Over the next few years the western world faces the choice of growing old gracefully and passing the “baton of financial success” to emerging nations or disengaging and risking economic calamity, a symposium in Trinity College Dublin was told today.
In his address entitled The Impact of Emerging Nations on Western Democracies, Stephen King, group chief economist at HSBC bank, said the west is "losing control of the global economy and the financial agenda".
He predicted the west’s share of global economic activity would shrink in the coming decades because of a shift in demographics and the “economic catch-up” of countries like China, India and other emerging nations.
He said this shrinkage will mean it will be increasingly difficult for the west to fund the kind of things they now take for granted, such as pensions and military ventures.
Fears from “growing income inequality, growing uncertainty about globalisation, high rising unemployment and the desire to blame other nations for the difficulties the west is going through” will lead western nations to choose a more isolationist stance, according to Mr King.
This, he said, will lead to the risk of a major economic calamity and, at the extreme end, heightened conflict such as the wars, depressions and national rivalries that occurred at the beginning of the 20th century.
Mr King said China’s success and increased oil consumption will lead to a rise in fuel prices that will “eat away” at western living standards and produce a squeeze on wages.
He said although globalisation narrows wealth discrepancies between nations, it also increases income inequality within nations. Over the last 30 to 40 years there has been a “massive increase” in income inequality in the United States, which, up until recently, had gone largely unnoticed.
“[People] were able to sustain living standards that were simply beyond them and with the credit crunch, we suddenly discover that actually the western world is nothing like as healthy as it appeared to be in the past,” Mr King told his audience.
He said the long-term unemployment rate in the United States, now at the highest rate since the 1930s depression, is evidence of a growing “underclass” in western nations that provides a significant threat to the process of globalisation.
He said the west needs to debate the consequences of the global economic shift and hopes it will “grow old gracefully” by engaging with emerging nations.
“Ultimately it is only with an engaged global economy with connections being made that you will see rising standards for the majority” he said.
