Economic realities of a fast-changing world

PUBLISHED : Monday, 13 August, 2007, 12:00am
UPDATED : Monday, 13 August, 2007, 12:00am

The economic landscape is changing so rapidly that today's children will live in a world we will barely recognise. Most of us grew up thinking of an industrialised world centred on Europe and North America. Out there, somewhere, was a poverty stricken, very backwards 'Third World'. But even Africa now seems to be on the cusp of a great leap forward.

We know that, by the middle of the century, China could be the world's largest economy, India the third-largest and Brazil the sixth. And, of these three, Brazil might well be the richest per head and with the best distribution of income throughout society.

Of course, no one can read the future with exactitude. There may be war, revolution, climatic upheavals or just plain economic mismanagement. India, with its more secure and viable institutions of governance, could pull ahead of the more dictatorial, yet more anarchic, China. Brazil may not find that it is able to put its badly run house sufficiently in order.

In all three countries, success - in the present developed world's eyes - will only count if wealth is reasonably well distributed and the harsh poverty of the bottom of the income pile is visibly ameliorated. At the moment, of the three, only Brazil is both improving the lot of the very poor and making for a better income distribution. In China and India, inequality appears to be worsening.

Many economists argue that a degree of rising inequality is the necessary price of fast growth. But this is a fallacy. Several East Asian economies, including South Korea and Taiwan, have shown that - with the right mix of policies - high growth, declining poverty and an improved income distribution can go together.

Brazil's macroeconomic progress, under President Luiz Ignacio 'Lula' da Silva, has been significant, and is reaping rewards.

For Brazil to go forward faster and further, a re-elected Mr da Silva needs to go for 'quality growth'. This means placing a single-minded focus on the quality of education. It means opening up university education. At the moment, it is one of the most regressive in the world, with grants aimed overwhelmingly at middle-class students. Brazil must also radically reform its tax, pension and social security systems.

Not least, it must continue to work actively at reducing income inequalities - Latin America has the worst income distribution in the world and Brazil is the worst in Latin America. Lastly, Brazil has to stop the continuing rape of the Amazon.

If all this is done, and macroeconomic policies are sustained and even strengthened, it won't be too long before Brazil will achieve investment-grade rating. Then, it can think about giving India and China a run for their money.

Brazil, come mid-century, may well be regarded as the developing world's most important success story.

But the others, including much of Africa, may well not be far behind. Today, nearly everyone seems to know what they have to do.

Jonathan Power is a London-based journalist