Excerpts from a recent article by Liam Halligan (Chief Economist at Prosperity Capital Management) in The Sunday Telegraph, “China, Brazil and India belong in the G8”
*** Excerpts Begin (emphasis mine) ***
It’s become fashionable to say the G8 is pointless. Last week’s summit of the “world’s advanced industrial democracies” was certainly an anti-climax.
After all the posturing, “working lunches” and “financial stability pacts”, the impotence of the leaders gathered on the Japanese island of Hokkaido was displayed for all to see.
Western shares kept tumbling. Crude hit another record high. As the smell of meltdown turned acrid last week, the markets seemed determined to stress the G8’s irrelevance.
Since the mid-1970s, the US, UK, Germany, Italy, Japan, France and Canada have held an annual summit. Russia has recently been added – grudgingly, because four G7 members depend on its oil and gas. Even with Russia, the G8 accounts for only 14 per cent of the world’s population, and less than 60 per cent of the global economy. And that share of worldwide output can only fall as the fast-growing emerging giants continue to outpace the West.
The likes of China, Brazil and India have churned out average annual growth of 5 to 10 per cent for many years now – an expansion rate that’s set to continue. In dollar terms, these countries are now the fourth, 10th and 12th largest economies on earth – and climbing fast.
The West, meanwhile, is struggling to keep up strong growth. Our skill-levels are slipping, many of our people lack ambition and, pretty soon, our demography gets very nasty. In 2010, the share of the G7 population dependent on the rest of the workforce starts rising – from just under 50 per cent, all the way to 68 per cent by 2035.
The financial impact of that – in terms of health and pension costs, not to mention taxation – will be huge. But, incredibly, Western politicians have still spent the last decade ramping up spending and debt, rather than putting money aside.
These realities make a mockery of the G8. Member states’ claims to bestride the global economy now look very dubious. In just a few years – as the West struggles and the East powers ahead – an unreformed G8 will be a laughing stock.
Why bother holding “high-level talks” on climate change without India and China? Why discuss “oil price stabilisation” without a delegation from the Middle East? Why opine on “dollar co-ordination” when the rest of the world now holds the bulk of global reserves?
The G7 countries, on average, have reserves on a par with Brazil. Exclude Japan, and that average plummets to less than half. Reserves define a country’s financial fire-power – its ability to defend its currency and influence the global terms of trade. Yet, even with all its gold, US reserves are barely greater than India’s and less than a fifth of China’s.
The West needs a reality check. We need to realise the image we’re conveying. Sub-prime started in America and was spread via corrupt and fraudulent practices mainly on Wall Street and in the City of London.
Yet, at a time when the world so desperately needs global-level discussions – on everything from economics to terrorism – we insist on running existing global institutions as if the rest of the world doesn’t matter and on the basis we are somehow superior. How stupid does that look post sub-prime?
The G8 needs to expand. Now. As a minimum, China, India and Brazil must immediately be admitted to a new G-11. Western leaders need very quickly to realise that our collective future depends on the emerging giants far more than theirs depends on us.
If our industries are to thrive in the future, they will need to sell to the fast-growing middle-classes of the East. It’s as simple as that. That’s why, while forming a new G11, we also desperately need to complete the Doha trade round – pushing aside the objections of over-subsidised French and US farmers.
Unless we do that soon, the emerging giants will walk, putting up high trade barriers of their own. And given the West’s debts and demography, it will be us who suffers most.
The UK is producing a mass of unskilled people. The fallout goes way beyond human misery and sky-high benefit payments. As the likes of China and India really get into gear, our lack of skills will drag us towards global mediocrity.
(C) Telegraph Media Group Limited
See also this very interesting graphs that accompanied the story: