Three Forces Reshaping the Global Economic Order

In the midst of tumultuous global markets, a migrant crisis in Europe on top of their economic weaknesses, and continued bloody conflicts in the Middle East, the global economic order continues to be shaped and reshaped every day. Attending the recent Global Shapers Annual Meeting of the World Economic Forum (WEF) gave a unique insight into the forces shaping the contemporary global economy, with exciting discussions with 450 young leaders from over 150 countries, complemented by the insights of the WEF’s Founder Prof. Klaus Schwab. Three forces, in particular, are likely to influence the future trajectory of the world.

  1. Era of ‘Grand Deals’ Over

There is growing recognition that the global order set up after World War 2 does not function as well as it should anymore. While some may feel it is a cynical view, its becoming increasingly clear that the era of grand global deal-making – whether it is on trade liberalization (evidenced by the stalling of the WTO Doha Round) or cutting CO2 emissions (evidenced by troubles in climate change agreements) – seems to be over. Particularly with regard to trade, we are seeing more and more bilateral, regional, and mega-regional trade deals being forged, in the absence of serious progress on multilateral ones. Mega-regional trade deals like the Trans-Pacific Partnership (TPP) between the US and Asia, the Trans-Atlantic Trade and Investment Partnership (TTIP) between USA and Europe, and the Regional Comprehensive Economic Partnership (RCEP) within Asia, have come to dominate the global trade agenda in recent years.

Simultaneously, we are seeing new global financial institutions emerging, challenging the post-WW2 order of Bretton Woods institutions. The New Development Bank forged by the BRICS economies of Brazil, Russia, India, China and South Africa (nicknamed ‘The BRICS Bank’) and the Asian Infrastructure Investment Bank (AIIB) launched by China and joined by the majority of countries in the West and East, are evidence of the rebalance of economic might and the challenge to the previous global order that governed international finance and development under the World Bank and IMF.

  1. New Industrial Revolution

Another fast-evolving force, which Prof. Schwab especially pointed to, is “the fight between brains and artificial intelligence and the fight between robots and humans”. The WEF, and Schwab in particular, has written widely on this subject. Of course, this issue may seem years away for Sri Lanka, but we cannot ignore the fact that this phenomenon will completely change the structures of global production, as we know it today. This ‘New Machine Age’ or ‘Fourth Industrial Revolution’ will have profound effects on the competitiveness of economies, on the functioning of society, and on the lives of individuals. One major way in which this will affect individuals is through education, or the lack thereof. Without a focus on education that gears people to take advantage of this new economy, we risk this new industrial age being deeply polarizing across skill and income groups, driving new wedges of inequality and injustice in society. All countries – especially developing countries – need to build education systems that foster agility, versatility, and continuous learning.

  1. Globalizing and Polarizing

Another important realization is that, as Prof. Schwab eloquently put it, “we are living in a world that is globalizing as well as polarizing at the same time”. The proliferation of global connections and information, through technology and social media, at the swipe of a screen or the click of a mouse has meant that we are now more globalized than ever before. Facebook and Google allowed friends of Nepali earthquake victims from another continent to check on whether they were safe. A young inventor from anywhere in the world can now raise money for his invention via a crowd-funded platform online. A protestor in a small town can broadcast about police brutality to an audience of millions, instantly. A consumer in a remote town can buy a product from a mall a million miles away. Yet, amidst this globalization has been an alarming polarization of people, across lines of ethnicity, religion, wealth, political ideology and other divides. And increasingly these are becoming more violent than before, and they are having a knock-on effect on the global economy. Global institutions, global agreements, and traditional power structures seem to be struggling to keep up, to mediate and mitigate these.

Future Outlook

Many of the young people participating in the WEF meeting collectively realized that the world we are now living in is completely transforming itself and we are not fully ready. Political power lines are being redrawn. Old economic structures are being deconstructed and reshaped. Technology is both empowering as well as marginalizing. The importance of young people having a seat at decision-making tables is clear, yet the extent of influence is not. The outlook sounds rather challenging, but it should be seen as a call to action, especially for young people who will inherit this new economy. It is also a warning for countries like Sri Lanka to not lose slight of the changes going on rapidly around us, reshaping the world as we know it; even as the domestic agenda often takes up most of our attention.

This is the 22nd article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation, and economic reforms.

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