G7 leaders can no longer deny India and China

PUBLISHED : Monday, 03 December, 2007, 12:00am
UPDATED : Monday, 03 December, 2007, 12:00am

The world changed this year. For the first time in recorded history, India and China are the drivers of the global economy. The implications are profound, though not recognised as yet by the world's premier economic club, the Group of Seven, which seems more and more to control a wheel detached from the rudder.

The two Asian powers, devoid of western aid, transformed without mimicking the developed world and prevented the west spiralling into recession. However, the west risks splitting the global economy into rival camps, and harming itself, by denying them a role commensurate with their economic clout.

Asia demonstrated its economic might as the US economy, which has driven the west's economy for a century, slowed. The havoc in the US housing market and the credit crunch produced turmoil in British firms, and heads toppled among top western bank managers. Acting as an external engine, Asia's rapidly industrialising giants checked the malaise by creating unprecedented demand for western goods.

Indians and Chinese pay for western products from profits earned by selling cheap manufactured goods and services to the industrialised world, thereby also checking price inflation in the developed world.

Another beneficiary is resource-rich Africa. Sino-Indian manufacturing and infrastructure projects increase demand, pushing up commodity prices and, in short, enmeshing the world in an inextricable economic web.

Goldman Sachs warns that western academics and policymakers have missed the melding underway around them.

At the heart of this failure is a delusive mantra that the west continues to repeat: 'Be like us and you will succeed. Persist in your own [read: backward] ways and you will fail.'

Above all, continues US historian Rhoads Murphy: 'The rhetoric of imperialism has continued to blind us to many truths, as it has kept us from seeing the falseness of western assumptions that Asia was somehow wrong because it did not uniformly react to western assertions in a western way.'

Western developmental models failed Asia. Decades of aid and planning could not resuscitate Bangladesh's economy or stem its slide towards extremism. In contrast, India and China crafted their own path with infinitesimal aid relative to their populations. Despite the handicaps of western rule, India has set a precedent by being the first full democracy to industrialise and become a global player.

Democracy, no matter how corrupt, communicates to leaders that Indians want an end to economic deprivation, and guarantees growth.

In contrast, China's one-child policy means it will grow old before it becomes rich. Young Chinese will have to support an army of retired people without pensions. An opaque decision-making process provides few clues about how China will cope.

Hopelessly out of touch, the G7 self-appointed captains of the global economy are in no position to navigate these changes. Dominated by western economies - many second tier - it occasionally includes Russia but never India and China.

Realism demands replacing European members - who have a common currency and economic policy - with one EU seat. India, China, Brazil, Russia and the US would be the other members to make a G6.

It would give the world a say in managing India's and China's vast economies, provide the means to prevent shocks which, in an interconnected world, can be transmitted internationally, and further integrate the world into the Asian economy.

'Whosoever is delighted in solitude is either a wild beast or a god,' wrote Aristotle.

The west is neither. It must reform itself by breaking free of its outdated mindset, recognise India's and China's predominance and craft an inclusive global economic system.

Deep Kisor Datta-Ray is a London-based historian and commentator on Asian affairs. dattaray@gmail.com