Global Trade at a Crossroads

The Globalist, USA
http://www.theglobalist.com
April 15, 2005

By Jean-Pierre Lehmann

(Writer is Professor of International Political Economy at the International Institute for Management Development (IMD, a leading international business school, based in Lausanne, Switzerland. He also is an adviser to WTO Director General, Dr. Supachai Panitchpakdi)

A decade ago, trade was all the rage. Negotiators crisscrossed the globe in order to work a dynamic agenda — and create new opportunities. In sharp contrast, these days, the field languishes. The IMD’s Jean-Pierre Lehmann recalls the advent of World War I to show what is really at stake at this juncture.

In the last few years, my work has taken me regularly to Bosnia-Herzegovina. While there, I always visit the bridge in Sarajevo where Gavrilo Princip assassinated Austria’s Archduke Franz Ferdinand on June 28, 1914. His act set in motion a chain of events that ultimately triggered World War I.

My visit to the bridge is usually all the more poignant that I often tend to be in Sarajevo precisely on that date.

That led me to wonder: What will be the main challenges we will face on the 100th anniversary of that infamous day in Sarajevo — on June 28, 2014?

The 21st century was heralded as a great era of peace and prosperity. But what are the fault lines and powder kegs? Let’s start with demographics.

Population growth

Even though it tends to be overlooked these days. One of the most destabilizing forces of European history in the early 20th century was its huge population increase. From about 250 million in 1850, Europe’s population surged to 410 million in 1900 — and to 560 million in 1940.

Undoubtedly, this increase was mitigated by emigration to some extent — as North America’s population, primarily composed of European immigrants, soared from 26 million in 1850 to 170 million in 1940.

Impacts of the South

Still, the impact of the dramatic demographic increase was acutely felt — and reflected, among other things, in the Germans’ troubling quest for lebensraum.

At the beginning of the 21st century, we cannot ignore that most of the countries of the South are experiencing the kind of demographic explosions Europe experienced a century before.

In the past half-century, Africa’s population has increased 3.5 fold — from 220 million to 750 million. And it is due to double again by 2050.

Asia’s population, meanwhile, increased 2.5 times in the same period and is due to continue growing by roughly another two billion. And Latin America’s rose threefold, with a projected growth equivalent to adding an entire United States of America in population terms over the next half-century.

A decline

That’s a lot of people. Gandhi’s admonition that “in this world there is enough for everyman’s need, but not for everyman’s greed” will be severely tested.

The second feature to be concerned about is the growing demographic chasm between North and South. There is abundant data showing how the population of Europe and Japan is aging, stagnating — and in some cases, declining.

People differences

But global realities are best appreciated not by data, but by observation. Just a few months after being in Sarajevo, I happened to visit both Morocco and Andalusia in southern Spain.

Morocco and Spain share centuries of common history. Even though we tend to forget it now, but until about 30 years ago — when Franco died – both countries were very similar in many respects.

Today, the most glaring difference is that when walking in the villages of Morocco, one is surrounded by throngs and throngs of people, including masses of children, whereas the villages of Andalusia are empty.

Statistics validate observation

The statistics confirm the observation. In Morocco, 35% of the population is less than 14 years old, while in Spain it is only 14%. Morocco’s current population growth stands at 1.65%, Spain’s is only 0.16%.

In Morocco, there are 22.8 births per 1000 inhabitants, compared to 10 in Spain. And the death rate per 1,000 inhabitants in Morocco is five, while it is 10 in Spain. In addition, Spain’s GDP per capita is six times Morocco’s.

Divide replicated

Similar patterns prevail in the differences between all the countries of the northern Mediterranean and the countries of the southern Mediterranean.

In fact, this South-North demographic divide is replicated pretty much throughout the planet. At the same time, a South-South divide is occurring — the higher the birth rate, the poorer the country.

Take Thailand. It is a country with a per capita GDP of $7,000 and a population growth rate of 0.8%. Then look at Laos. Its GDP figure $1,600 — and its population grows by 2.1%. And in Afghanistan, where for now there is no longer a recorded GDP, it is 2.7%.

More people, fewer jobs

Demographics is reality — and in its starkest form. The numbers presented above raise multiple issues and challenges, including the most basic ones concerning food, water, health, education, employment and security.

As populations in the South boom, the biggest menace is massive global unemployment. Confidence in the global market economy is not strong — and with good reason. As Joe Stiglitz has warned, in his book, Globalization and its Discontents, “Today, the system of capitalism is at a cross-roads just as it was during the Great Depression.”

One billion jobs

At that juncture in 1929, the road chosen by policymakers was emphatically the wrong one — plunging the world into economic deprivation and warfare. The long dole queues of the 1930s stand out as emblematic of that desperate age.

The challenge between now and 2014 is to create roughly one billion jobs. To see what that means in real terms, let us look at Indonesia.

The Indonesian economy, growing at about 4%, is doing better than at any time since the 1997 Asian financial crisis.

But it would need to grow at 8% simply to absorb the annual inflow of new labor.

The economic consequence is simple: Either Indonesia must grow much more — or more jobs need to be created for Indonesians abroad.

Two nations in one

No matter how skillful Indonesia’s new president may be, it will be very difficult to maintain political stability with a 50% youth unemployment rate.

Benjamin Disraeli — in his novel Sybil, written in 1845 — remarked on how Britain, although one country, was really populated by two nations.

“Two nations between whom there is no intercourse and no sympathy; who are ignorant of each other's habits, thoughts and feelings, as if they were dwellers in different zones or inhabitants of different planets; who are formed by different breeding, are fed by different food, are ordered by different manners, and are not governed by the same laws ... the rich and the poor.”

Children from both ends

Disraeli’s words can be applied word for word to the “two worlds” that inhabit the globe. To cite only one out of myriads of examples: There is one world where children have their own TVs, DVDs, music centers, mobile phones, computers.
And there is another world where children have never seen the inside of a classroom, have no electricity and no access to potable water.

The sense of injustice arising from poverty, inequality and hopelessness is bound to breed political fanaticism in the global South — just as it did in the early decades of the 20th century.

Gavrilo Princip was a fanatic Serb nationalist and a member of a secret terrorist society, known as “Ujedinjenje ili Smrt” (Union or Death).

New ideologies

Along with extreme nationalists, the new ideologies gave rise to anarchism, bolshevism, fascism — all of which played out in the brutally savage Spanish Civil War of 1936-39, the prelude of World War II.

The type of fanaticism most prevalent today is termed fundamentalism. It encompasses a highly dogmatic and violent view of others as either not of the same creed — or not of the same persuasion within the creed.

Other threats

It is hardly surprising that fanaticism is breeding most in the parts of the world that have the higher intensities of poverty, inequality, unemployment and hopelessness, along with the greatest demographic pressures. The Algerian civil war of 1990-1998 is a vivid, bloody example.

Viewed as a whole, the Middle East and North Africa have the world’s highest population growth rates — and the lowest economic growth rates. Throughout the region, there is an estimated average 30% youth unemployment rate.

There are, of course, other challenges and threats facing the planet, such as global warming, disease, HIV/Aids and drugs.

Extreme pressures

Either way you cut it, even the one issue presented above — intensive demographic pressures — clearly demonstrates the need for vigilance, vision and statesmanship.

To manage it successfully requires a rare combination of talents, factors and tools — including a sense of direction, global coordination and a considerable degree of cohesion — a symphonic approach, if you will.

Global trade reality

And that is where the global trade agenda comes in. It must be seen in a context where there are real risks of the world plunging into cataclysm in the 21st century — just as it did in the 20th century.

And on this crucial front, a number of positive developments notwithstanding, there are some very deep fault lines and powder kegs.

Restoring momentum and legitimacy to the global trading system is an urgent imperative as a means to secure peace and greater prosperity, to realize the Millennium Development Goals (MDGs) — and also to equip the public policy process with a moral compass.

The latter, in particular, is what has been missing in recent years. It is high time for global leaders to wake up to these ominous realities.

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