The annual meeting of the World Economic Forum at Davos, Switzerland concluded January 29 after five days of vibrant debate around the theme of “the creative imperative.”
Some 2,340 guests from 89 countries and regions participated in more than 240 discussion sessions on major challenges facing the world economy and politics as well as the solutions to these problems.
“The Emergence of China and India,” “The Changing Economic Landscape,” “Creating Future Jobs” and “Effective Leadership in Addressing Global Risks” were among the eight sub-themes of the forum this year. In my opinion, these topics can be summed up as national equity, international equity and competition and cooperation between developing countries.
Focusing on poverty
The world economy has maintained robust growth in recent years. In 2004, it grew by 5.1 percent, hitting a record 30-year high. The growth rate is projected at 4.3 percent in 2005, and is unlikely to experience any dramatic setback in 2006. International economic organizations including the International Monetary Fund (IMF) began to have higher predictions of the world economy growth rate as of the second half of last year.
However, the across-the-board deterioration of the income distribution pattern in various countries has cast a dark shadow on this rosy landscape.
Shortly before the World Economic Forum opened, the London-based New Economics Foundation published a report January 23, revealing that the share of benefits from global economic growth reaching the world’s poorest people drastically shrunk in the past 10 years.
According to the report, between 1990 and 2001, for every $100 worth of growth in the world’s income per person, only $0.6 found its target and contributed to reducing poverty for those living on less than a dollar a day--73 percent less than in the 1980s, when $2.2 of every $100 worth of growth contributed to reducing poverty for those living on less than a dollar a day.
The seriousness of the problem is not only evident in the prevalence and magnitude of poverty but also in the slackened poverty alleviation efforts as well as narrowed opportunities for the poor to move up.
In terms of national poverty reduction, even in Asia, the purported testament to developing countries’ economic success, the proportion of national income growth devoted to poverty alleviation plummeted from 10.2 percent in the 1980s to 2.9 percent in the 1990s.
Regarding international poverty reduction, almost all developed countries have reduced official international aid by a large margin and attached more strings to remaining aid projects since the 1990s.
A time-honored Chinese saying goes, “It is better to teach others to fish than to provide them with fish.” What is most important to poverty alleviation is not direct assistance but affording the impoverished with opportunities to pull themselves up by their bootstraps.
Aware of this fact, organizers of this year’s Davos summit singled out “Creating Future Jobs” as the forum’s fourth sub-theme, which includes understanding the changing nature of growth and job creation, global employment, new skill requirements, labor mobility and resulting social and economic consequences.
However, many advantaged social strata and nations are anxious to establish rules that are skewed in their favor as soon as they gain prominence. They attempt to perpetuate the favorable social division by imposing more barriers to the upward mobility of the poor. Under the current political rules, this attempt usually turns out successful. Regretfully, not well prepared for discussions in this regard, the Davos summit ended up with nothing more than a discouraging announcement that “roads can go a long way in fighting hunger.”
A win-win order
China and India, the two largest developing countries, were in the spotlight during the Davos summit. A symposium exclusively dedicated to China’s emergence was held on the very first day.
Topics such as the prospects of China’s banking sector, its environmental protection, rural problems, the impact its emergence has on the outside world and the energy demands of China and India all triggered heated discussions. At the closing session, Laura Tyson, Dean of London Business School, delivered a speech on China and India. The participants’ obsession with China can easily be called an outstanding feature of this year’s forum.
The highlighting of developing countries, as represented by China and India, during the Davos summit was set against a background of these countries’ remarkable economic performance and growing influence in recent years.
Not long ago, The Economist magazine stated in an article that in 2005 the combined output of emerging economies rose above half of the global total. Their share of exports has jumped to 42 percent, from 20 percent in 1970. Over the past five years, they have accounted for more than half of the growth in world exports. Developed economies’ trade with developing countries is growing twice as fast as their trade with one another.
Emerging economies are now sitting on two thirds of the world’s foreign exchange reserves and they consume 47 percent of the world’s oil. In the past three years, their growth has averaged more than 6 percent, compared with 2.4 percent in rich economies. Last year, their combined GDP grew in current dollar terms by $1.6 trillion, more than the $1.4 trillion increase of developed economies. The IMF forecasts that in the next five years they will roll along twice as fast as developed economies. If this relative pace is sustained, in 20 years’ time emerging economies will account for two thirds of global output.
The economic revival of developing countries requires countries involved to make adjustments accordingly. Especially given escalating imbalances in the global economy, economic coordination between developed countries and major developing countries needs to be improved.
At the beginning of the Davos meeting, a thought-provoking topic was presented before all participants: “the shift of gravity to Asia and the challenges and opportunities for the global community.” To great comfort, many resourceful persons in the West commented positively on this trend.
It is Laura Tyson’s belief that increasing domestic consumption in China and India will boost the growth of the world economy. However, opposite views do exist. Tyson pointed out that people in developed countries tend to attribute local unemployment to globalization, urging the government to adopt trade protectionism policies.
She noted that some of the Americans she met during the forum viewed China’s development as a threat and others were full of fear, concern and anger toward China. Partly for this reason, China has been plunged into an era of frequent international economic and trade disputes. The Doha Round of WTO negotiations will prove to be an uphill battle, too.
As a matter of fact, economic development is more of a “win-win” situation than a zero-sum game. In the wake of the emergence of developing countries, developed countries have mostly found new room for development rather than being adversely impacted or threatened.
Lawrence H. Summers, President of Harvard University, emphasized at the forum that the world economy should not depend on the United States as its only engine. Martin Wolf, Chief Economics Commentator for the Financial Times, noted that capital is flowing into the richest countries, and the developing countries are actually net capital suppliers.
The present international economic and trade rules are extremely unfair to developing countries. In an era of economic globalization, the inequity poses a grave threat to the sustainable economic development of developing countries and the world at large. On the vast ocean of poverty, small, isolated islands will be unable to maintain their prosperity for long.
Adherence to the “development orientation” of the Doha Round does not mean granting privileges to developing countries, but striking a balance between their share of benefits from globalization and the burden they have to shoulder. After all, benefits derived from development should be shared by as many people as possible.
Both individual countries and the international community should stick to this principle. Insufficient consideration of the reasonable demands of developing countries might lead to a major setback in the globalization process, harming both developing and developed nations.
Alan Kyerematen, Minister of Trade, Industry and Presidential Special Initiatives of Ghana, warned in Davos that many countries are increasingly becoming disillusioned about whether the multilateral trading system can deliver on its promises. Mukesh D. Ambani, Chairman and Managing Director of India’s Reliance Industries, stated bluntly that the international community is worried about the collapse of the WTO process.
However, representatives from leading Western countries showed some positive signs in Davos. Both EU Trade Commissioner Peter Mandelson and U.S. Trade Representative Robert Portman agreed the atmosphere took a turn for the better in a small-scale ministerial meeting during the forum. Mandelson urged all players to capture and use the opportunity to maximize the improved “mood music,” claiming that he prefers to see a case made for agricultural reform “on behalf of developing countries by developing countries.”
Portman cautioned that if the current Doha Round fails, everyone stands to lose. He indicated that the United States supports “all of the liberalizing aspects of the current round” while appealing for the concerted efforts of different players.
Pascal Lamy, WTO Director General, called on relevant parties to face up to reality. He urged the EU to move on market access of agricultural produce, the United States to move on domestic subsidies, and Japan and Switzerland to do both.
We hope the countries will abide by the agreements reached in future Doha Round negotiations. China has suffered too much and too severely from trade disputes that resulted from failures to follow WTO rules, especially developed countries’ breach of their WTO commitments, misinterpretation of WTO rules and replacing WTO rules with domestic laws.
The economic growth of developing countries relies heavily on cyclic factors and the macroeconomic policies of developed countries. It remains uncertain whether their economic growth can be sustained. The prices of bulk primary products soared in recent years, a main cyclic factor powering the economic growth of developing countries. However, the prices will not be able to remain high. In fact, there has been an ever-growing tendency toward price drops.
The series of interest rate cuts in developed countries beginning from the second half of 2000 stimulated capital inflow to developing countries while boosting consumption in the developed world, a trend that led to export expansion in developing countries. However, the U.S. Federal Reserve initiated a new round of interest rate hikes in June 2004. The rising interest rates may reverse the direction of global capital flow and rein in credit consumption in developed countries, exerting adverse influence over developing countries’ exports.
Eye on Asia
The relationship between developing countries is two-pronged, characterized by both competition and cooperation. China-India relations provide a telling example.
In recent years, the comparative study of China and India has become a highly charged subject in academia as well as the media, being discussed in political, military, economic, cultural and many other contexts. It is a hot-button topic at the Davos summit as well.
In the Western-dominated international media, China and India are usually described as two rival powers. Media in the two countries have proven vulnerable to their influence.
Reports that “Indian factories work around the clock to take advantage of the restrictions facing China’s textiles” and “India is likely to catch up with China in terms of global investor confidence as shown in a survey” cause a nationwide stir in China. Some Chinese people unconsciously overvalue India’s comprehensive strength, placing too much emphasis on competition between the two countries.
We needn’t take comparisons made by the international media too seriously. India has largely inherited a political system devised by the British. When China and India are compared in an international economic order dominated by Anglo-Saxon countries, China’s defects are usually magnified and so are the successes of India. In the eyes of people from the West, India has many more well-governed enterprises and outstanding entrepreneurs than China does, as evidenced by their high praise for India’s financial stability and stock market.
It should be admitted that China and India have territorial, economic and other problems, some of which are quite serious, but conflicts between the two countries largely result from intentional or unintentional exaggeration by Western media. As India nurtured a group of Anglo-Saxon bureaucratic elites during its colonial era, it is no wonder that it receives support from the West. Instead of making a fuss about this, China is expected to fundamentally reverse the Western dominance of mainstream international opinion.
In fact, some warnings from India are good to China. For example, Indian Finance Minister Palaniappan Chidambaram called on China to increase consumption at the Davos summit. China should remain dispassionate in the face of the much-touted China-India rivalry, and explore ways for the two countries to cooperate amicably.
In the final analysis, both being populous developing countries, China and India have much to share with each other in respect to their national economic development and a wide range of common interests in international economic and political affairs. These common grounds have formed the basis for their cooperation. From energy exploration to trade negotiations, there is an emerging trend of the two countries turning competition into collaboration.
Economic globalization has also brought along globalized interests and problems, which call for broad coordination of all countries and all sections of society. We do not expect the World Economic Forum to solve any problems directly, but we have reason to believe that the big gathering of worldwide representatives can make a difference to their solution.