Robert J. Shapiro November 4 th 2008. The New Economics of Globalization The New Demographics of...
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Transcript of Robert J. Shapiro November 4 th 2008. The New Economics of Globalization The New Demographics of...
Robert J. Shapiro November 4th 2008
• The New Economics of Globalization
• The New Demographics of Nations Aging
• The New Geopolitics of a Sole Superpower
The Forces Changing the Course of Nations
• Global exchanges soar: 1990 – 2006, share of worldwide GDP
traded across borders up from 18% to roughly 30%.
• 2005: 180 national economies trade over $12 trillion in goods and services (out of $42 trillion world GDP), the highest levels and the largest increases ever.
• U.S. imports top $2.2 trillion (2006), more than the GDP that year of all but five other countries.
The New Landscape of Globalization
• Traditional trade: Commodities from developing economies, manufacturing in advanced economies, and finished goods marketed among advanced economies.
• Modern globalization: FDI – driven networks of sophisticated operations around the world, to produce, market and sell everyone to the world.
Globalization Versus Traditional Trade
• Rapid modernization and growth, based on transfers of modern business organizations (FDI), investments in education and infrastructure, and reforms to allow more foreign and domestic competition.
• East Asia, versus Latin America, versus Africa: Case studies in the difference that public investment, macroeconomic stability, political stability, and FDI make.
Impact on Developing Nations
Impact on Advanced Economies
• Ideas replace physical assets as main source of wealth and growth in developed economies:
– US firms invest more in tangible assets than in physical assets;
– 1980: Market value of the physical assets of top 150 U.S. public companies = 75% of their stock value; 2004, this “book value” of the top 150 companies = 36% of the value of their shares.
– Nearly two-thirds of the value of large companies now comes from what they know and the ideas and relationships they own.
– Impact on US growth, productivity and incomes, versus Europe and Japan
• Intense global competition holds down inflation and interest rates;
• When intense competition collides with rising fixed costs, the link between growth and job creation is weakened;
• Same combination weakens the link between productivity gains and wage progress
• Result: Globalization reduces job opportunities and income gains for all but those most adept in an ideas – based economy
Impact on Advanced Economies – 2: The Case Study of the United States
• Focus on education and
infrastructure, like East Asia– 1990s: 5% GDP to infrastructure (2 x EU)
– Free university access
– 2005: 37% 25-34 year olds with post-
secondary training, versus EU 27%
• Policies to draw FDI, like China– 2004: Irish FDI stock, as share of GDP, 10 x
Germany, 5 x France, 4 x UK
Ireland: A Developed Economy Uses a Developing Nation Strategy
• Is a global recession in the cards?• The impact of a serious downturn
in advanced countries on trade and FDI
• The impact on politics: Rising demands for economic security
• How governments should respond
Will the Global Crisis Change These Dynamics?
• The historical uniqueness of an unusually large generation followed by an unusually small one, now happening across the world.
• Why: The spread of basic modernization, changing roles for women & technological advances.
• Result in most places: Average age of national populations rising quickly
• Signs of aging populations: elderly populations growing 3%/year in most advanced countries.
• Why Ireland is different
The New Demographics
• The problem for Europe and Japan: 2005 – 2020, the number of elderly people will increase 35%-50%, as the working age, tax-paying cohort shrinks.
• Early costs of these changes: Falling saving, investment, and growth rates Fewer sources of revenues as demand for public
goods rise sharply.
• Longer term challenges: The political battles over pensions and health care.
The New Demographics -2
Impact for Different Countries
• Hit very hard: Japan, Italy & Russia
• The hard time facing France and Germany
• Why China will be less affected, even with the world’s fastest aging population
• How Ireland and US can avoid many of these costs for a generation
– Role of immigration
– Role of public pension policy
– Role of globalization-based economic policies
Demographics and Prospects for Ireland and the US
• How the combination intensifies inequality
• The crisis of financing health care Fast–rising numbers of older people, meets,
concentrations of serious illness in older people, and fast-rising costs to treat those conditions
The increasing role of regulation
• Ireland’s trump: The relatively small numbers of elderly Irish
Demographic Shifts Meet Globalization
• The effects on economic growth
– Spectre of a generation of slow growth for Japan, Germany, France, Italy and others
– Why the outlook is better for the U.S., China and Ireland
Demographics Meets Globalization - 2
• Historical anomaly of a sole military and economic superpower with no near peer – the United States.
• Iraq War: The test the superpower passed and then failed
• Importance of collaborative arrangements for on-going challenges – trade, finance, terrorism, drugs, climate
• The inescapability of US leadership
The New Geopolitics
The New Geopolitics & Globalization• The two poles of globalization
– U.S. (Western Pole) – where new ideas are born and spread first.
– China (Eastern pole) – the world’s production and assembly platform.
• US- Sino comity and conflicts
• The global challenges:
– Energy and Climate Change– The new petro-politics – Russia, China and
OPEC– Terrorism and Islamist fundamentalism
• Its origin in globalization
– The globalization of capital– Role of global competition in asset bubbles– The role of America market ideology
• Tensions between national and global solutions: Whither the EU?
• The outlook: How long and how bad?
A World in Financial Crisis
• Strategy combining public investments (the path of the Asian Tigers) and waves of foreign investments (see China)
– Public education spending up 150% since 1985
– Tax and other preferences for foreign firms
– Small welfare provisions
– Geography (EU) and the value of low wages
– Direct transfers focused on idea-based sectors – IT, pharmaceuticals, medical equipment, financial services
– Language
Why Ireland Has Succeeded
• Can avoid the economic costs of aging population and the public pension crisis looming for other countries
• High growth rates will likely settle down
• Can Ireland end its “dual economy,” wean itself from dependence on FDI, and promote productivity spillovers to domestic firms, especially in services
• Implications of recent education, tax and health care policies on FDI and long term growth
• Unsettled: Competing with the accession countries
The Future for Ireland