The Post-American World - Fareed Zakaria [11]
In the late nineteenth and early twentieth centuries, fears of war between European great powers were frequent, often triggered by crises in the Balkans, North Africa, and other hot spots. But the world economy boomed despite flash points and arms races. This was the era of the first great movements of capital, from Europe to the New World. As Germany and the United States industrialized quickly, they became two of the three largest economies in the world.
The 1950s and early 1960s are sometimes remembered as placid, but they were in fact tension-filled times—defined by the early years of the Cold War, fears of conflict with the Soviet Union and China, and a real war in Korea. There were periodic crises—the Taiwan Strait, the Congo, the Suez Canal, the Bay of Pigs, Vietnam—that often mushroomed into war. And yet the industrial economies sailed along strongly. This was the second great age of capital movement, with money from the United States pouring into Europe and East Asia. As a consequence, Western Europe rebuilt itself from the ashes of World War II, and Japan, the first non-Western nation to successfully industrialize, grew over 9 percent a year for twenty-three years.
In both periods, these “positive supply shocks”—an economist’s term for a long-run spike in production—caused long, sustained booms, with falling prices, low interest rates, and rising productivity in the emerging markets of the day (Germany, the United States, Japan). At the turn of the twentieth century, despite robust growth in demand, wheat prices declined by 20 to 35 percent in Europe, thanks to American granaries.3 (Similarly, the price of manufactured goods has fallen today because of lower costs in Asia, even as demand for them soars.) In both periods, the new players grew through exports, but imports expanded as well. Between 1860 and 1914, America’s imports increased fivefold, while its exports increased sevenfold.4
We are living through the third such expansion of the global economy, and by far the largest. Over the last two decades, about two billion people have entered the world of markets and trade—a world that was, until recently, the province of a small club of Western countries.* The expansion was spurred by the movement of Western capital to Asia and across the globe. As a result, between 1990 and 2010, the global economy grew from $22.1 trillion to $62 trillion, and global trade increased 267 percent. The so-called emerging markets have accounted for over half of this global growth, and they now account for over 47 percent of the world economy measured at purchasing power parity (or over 33 percent at market exchange rates). Increasingly, the growth of newcomers is being powered by their own markets, not simply by exports to the West—which means that this is not an ephemeral phenomenon. Nor is it one that is easily derailed. The financial panics, recessions, and debt crises that have left much of the industrialized world dazed for the last three years were unable to halt, or even significantly slow, the ongoing expansion elsewhere.
Some people dismiss such trends by pointing to the rise of Japan in the 1980s, when Westerners were scared that the Japanese would come to dominate the world economy. That turned out to be a phantom fear: Japan in fact went into a long slump, one that continues to this day. But the analogy is misleading. In 1985, Japan was already a wealthy nation. Many experts believed it was on track to unseat the United States as the largest economy, but because Japan’s markets, industries, institutions, and politics were still not fully modernized, the country could not make that final leap. China, by contrast, is still a poor country. It has a per capita GDP of $4,300. It will certainly face many problems as and when it becomes a first-world country. But, for the foreseeable future, it will surely manage to double the size of its economy just