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Tipping point from West to rest just passed


Sydney Morning Herald political and international editor

View more articles from Peter Hartcher

<em>Illustration: John Shakespeare</em>

Illustration: John Shakespeare


For many years now, we've heard sombre warnings that the white countries' easy dominance of the world would be eclipsed by the developing nations.

One day, we were told, the fast-growing economies of the poor countries would be bigger than those of the more sclerotic rich countries.

The Australian Treasury has now calculated this is no longer a looming prospect but that, on a key measure, it has already happened. The Treasury estimates the developing countries' collective gross domestic product overtook that of the rich world last month.

As near as its economists can guess, it happened on March 28. One author points out this was the 88th day of the year, a very propitious date in Chinese numerology.

On this reckoning, the era in which the economies of Europe and its colonial offshoots, including the US and Australia, dominated the world ended 20 days ago. We can now see it for what it was - a historical aberration that lasted about 1½ centuries.

"The Chinese look at this and they say, 'We just had a couple of bad centuries,'" remarks the international economist and former vice-chair of Goldman Sachs in Asia, Ken Courtis. "In the blink of a generation, global power has shifted. Over time, this will not just be an economic and financial shift but a political, cultural and ideological one."

Hollywood is not the centre of global popular culture because of the quality of its product.

The world is at a civilisational turning point. The aftermath of the global financial crisis has proved to be the inflection point at which the decline of the West accelerated and the rise of the great, new, poor powers became more assured.

China was the biggest economy in the world until 1840. It will be again, on current trends, when it overtakes the US in eight years. And while China is the largest of the emerging economies, it is by no means the only one thrusting ahead. India, Brazil, Indonesia and dozens of others are on the same trajectory. Even African countries, among the last to discover catch-up rates of growth, are joining the trend.

On Treasury's forecasts, the rich countries' overwhelming two-to-one economic dominance over the poor just 30 years ago will be exactly reversed in another 20 years. So by 2030, on current trends, the countries classified today as "developing" will have a collective economy double the size of today's "developed" countries.

Ross Garnaut describes this as a "normalisation" of world affairs: "This will keep happening - this is just a step along the way. We shouldn't be surprised - the beneficent process of modern economic growth is the common property of humanity." The Mayan calendar might have been wrong to predict the end of the world in 2012, but this is the year when we can start writing the obituary for the world of Euro-American supremacy.

There's no point trying to pretend there are no racial dimensions to this development. Brazil's former president, Lula, was very clear when he angrily attributed blame for the economic damage inflicted by the Euro-American financial collapse of 2008-09. It was, he said, a crisis "created by white men with blue eyes".

The Treasury based its calculation of comparative GDP not on market exchange rates but on a measure known as purchasing power parity, or PPP. This is "the exchange rate that equates the price of a basket of identical traded goods and services in two countries", in the words of The Economist magazine's dictionary.

A dollar will buy you more in a poor country than a rich one. The PPP adjusts for this difference. Or as Courtis puts it, "its usefulness is limited because countries don't trade in PPP, but if you want to figure out how many tanks a country can put on a battlefield, it's quite useful." On market exchange rates, the developed countries still account for the bulk of the world economy. But not for long. The Treasury points out that three-quarters of all the growth in the world economy is now generated by what it calls "emerging and developing" countries.

How has it happened? Professor Garnaut, a noted international economist, says "just about any country can get on the path of rapid growth when it meets the preconditions. Once they are on the path, there's no fundamental difference in humanity that need get in the way until developing countries are able to enjoy similar living standards to those of the advanced economies.

"This is part of the process of removing that strange phenomenon in the phase after the Industrial Revolution when an extraordinary proportion of economic output was concentrated in just a few countries."

After Europe and its offshoots, the next country to meet the preconditions and enjoy a rapid catch-up was Japan. It was mimicked by South Korea and Taiwan; south-east Asia followed. China came next, and India, and then a torrent of others.

Garnaut cites three preconditions: a strong nation-state that can impose order, property rights, public education, transport, and functioning markets; openness to international trade, ideas, technology and capital; and the ability to use markets to effectively allocate goods and capital.

But being collectively big does not make the emerging economies collectively powerful.

They have so far shown an increased ability to frustrate the old industrial powers. They managed to block a carbon deal at Copenhagen, and scuttle a new trade liberalisation deal in the World Trade Organisation. But they have failed to create and drive a new collective agenda in world affairs. They can't so far even agree to unite on a minor point - they want to end America's postwar privilege of running the World Bank, but they're divided on the choice of candidate.

It's much easier to see that we're at the end of an old world order than the beginning of a new one.

Peter Hartcher is the international editor.

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  • I don't think we've got much to worry about for several more decades. On paper China and India are power-houses, but most of their citizens don't even have access to sewerage or electricity. They are still basically third-world countries, albeit with a lot of money. And don't forget that China's spectacular growth is based on the world's largest property bubble. It could all come crashing down, just like the Asian tiger economies in the 1990s.

    Date and time
    April 17, 2012, 7:45AM
    • And let's not forget other 'emerging economy' considerations: border conflicts; water and resources rights; patents and other intellectual property; ethnic, religious and ideological differences; cultural diversity; historical arguments and wars; etc, etc. It won't be all sweetness and light for the newly developed nations. After all, the West has endured many of these aspects over the centuries.

      Date and time
      April 17, 2012, 10:35AM
    • There might be a huge property bubble in China but what underpins China's growth is a huge trade surplus and an artificially low currency.

      Date and time
      April 17, 2012, 11:24AM
    • Derek-What you are talking about is per capita income. Because of the massive population in China & India it is going to take awhile for them to reach the Western standard of living. At the same time-if one believes in man made global warming-it is a big reason to worry. The developing Countries will not want to slow their progress by introducing an Australian style extravagant carbon tax and they will claim that it is their right not to do so. The Gillard Government has put a burden on the Australian economy and their policies will have absolutely no influence on global carbon emissions-indeed our Coal exports will be adding to global emissions.

      Beacon Hill
      Date and time
      April 17, 2012, 12:14PM
    • Garnaut's analysis is superficial and lacks historical understanding. The problem with China -and to a lesser extent, India- is that it is internally highly unstable and prone to political implosion. Essentially you have half a dozen phenomenally wealthy trading cities on a large coastline with an impoverished interior, along with ethnic and cultural variation, creating enormous tensions. History has shown China inevitably falls apart, and it will do it again. Especially with a push from outside, if desired.
      Communism/corrupt tyranny offers the best chance of control but it won't last once the wage demands get out of hand- and once the bosses bring in their mass surveillance planned 'Brave New World'.

      Date and time
      April 17, 2012, 2:09PM
    • And it's worthwhile noting the distribution of wealth within the populations of these countries. The difference between the 'wealth' of the average Chinese and their privileged comrades in the party is, in my opinion, an un-fillable gap (as per India). In China that's due to a deeply controlled corruption and in India, an indelibly, culturally/religiously controlled class division.
      However, Japan and South Korea were able, with post-war foreign input, able to reconstruct and create some type of national economic equality (excluding the really rich who have always existed).
      In these days of sophisticated military technology, can anyone here expect a popular uprising by the Chinese to succeed further than Tienanmen square?
      Nevertheless, it seems graphs don't lie so I suppose whatever scenarios play out, the ultimate projections will be correct. In other words, we're screwed.

      I say, let all our Pig Iron PMs and Premiers have our resources at whatever price we can get and hope that they treat us favourably when the ore and coal run out

      Date and time
      April 17, 2012, 2:10PM
    • Derek, I think the fact that most of their citizens don't have access to sewerage and electricity IS something to worry about.

      Melbourne North
      Date and time
      April 17, 2012, 2:21PM
    • Well if China's economy comes crashing down you will find yourself in an unemployment queue and feel lucky if you can get a job as toilet cleaner.

      If China sneezes Australia will catch a cold.

      If China gets a cold Australia ends up with pneumonia.

      Thinking that AUS is superior just shows you have your head in the sand.

      Date and time
      April 17, 2012, 3:48PM
  • Good analysis Peter, of course we shouldn't be too enarmoured by all these statistics, the wealth in these emerging economies has hardly raised the standard of most of their citizens to a level regard as remotely adequate in the west. And history frequently fails to deliver that which once seem utterly inevitable.

    Date and time
    April 17, 2012, 7:49AM
    • I welcome the rise of the poor nations. As a green at heart, I long for a time when the ideology of China and India and Brazil can take over the neo-fascism of the US and the 'white' powers. The rise of China and Brazil will bring a new socialism to the world order, and with that all the people will be free and empowered to overcome western racism and oppression and to take their place as rulers of the new world. The developing nations are very mature now, they take action on climate change and they foster world socialism. I look forward to this day.

      Date and time
      April 17, 2012, 8:00AM

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