The List of Global Players may be Expanding

Last week: The disappointing jobs report last week was followed by news of a potential agreement on taxes and some stimulus spending this week. If the net of federal action is $120 billion for 2011, it offsets efforts at the state and local level to close budget gaps. On balance, the fiscal situation is close to being revenue neutral. The economy has been slowly expanding with little reason to think new momentum is developing. That’s the state of affairs as 2010 draws to a close. The first half of 2011 may be a little better, depending on how much stimulus is applied, and how quickly.

THE SITUATION ABROAD

The debt problem in the euro-zone isn’t going away. Martin Wolf in the Financial Times invoked an analogy to the “Brady Plan” in 1987. This was a scheme to write off debts in Latin America, allowing the region room to recover over the last two decades. Could debt write offs help now in the euro-zone? Much of this debt was incurred during a period of very low interest rates. But now, bond holder concerns have driven rates up, deepening the crisis and resulting in severe austerity programs. In turn, these programs are very likely to slow growth, and thereby limit the ability to service debt. This is causing increased concern about the potential for a default. A default or a major debt write off would entail some fundamental changes to fiscal policy across the euro-zone. No one knows where all this is heading, or when.

FACT OF THE WEEK

$44. Cai Fang, head of the Chinese Academy of Social Science’s Institute of Population and Labor Economics, calculates that Chinese college graduates have been earning an average of 1500 yuan a month since 2003. But migrant workers have seen their wages rise from 700 yuan to 1200 yuan in this same time period. That amounts to about $44 per month more for a college graduate than for a migrant worker. What’s more, Mr. Cai says that China has not faced these conditions before and that makes it difficult to determine how long this meager premium for a college degree may last.

QUESTION OF THE WEEK

Much is being written about economic conditions in Germany and China right now. Aren’t there other major economic players around the globe?

Emerging markets are growing so strongly that it is raising some concerns about overheating. The developed economies are generally more concerned about how to rev up growth. The Conference Board Global Economic Outlook suggests that emerging countries might continue to outperform right through the decade. To be sure, China and India are growing more right now than most of the rest of the world. That could be the case through 2020. Other emerging economies in the Pacific Rim might be growing 5 to 6 percent a year, versus 8 to 9 percent in China and India. Latin America, not just Brazil, could also be growing in the 4 to 5 percent range. Advanced economies, including Germany, might only average about 2 percent growth.

Two underlying forces could produce these trends. First, fast overall economic growth depends on steady and significant investment — upgrading not only equipment and software but private infrastructure (Buildings and offices and commercial space) and public infrastructure (such as transit systems). Second is continued strong productivity. These growth rates, whether for developed or emerging economies, can only be achieved in the face of slowing population growth if there are steady improvements in efficiency.

If funding for investment proves not to be an obstacle and productivity enhancement can be achieved, and if new industries such as green energy can be explored, then the list of global players will certainly not be limited to China and Germany. India and Brazil could be at the front of this pack, with several other contenders not far behind. The only thing for certain is that the debate about a uni-polar world is a thing of the past. The future is more likely to be multi-polar.