“The World is Undergoing a Fundamental Change”
Prof. Videla at the e-KISS Universitas-IESE conference
"The 21st-century is going to be one of huge changes. Over the next few years we will see an immense transformation of the world economy, with an impact similar to that which occurred during the first Industrial Revolution." This was the view expressed by the IESE economics Prof. Pedro Videla at a meeting held at the Telefónica District auditorium in Madrid. The speech, which was titled "Key Factors of the 21st-century economy," was part of the series of the e-KISS Universitas conferences jointly organized by IESE and Telefónica.
Videla highlighted various aspects of the current economic situation. He pointed out, for example, that world GDP had been growing constantly since 1975, until 2009. "In 2010, the global economy was once again growing positively, which shows that the world recovered quickly from the recession," he said. That said, this growth was led by emerging countries (China, Brazil and India, among others). Western countries, above all the United States, Canada and large parts of the European Union, have serious problems.
If this trend continues, in 2050 Asia will generate 50% of the world’s GDP while Western Europe will only produce 7%. This growth in world GDP will have various effects. On the one hand, it suggests a significant decline in wealth. "Some 500 million people have ceased to be poor since 1970," he said. Another effect is more negative in that the difference between the rich and poor has increased and inequality and associated tensions are growing.
"The new axes of world economic growth are Asia, Africa and Latin America," he said. And he produced some data. Between 2012 and 2022 Asia, with the exception of Japan, will grow by 56%. Latin America will grow by around 7.5% and the North American countries by around 10%. Western Europe will not achieve more than 6.4%. "This suggests a convergence in the world economy that we’ve never seen before," he said.
"Countries Don’t Compete, They Become More Commercial,"
Nevertheless, the professor is optimistic. "Countries don’t compete, they become more commercial. When countries interact they generate wealth. And so if Asia is doing well, we will also do well," he said. "We are going through a fundamental change in the way the world produces. Asia, Latin America and Africa are going to have a major impact on the economy of the 21st century." The big multinationals are aware of this and have increased their direct investment in China, Brazil, Mexico, India, Russia and Korea.
At the same time Videla said that developed countries are suffering particularly at the moment, given, among other reasons, the fiscal imbalance created by large amount of public debt which is "something that is very difficult to balance." This has led to the so-called "socialization of losses" on the part of states. To stop the bloodletting, the European Central Bank and the Federal Reserve of the United States are printing more money and that’s creating a large amount of liquidity in much of the world. "But when this money, which at the moment is in the banks, once more reaches the street were going to have another bubble," he warned.
Faced with this, what might happen? According to the data, a variety of things: taxes might rise, there may be new property bubbles and more extensive cuts to the welfare state. "The problem with this crisis is who is going to save those who tried to save us," Videla said.