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Tuesday, November 27, 2007

GOODBYE, DEVELOPMENT'S OLD DIVIDES

GOODBYE, DEVELOPMENT'S OLD DIVIDES
A new world in four tiers
By James D. Wolfensohn

THE notion of a divide between the rich north and the poor and developing south has long been a central concept among economists and policymakers. From 1950 to 1980, the north accounted for 80 per cent of global GDP but only 22 per cent of its population, and the south accounted for the remainder of global population and 20 per cent of global income.
But the north-south divide is now obsolete. The dynamic process of globalisation has resulted in unprecedented levels of growth and interdependence. However, while this has blurred the old division, new ones have emerged, splintering today's world into four inter- connected tiers.

The first tier comprises the affluent countries, notably the United States, European nations, Australia and Japan - with a combined population of around one billion and per capita incomes ranging from US$79,000 (S$114,000) in Luxembourg) to US$16,000 in South Korea.

For the past 50 years, these affluent countries have dominated the global economy, producing four-fifths of its economic output. But in recent years, a new set of economies has emerged that is contesting the affluent countries' economic dominance.

These emerging economies - call them the Globalisers - constitute a second tier of about 30 poor and middle-income countries (including China and India), with per capita GDP growth rates of 3.5 per cent or more, and a total population of 3.2 billion, or roughly 50 per cent of the world's population. These countries have seen unprecedented levels of sustained economic growth that may well enable them to replace the 'Affluents' as engines of the world economy.

The Globalisers are a large and diverse group of countries - in size, geography, culture and history - that have learnt how to integrate optimally with, and leverage on, the global economy to catalyse their development.

A third tier is made up of about 50 middle-income countries with a combined population of 1.1 billion. They are also home to many of the world's critical natural resources, possessing around 60 per cent of proven oil reserves. But these 'Rentiers' have not been able to translate the rents of their natural resource wealth into sustained economic growth.

The fourth tier comprises countries that are lagging behind - the world's poorest economies, with more than a billion people. They continue to stagnate or decline economically. Mostly located in sub-Saharan Africa, these 'Laggards' are largely isolated from the global economy, and they face crucial development challenges.

This emerging four-tier world presents three key challenges.

First, we need to increase our efforts to ensure the Laggards are no longer left behind. This requires policy changes as well as more generous and more effective aid. If one considers the issue of aid flows, one finds that although development aid rose in 2005 to US$107 billion, most of the increase was geared towards 'special circumstances', such as debt forgiveness and for Iraq and Afghanistan.

The sad truth is that development aid to Africa had fallen from US$49 per person in 1980 to US$38 per person in 2005. The true development needs of Laggard countries and other parts of the world are not being met, despite the rhetoric of scaling up aid.

Second, the old powers need to accommodate the rise of Globaliser economies - particularly China and India - by reforming the international order. The Affluents will continue to be major global players, but as the Globalisers' relative economic power rises, they will demand a greater role in international affairs. Most Affluents seem unprepared for this change, but such demands will need to be accommodated.

Finally, while the Globalisers have lifted millions of people out of poverty and reduced global inequality, this has not resulted in a more equal world, because star economies such as India and China are experiencing a rise in domestic inequity.

Whether it is coastal versus inland or rural versus urban, these countries must tackle the widening disparities because high inequality may well threaten their very ability to continue growing as they have.

If we are to create a more equitable world, then traditional levers of development such as trade, investment, aid and migration need to be scaled up comprehensively and coherently, and global institutions must be reformed.

This would improve our ability to address global challenges and better our prospects for building a more equitable world. Otherwise, we might bid farewell to old development divides only to welcome new ones.

The writer, a former president of the World Bank, is president of Wolfensohn and Company.

Copyright: Project Syndicate/Europe's World

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