was the age in which Japan and the East Asian tiger economies arose as the premier success stories, and the rest of the world began to emulate them. The key technological trend of that era was the substitution of labor and education for energy and minerals. In this period, the price of raw materials fell and the salaries of educated professionals rose. Japan introduced more fuel-efficient cars after the oil price hikes of the 1970s, and the price of oil then fell so far that Americans embraced SUVs and pick-up trucks as never before. The rise of China and India in the 1990s began to alter the proportions of raw materials consumption, and we have now arrived at the point where further development of the world economy within current technological approaches will only intensify the shortage of raw materials. It is not just oil that is becoming dearer. Iron ore and other raw materials are also shooting up in price. Food prices have also jumped, but that may be good for farmers worldwide who are responding by growing more food, ameliorating the situation.
So far, the new inflation had not led to a full-blown economic crisis. China is holding up the best in the new age, continuing to grow at over 10 percent per annum despite sharp increases in input costs. Chinese exports are slowing, and are likely to continue slowing due to wage increases outpacing productivity. However, China has massive savings, which can build a new structure of growth. India might escape with the loss of only one percentage point of growth, since inflation-related problems are offset by the fruition of earlier large investments and the steep rise in tax revenues and government spending. The United States has to deal with a financial crisis on top of commodity inflation. American bankers and financiers have indulged in irresponsibility that puts to shame the crony capitalists accused in the Southeast Asian crisis of 1997-1998. The only thing preventing the U.S. economy from contracting is the boom in exports and manufacturing fed by Asian growth and new European buying power due to their strengthening currency. For the majority of Americans, though, there is good reason to whine. Despite some good news, the raw materials-hurdle to global economic growth will not go away.
The greatest human benefits of this transformation will be felt in Africa, which is gaining after a three-decade crisis. But the immediate beneficiaries of the new age are the commodity exporters. The oil exporters in the Gulf are enjoying literally more wealth than they know how to spend. Iran can laugh at western economic sanctions. Every threat of attack against Iran raises the price of oil for a day and delivers a windfall of millions of dollars to Iran itself. Russia can now apply oil sanctions against disobedient European states. Venezuela can rail against U.S.-style capitalism in Latin America, because it profits by selling oil to such capitalists worldwide. The commodity exporters are a new pole of power and wealth in the world.
For one or two years, increasing consumption in the fast growing economies may be offset by the reduction of profligate consumption in developed countries. But the only hope for sustained growth in the world economy is large-scale substitution of resources based on scientific and technological advances. The only promising area in the short run is biofuels. In India, there are three promising food-friendly biofuel crops. Corn biofuel, predominant in the American biofuel scene, has rightly acquired a bad reputation for raising food prices and being inefficient. Europe is the largest user of biofuels, but its role is still marginal there. Brazil has already shown the benefits of sugar ethanol, and India has joined the race.
There is also a weed growing in India and elsewhere called jatropha. Its seeds are oily and yield biofuels efficiently; they also grow on land not suited to food crops. An institute near Hyderabad has recently developed strains of sorghum (jowar) that are miraculous. The stalk of the arid zone plant contains sugars well suited to ethanol, and the grains are still available for human food or animal feed. Commercial production of biofuels with all three crops is under way in India. Currently about five percent of India’s fuel comes from biofuel, but this percentage is rising. This kind of crop-based biofuel is the best that India and the world can do in the next five to 10 years.
Overall, there are solid grounds for pessimism about global economic growth for several years. Technological changes will not come fast enough to avert stagnation. In the long term, however, there is every reason for optimism. There are a wide variety of scientific and technological efforts to produce energy and materials in an environmentally responsible fashion. At least a few should succeed. And these efforts are not taking place only in developed countries. For the first time in centuries, the frontiers of human knowledge are spread among societies containing the majority of humanity.
|Sanjoy Banerjee teaches International Relations at San Francisco State University.|