How have a series of global shocks changed the way we think about development?

This piece appears in today’s Ottawa Citizen

The past five years has been a period of extraordinary global turbulence.

The turmoil has struck as three “shocks” — the financial crisis, a breakdown in the world food system, and the Arab Spring — combined with a slow motion train wreck in the form of the seemingly inexorable onset of chaotic climate change. Together, these are having a profound impact on our understanding of how the world works.

Just how much has changed was one of the overriding impressions from updating my book From Poverty to Power: How Active Citizens and Effective States Can Change the World, first published in 2008.

The global financial crisis was a watershed event. It triggered historic geopolitical change in the rise of the emerging powers such as China and India. It also drew attention to the risks of an excessively “financialized” global economy; but it failed to lead to a reining in of the excessive size and volatility of “hot money,” condemning us to future financial crises, possibly starting with Europe in the coming months.

Simultaneous with the financial crisis, the world witnessed a food price spike. In many countries this traumatized the lives of poor people to a much greater extent than the shenanigans on Wall Street, and reversed decades of low and falling prices, threatening long-term progress on hunger and nutrition. That has led to renewed attention to the basic issues of food and hunger, and some unfortunate side effects such as “land grabs” across the developing world by investors from rich countries.

The Arab Spring confirmed the importance of active citizens in driving social and political change, and made us think much harder about the role of women (who were very active) in majority-Muslim societies.

Taken together, these events have made us much more aware of the impact of volatility, risk and vulnerability on the lives of poor people. That leads both to a focus on trying to prevent shocks from occurring in the first place and to dampen their impacts when they occur. “Shock absorbers,” from social protection to food reserves, to help for poor farmers to adapt to climate change, have become a much more central part of development thinking.

Inequality and redistribution have become mainstream debates, with even the International Monetary Fund weighing in on how high levels of inequality imperil both growth and stability. And the levels are breathtaking. I recently calculated that the amount the world’s richest 100 people added to their wealth in 2012 ($240 billion) would be enough to end extreme poverty for the 1.4 billion people living below the international $1.25 a day poverty line ($66 billion according to the Brookings Institution), four times over! With that focus has come renewed interest in how tax systems and reforms can reduce or exacerbate inequality, both at the national level, and through the international system of tax havens.

Finally, these changes are feeding into a deeper questioning of the nature of poverty itself. As the World Bank’s path-breaking and unsurpassed “Voices of the Poor” study in the 1990s showed, to be poor is as much about anxiety, vulnerability and shame as about income levels. And that anxiety has only been heightened by the turmoil of recent years.

In response, governments around the world increasingly acknowledge the limitations of income or GDP per capita as a measure of well-being, and are developing much more sophisticated metrics — aid agencies are rather lagging behind national governments in this regard.

This more subjective, people-based understanding of well and ill-being may be one explanation for a greatly increased focus on issues of power and agency in development, often linked to issues of the basic rights that are (or are not) enjoyed by poor people. The spread of “rights thinking” on areas such as gender, disability, ethnicity and sexuality appears to be a global phenomenon, bringing significant changes in national legislation and practice in many countries. The challenge for aid agencies is to ensure that their plans and methods, including the pressure to demonstrate “results” and “value for money” reflect this more human understanding of the nature of poverty and power. As the title of my book makes clear, we need to move “from poverty to power” in both our thinking and our practice.

Are we successfully completing an “age of development” or seeing the prize slip from humanity’s hands in an economic and climatic meltdown? It is hard to recall a period when developmental optimism and pessimism co-existed to such a high degree.

The stakes could not be higher. The coming decades will show whether poverty enters the history books, joining slavery and the fight for women’s suffrage, or whether an age of chaos and scarcity starts to reverse the wonderful progress of the last 70 years.

Duncan Green is the author of the book From Poverty to Power and Oxfam GB’s senior strategic adviser. He is launching his book and giving a public lecture at the University of Ottawa on Friday May 10. The event is sold-out, but a recording of the event will be made available soon on YouTube at http://www.youtube.com/user/CCICable.

What’s New in Development? Introducing the Second Edition of ‘From Poverty to Power’

Here’s what the new edition of FP2P adds to the first (in case you want to save yourselves a few quid). This was recently published by the UN University as part of its ‘WIDER Angle’ series

Updating a book on contemporary events can be unnerving. In the intervening years, events and new thinking combine to expose theweaknesses of any text. Even more so with a book like ‘From Poverty to Power: How Active Citizens and Effective States Can Change the World’ (henceforward, FP2P), whose second edition has just been published. In trying to present an overall NGO narrative on development, it offered a particularly rich variety of hostages to fortune.

FP2P’s core argument was that the driving force behind development (understood in the Sen formulation as ‘freedoms to do and to be’) is a combination of active citizens and effective states. Why active citizens? Because people living in poverty must have a voice in deciding their own destiny, fighting for rights and justice in their own society, and holding the state and private sector to account. Why effective states? Because history shows that no country has prospered without a state than can actively manage the development process in terms of infrastructure, rule of law, human capital and industrial upgrading. In addition, the first edition stressed the importance of inequality and redistribution, both in terms of social and economic waste, and social justice.

The three shocks, and a slow-motion train wreck

What’s new in the second edition? An update chapter covers the main events of the intervening years, which it identifies as three shocks: the global financial crisis; the food price spike(s) and the Arab Spring; and a slow-motion train wreck in the form of climate change.

The global financial crisis was a watershed event, triggering historic geopolitical change, including the shift from G8 to G20 and the rise of the emerging powers. It drew attention to the risks of an excessively ‘financialized’ global economy, but failed to lead to a reining in of the excessive size and volatility of ‘hot money’, condemning us to future financial crises, possibly starting with Europe in the coming months. More broadly, the advent of the G20 has failed to re-energise the multilateral system, with global talks on climate change, trade and arms control all paralysed. Some commentators are even talking of a ‘G zero’, with no one in charge.

The food price spike, which in many countries traumatized the lives of poor people to a much greater extent than the financial crisis, reversed a decades-long trend of low and falling prices, thus threatening the long-term progress on hunger and nutrition.  This has led to renewed attention to food security worldwide, but with some unfortunate side effects such as ‘land grabs’ across the developing world by investors from rich countries.

The Arab Spring confirmed the importance of active citizenship in processes of change, and made us think much harder about the role of women (who were very active) in Islamic contexts, along with the granular and complex nature of social movements.

But an even more intriguing aspect of updating the book has been trying to identify how these events, along with the research and ‘public conversation’ of the development world, have changed the way we think about development.

Taken together, the three shocks, along with the growing frequency of extreme weather events, have made us much more aware of the impact of volatility, risk and vulnerability on the lives of poor people. That leads both to a focus on building resilience, and trying to dampen or prevent them in the first place. Shock absorbers, from social protection to food reserves to ‘circuit breakers’ in financial markets, have become a much more central part of the development debate.

Accounting for complexity: shifts in thinking and communicating

But it goes deeper than that. The unpredictability and systemic nature of the shocks has driven home the inadequacy of development thinking predicated on linear processes of change. That raises real challenges for traditional systems of planning and measuring results. Oxfam recently sent a complexity physicist to visit its programme in northern Kenya, and the insights from this kind of interdisciplinary work are likely to play an important role in transforming our thinking in coming years.

A further consequence of systems thinking is that we are trying to work out the implications of seeing the world’s ecosystem as a closed system, operating within clear planetary boundaries. Kate Raworth’s work on how to combine these planetary boundaries with a ‘social floor’ has great promise in this area.

Over the last five years, the nature of authorship itself has been transformed by technology. The From Poverty to Power blog, initially launched to promote the first edition, has rapidly acquired a life and readership of its own. It has also provided the first draft of many of the updates incorporated into the second edition. Twitter has only added to the daily churn of links, ideas and opinions. Wrestling to impose a coherent narrative on the greatly increased information flood is one of the growing challenges of authorship.

So how has the first edition survived the assault of history?

I think the central argument still holds—that development happens primarily through the interaction of citizens and states, with aid and the global system playing only a second order role. However climate and finance are two examples of collective action problems that cannot be resolved at national level. The paralysis of international action in those areas is perhaps the darkest cloud on the development horizon, threatening to reverse sixty years of unprecedented human progress.

Inequality and redistribution have become far more mainstream debates, with even the IMF weighing in on how high levels of inequality imperil both growth and stability. Tighter constraints placed by ecosystem boundaries (for example on the right to pollute), further heighten the importance of who gets which slice of the pie.

Many people, both inside and outside Oxfam, have questioned the absence of the private sector from the citizen-state binary. My response has been that an effective state creates the enabling conditions in which private enterprise can flourish. However, I now think that I, along with many others, confused and conflated the roles of private sector, markets, and economic power. The lacklustre response to the financial meltdown has demonstrated the central role of economic power, and we do need to make the visibility and regulation of economic power a more central part of our narrative.

Finally, one area of the first edition has expanded enormously in the last five years, its focus on ‘how change happens’. Better understanding of processes of change, and the accompanying analysis of the distribution and redistribution of different kinds of power within change processes, is rapidly becoming a central component of development thinking at Oxfam and many other development agencies. It is also the subject of my next book—now there’s a hostage to fortune!

And in case you missed it, here’s me coveringe the same ground on video, reading an autocue, waving my arms and looking slightly deranged

‘As serious as a heart attack’: Robin Hood Tax Global Week of Action Kicks Off

Update on substantial progress (and the risk the money raised won’t go to development and climate change) from Oxfam head of advocacy (and generally merry man) Max Lawson

This week sees a Global Week of Action for the campaign for the Robin Hood Tax (aka the Financial Transactions Tax, or FTT). The FTT rose to prominence as a result of the financial crisis, which continues to keep it in the spotlight as Greece stumbles towards the euro exit, not least because journalists are desperate for fresh ways to report a crisis that is simultaneously huge news and desperately dull. So from Cape Town to Paris, campaigners are pulling on their green tights and fat cat costumes, starting with a wedding in Berlin for Francois Hollande and Angela Merkel (right).

In policy land, a revised impact assessment of the FTT by the European Commission was obtained by the Guardian.  The new assessment shows that the EC got its numbers wrong in a previous study that was seized upon by the FTT’s opponents. Recognizing that the majority of small and medium size firms do not rely on financial markets for investment (and so their access to capital would be unaffected by an FTT) reduces the cost to growth of an FTT to a tiny 0.2% reduction on a total predicted growth of about 80% between now and 2050.  Moreover, if the revenues from an FTT (€57 billion a year according to the EC) are invested in creating jobs, then this tiny negative then becomes positive so that an FTT would actually boost growth in Europe. Got that? An FTT is pro-growth. Alas, such positive conclusions are unlikely to make it into any speeches by David Cameron or the front page of the Financial Times.

The pressure on EU leaders is extreme.  The political debate is shifting from austerity to growth, with Angela Merkel faring poorly in some major state elections, and the victory of the socialist party in France. Monsieur Hollande has highlighted the FTT as one of the three main ways to boost growth in Europe.  The FTT is going to figure highly in the EU leaders’ ‘Growth Summit’ on 22nd May. The Wall Street Journal made the link last week, saying that ‘even if they are calling for an FTT, at least the left are talking growth’. 

With millions across Europe facing unemployment and serious suffering, especially in Greece, it is great to finally hear leaders speaking out against the death spiral of austerity and recession.  It is also great that the FTT is one of the key things being cited to help with this.  The Robin Hood Tax has always been about helping the poorest in developed nations as well as helping finance the fight against climate change and poverty in developing countries.  If the proceeds of a tax on the unproductive and destabilising casino behaviour of the financial markets is used in part to create jobs and protect public services in Europe this would be a great redistribution and a great thing.

But this is also the biggest threat.  With global aid levels falling, and the Green Climate Fund sitting empty, revenues from the FTT are vital for global, as well as domestic causes. Before the election, Francois Hollande said publicly he would favour up to 30% being used in this way, but he has been ominously silent since.  Just last week in a closed door meeting with the heads of major NGOs, Chancellor Merkel reiterated her support for doing this.  But the exigencies of austerity and the European crisis make this far from certain.  Green groups in particular need to pile the pressure on France and Germany, ahead of next month’s Mexico G20 and Rio Earth Summit.  

I was in South Africa last week for meetings with civil society and government G20 negotiators.  South Africa has a strong interest in a successful Green Climate Fund. They agreed to speak to Brazil and Argentina as the three countries outside Europe that joined the FTT ‘coalition of the willing’ at the G20 in Cannes, focusing on supporting an FTT for funding development and climate change. Pressure on France and Germany from these governments will be critical.

In the US, the G8 is taking place today, and President Hollande has promised to raise the FTT in discussions with fellow G8 leaders.  The Robin Hood Tax USA campaign is also being launched, by thousands of nurses dressed as Robin Hood, marching in Chicago. Interviewed on US news recently, the head of the US National Nurses Union was asked by the presenter whether she was serious; she replied ‘we are as serious as a heart attack’.

And in place of the customary Bill Nighy video, here’s a nice infographic

Is this the UN’s most powerful critique to date of finance-driven globalization?

Ten years ago, Supachai Panitchpakdi was in charge of the World Trade Organization as it led a global push for the liberalization of trade, investment and just about everything else in the early days of the Doha Round. The talks ran aground (they still aren’t concluded) amid a big pushback from many developing countries (backed by organizations like Oxfam) against the free market fundamentalists. Now Supachai is in charge of UNCTAD and has just written (or at least put his name to) one of the most comprehensive critiques of the WTO model of globalization that I’ve seen from an official body. ‘The World Turned Upside Down’ is his report to UNCTAD’s upcoming meeting in April (UNCTAD XIII – they’re held every four years) and it’s a punchy, outspoken and well written document. From the UN. That’s correct. Some highlights:

On the role of the state: “When things fall apart, the state remains the only institution capable of mobilizing the resources needed to confront large and systemic threats. The idea that the nation state had somehow outlived its usefulness in a borderless world was never very serious. Since the state is pivotal to establishing an inclusive social contract and strengthening participatory politics, it is both imprudent and unrealistic to reduce or bypass its role in managing economic development and change. The more worrying trend in recent years has been the growing influence of financial markets in bending public policy and resources to their own needs and interests – leading a former IMF chief economist to warn of a “quiet coup” – including in the post-crisis period.” Further down Supachai “stresses the critical role of the developmental state”.

A sideswipe at the Washington-based institutions: “Neither IMF nor the World Bank, having abandoned their original raison d’être to the siren calls of unregulated financial markets, have been able to forge a vision of a postcrisis world economy consistent with changed economic and political realities.”

What’s the problem?  “I have chosen the term finance-driven globalization (FDG) to characterize the dominant pattern of international economic relations during the past three decades. This is intended to convey the idea that financial deregulation, concerted moves to open up the capital account, and rapidly rising international capital flows have been the main forces shaping global economic integration since the breakdown of the Bretton Woods system. Financial markets and institutions have become the masters rather than the servants of the real economy, distorting trade and investment, heightening levels of inequality, and posing a systemic threat to economic stability. The latest crisis has served as a further reminder that FDG is a political project and is, therefore, the subject of legitimate discussion and debate. To date, the response has largely been one of muddling through, with ad hoc measures to mitigate the damage from economic shocks, informal partnerships to tackle global imbalances, and impromptu alliances to push for greater market transparency.”

And the solution? “Finding the appropriate mixture of reflation, redistribution and regulatory measures to achieve these goals is now the urgent task of policymakers, at the international as much as the national level. I have chosen the term development-led globalization (DLG) to describe the principles, priorities and policies that need to be pursued to turn tentative recovery into an inclusive and sustainable future. Reforming the financial system is the place to begin. Even before the crisis, it was clear that stable and inclusive development was incompatible with speculative market behaviour, boom-and-bust cycles, and the austerity programmes to which they invariably lead. It is telling that the emerging success stories from the South have, in large part, pursued policies that have avoided these dangers. Finance needs to get back to the business of providing security for people’s savings and mobilizing resources for productive investment.”

But solutions go beyond economic policy:  “An inclusive development agenda cannot depend on economic policies alone. Under FDG, the stresses and burdens of unregulated markets have, all too often, been shifted to individuals and households and, in countries where social welfare systems exist, to government budgets. In many cases, unprecedented increases in income inequality have gone hand in hand with underfunded public services and rising levels of household indebtedness. The resulting cost to economic security and social cohesion has been enormous. Even when growth has accelerated, as it did in many developing countries between 2002 and 2008, too many people were left behind. A balanced economy depends on a strong social compact which, in turn, requires a range of universal and targeted social policies, tailored to specific circumstances, to ensure that the benefits of growth are widely enjoyed and its risks are shared fairly. The crisis has confirmed UNCTAD’s long-standing insistence on the importance of policy space…. Each country must be able to experiment and discover what configuration of institutions and governance works best in its circumstances and in line with the expectations of its population.”

Conclusion? “Rebalancing is not a narrow technocratic challenge.  A true break with the fundamentalist thinking underlying FDG will involve a change of attitudes, morals and values.”

Stirring stuff. The only shame is that these days UNCTAD, which in the 1970s and 80s led calls for a ‘New International Economic Order’, often seems such a marginal voice in the international scene. Yet in an era of FDG crisis, perhaps its hour has come again?

How will political and economic shocks drive social change? Please help me write a paper…..

Something almost unprecedented has occurred – I’ve finished an article early. Oxfam Peru is a redoubt of intellectuals and every year publishes an annual collection of essays on the state of Peru and development in general. This year they’ve asked me to focus on shocks and change, so I’ve donned my false beard and cardigan and had a go. Here is a short summary of a longer (2,500 word) paper. All suggestions for improvements welcome, either based on the summary below or the full paper.

As we face a world where multiple overlapping shocks (political, economic, ecological) seem inevitable, it is worth considering (if only to cheer ourselves up), what underlying changes they are likely to trigger.

In 2012, we can foresee some shocks – the ‘known unknowns’ in Donald Rumsfeld’s useful typology (about the only worthwhile aspect of his legacy). Financial crises are likely to continue their forty year trend and become more frequent and more catastrophic, with the Eurocrisis the most prominent of today’s risk hotspots. For many poor communities, repeats of the food price spikes of recent years would be even more devastating than financial meltdown. Thirdly, the current rate of climate change appears to be outpacing even the most pessimistic projections of climate scientists, promising further increases in the frequency and severity of ‘extreme weather events’ . The international community currently appears paralysed in response, but eventually a rethink of humanity’s relationship to nature is the only way to avoid catastrophe.

First, the ongoing global financial crisis. Looking forward, the most likely source of further financial turmoil is a disintegration of the Eurozone and ensuing recession. The most immediate impact outside Europe would be on those countries most integrated with the EU economy (e.g. North Africa and Eastern Europe and Central Asia). Were the Eurocrash to lead to another drying up of global financial flows, there would be wider knock on effects on financially integrated economies in Latin America and elsewhere, via bank shutdowns and the collapse of trade finance as in 2008.   A euro-crash might revive interest in re-regulation, but it could also undermine the global standing of positive aspects of the European model, such as inclusive state welfare systems and labour rights. There are risks and opportunities in abundance here, and progressive movements will need to engage far more with issues of financial architecture and regulation in the years to come.

Rises in food prices, like those in transport fares, have a long history of triggering social unrest and the recent spikes are no exception. Such unrest has been credited as a factor (one among many) in the insurrections of the Arab Spring, has prompted deep changes in how governments think about food, leading to greater attention to building national food security and reducing dependence on volatile international trade. While this has some positive aspects – for example, an increasing level of investment in smallholder agriculture in many countries – it has several extremely negative ones. Countries with money but little food production have resorted to a series of land grabs to obtain long-term access to food supplies, often at the expense of local populations. Food exporters have reacted to high prices by slapping on export bans in the hope of bringing down their domestic prices and securing supply, thereby pushing up world prices still further, to the detriment of food import-dependent countries. Again, progressive coalitions will play an essential role in seizing opportunities and minimising risks created by food shocks.

Since the Second World War, massive economic growth based on fossil fuels has brought material benefits to millions. But now we are entering an age of global scarcity – of water, fertile soil and, above all, carbon. Here the historical record on shocks and change is not encouraging. Much of the technology required is already there or nearly there. But the only precedent for this kind of rapid technological transformation is the wholesale shift of industrial plants to producing arms during wartime. And the difference in this case is that we cannot wait for external shocks to trigger action. By the time sufficient climate chaos strikes the main carbon emitters, forcing them to rework their economies, it will already be too late for much of the world’s tropical belt (where its poorest people live) and the polar ice caps.

Extreme weather events, perhaps especially those in the geopolitically powerful countries, will provide key opportunities to press for the kinds of change required. Progressive forces will need to become more adept at recognizing and seizing such chances as they arise.

Conclusion
Certain underlying challenges emerge from all three forms of shock. Whether through an accident at work, sickness, crime, drought or flood, the lives of poor people are characterised by the almost total absence of security and safety nets. Increasingly, the attention of governments and aid agencies is turning to ways of tackling such vulnerability by building nascent welfare systems in poor countries. This is echoed at a global level in the efforts to stabilise the wild gyrations of financial markets. Dampening volatility (and ameliorating its impacts) is likely to play an increasing role in development thinking.

A second overarching challenge is inequality. In a world of ecological limits, trickle-down economics that feeds the poor with crumbs from an ever-expanding cake is no longer an option. Whether within or between countries, distribution and redistribution of wealth, power and opportunity within a bounded system will become more urgent and important than ever. The resolution of such debates will be highly political, requiring profound shifts in the relationships between less and more powerful communities and individuals. It may not be a peaceful process.

Responses to both financial, food price and ecological shocks require a combination of global coordination and local action. Global coordination is essential if countries are not to indulge in beggar-they-neighbour tactics that become self defeating; and local interaction between active citizens and effective states lies at the heart of successful development.

And successful development is what is at stake. For all that still remains to be done, the 60 years since the decolonization of much of the world has seen unprecedented progress, a veritable ‘age of development’ in terms of education, literacy, life expectancy, poverty reduction, improved health or the spread of human rights. Those gains are now threatened by the pitiless buffeting of financial, food and environmental shocks. Whether these shocks are allowed to wreak disaster, or become catalysts for the many changes needed to complete the development journey will be the ultimate test of our species in the decades to come.

Emerging v Developed Countries: high speed history

This week’s Economist has a striking update on the historically breakneck shift in the global balance of economic power towards the ‘emerging economies’. It uses the IMF’s pre-1997 categories of developed and developing (now rebranded ‘emerging’) to avoid the confusion caused by the upgrading of countries to developed status as they get richer.

“The combined output of the developing economies accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990 (see chart, left hand side). On reasonable assumptions, it could exceed the developed world’s within seven years. If GDP is instead measured at purchasing-power parity, which takes account of the fact that lower prices in poorer countries boost real spending power, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. Even more impressive, they accounted for three-quarters of global real GDP growth over the past decade.

The upstarts also loom larger on many other measures (see chart, right hand side). A landmark was reached last year when emerging economies’ exports edged above half of the world total, up from 27% in 1990. Their rising income has also sucked in more imports, which jumped to 47% of world imports last year. Developing countries accounted for more than half of America’s exports in 2010.

Emerging economies scored another first last year by attracting over half of all inflows of foreign direct investment (FDI). Foreign firms are increasingly lured by these countries’ fast-growing domestic markets as much as lower wages. Their share of outward FDI was a more modest 29% but it is rising rapidly, thanks partly to China’s ample financial resources and its need for raw materials. Commodity consumption is where emerging economies really dominate the world: they consume 60% of the world’s energy, 65% of all copper and 75% of all steel. [They also produce most of the greenhouse gases.] Yet there is plenty of room for growth. Emerging markets use 55% of the world’s oil but average oil consumption per person is still less than one-fifth of that in the rich world.

This year emerging economies are likely to account for over half of all capital spending, up from 26% in 2000. China and India have invested a rising share of their GDP over the past decade, in sharp contrast to rich countries. In 2010, America’s investment was a paltry 16% of GDP, compared with 49% in China. Emerging economies’ share of global consumer spending is only 34% (up from 24% in 2000), but this is partly because housing and services are cheaper than in rich economies. Much more important for Western companies is their 46% share of world retail sales, 52% slice of all purchases of motor vehicles (up from only 22% as recently as 2000) and 82% share of mobile-phone subscriptions.

Emerging economies still punch well below their weight in commerce and finance, but are catching up fast. Almost a quarter of the Fortune Global 500 firms, the world’s biggest by revenue, come from emerging markets; in 1995 it was only 4%. Emerging economies’ share of world stockmarket capitalisation has surged to 35%, more than three times their share in 2000. They hold an impressive-sounding 81% of governments’ foreign-exchange reserves, but the bulk of private-sector wealth still lies in developed countries. Jonathan Anderson, an economist at UBS, estimates that emerging markets hold about a quarter of global financial assets (cash, stocks and bonds), double their share only ten years ago.

Emerging economies’ lowest score is on debt: they are responsible for only 17% of all outstanding government debt. Over the coming years, massive debt burdens will be a drag on rich countries’ growth. The long-term outlook for emerging economies remains bright, with less debt, more favourable demography and huge potential to lift productivity.

Two decades ago economic models treated the developing world like a dog’s tail, wagged this way and that by rich countries but too small to affect them. Now the tail wags the dog. Their greater weight and speed mean emerging markets drive global growth, commodity prices and inflation.”

That economic shift transforms the balance of power. According to the Guardian, when the US lost its triple A credit rating on Friday:

‘In a comment article the official Xinhua news agency said China had “every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets. International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”‘

The pace of change is dizzying, and could be about to accelerate even further.