DALIAN, CHINA // The World Economic Forum's meeting wound up on Saturday with a warning that no durable recovery in the global economy would be achieved until deep and painful reforms had been undertaken to reverse structural imbalances, and promote more equitable and environmentally sustainable growth. "The world has to refocus the way we do business," said Sharan Burrow, the president of the International Trade Union Confederation, addressing a final session of the event which drew 1,300 top executives, economists and government officials from 86 countries.
"Jobs, skills and ageing populations have to be taken into account that don't just depend on export-driven growth, so we have a much more equitable globalisation." The initial ebullience at the outset of this three-day gathering, based on recent signs of economic growth, quickly surrendered to a more sober assessment. The consensus was that the global financial crisis had shattered the financial system that had been driving global growth for 50 years.
"The world is in an L-shaped recovery," said Zhu Min, the group executive vice president at the Bank of China in Beijing. The crisis had shaken trust in institutions, governments and in capitalism itself, Mr Zhu said. "This financial crisis has changed the whole world." The most significant casualty of the crisis, economists said here, was the US consumer. Reckless US household spending was financed by the savings of Asia and the Gulf and fuelled by accommodative policies at the US Federal Reserve.
It created a consumption boom which in turned powered the export booms of Japan, South Korea, Taiwan, South East Asia and finally China. The crisis ended that, economists said. "The American consumer is dead," said Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong. "This is a real wake-up call for a region that has failed to address these structural imbalances." Though globalisation has created vast wealth and lifted millions up from poverty, progress has been uneven, inequitable and unsustainable, the forum heard. The economic crisis exposed the shortcomings of a business model whose singular focus on short-term profits left it disconnected from the broader interests.
In the West, the crisis has jeopardised the achievements of the middle class, while in emerging markets it ended a wave of investment and corporate philanthropy across Asia, Africa and the Middle East. Unlike past crises, this one left no region untouched to lead an economic recovery. Achieving new demand and growth will mean ripping up much of the old economic order to unleash the power of what some economists call the bottom of the pyramid, the world's most populous and most impoverished populations.
So emerging markets in Asia, the Middle East and Africa will be the focus of this new economy. China, for example, is seen to be on the cusp of an explosion in consumer demand, if only it can be unleashed. China's latest uptick in growth is largely the result of Beijing's 4 trillion yuan (Dh2.15tn) stimulus plan, most of which has gone into infrastructure projects that economists say has only worsened overcapacity.
Investment by Beijing to improve China's social safety net is one way to encourage Chinese consumers to spend, economists said. . Most of China's vast savings are being accumulated not by its impoverished citizens, economists said, but by corporations and government. Those reserves are still being invested largely in US government bonds, in a futile effort to resurrect the model of growth that prevailed prior to the crisis. For emerging markets, achieving adequate growth to provide jobs for fast-growing populations will remain the most pressing challenge.
Funding, though, will increasingly have to come from domestic savers, either through developing capital markets to sell stocks and bonds or through greater taxation, the forum said. One of the most promising sources of new growth is also one that emerging market most desperately need: investment in green technologies to produce less polluting development. "It's like a mini-industrial revolution," said Ms Burrow.
warnold@thenational.ae