A role reversal for supremacy
By Andleeb Abbas
IF one had thought the end of the year 2007 will end the gloom and doom that has hit the world economy, the start of the year 2008 has not brought about the relief each one of us was hoping for.
The world has been shaken by recession in America, and as stock markets tumbled all around us, questions as to the impact of globalisation, the belief that Asian markets have delinked themselves from American market trends and whether the world will ever be free and fair, tend to dominate all wary and searching minds.
Let us take America, the rest of the markets, and Pakistan to gauge the impact of these trends on their respective economies. America as we know has been under political and economic stress in the last many years. George Bush has all the traits a leader should not have. He is myopic and thus has no vision. He is arrogant and thus will never learn from his mistakes. He is surrounded by incompetent bootlickers and thus would not have the support of a team who could assist him in crisis management. With this chronic malaise it was inevitable for America to reach its lowest level of popularity and invincibility in the world.
The US recession is triggered by three unstoppable forces: the housing slowdown; high oil prices; and higher interest rates. The US consumer, already burdened with high debt and falling real wages, will be hard hit by these shocks. About 30 per cent of US employment in the latest recovery had been related to housing. With this collapse, unemployment and lack of disposable income will be worse off.
Of course, a recession in America would reduce emerging economies’ exports, but they are less vulnerable than they used to be. America’s importance as an engine of global growth has been exaggerated. Since 2000 its share of world imports has dropped from 19 per cent to 14 per cent. Its vast current account deficit has started to shrink, meaning that America is no longer pulling along the rest of the world.
Fears that 2008 will see the looming recession in the US spreading to every other continent triggered a global crash in share prices in the UK as well, wiping £77bn off the value of the City’s blue-chip stocks in the biggest one-day points fall in London’s history. Since the start of the year share prices have dropped by 14 per cent, with the near 900-point fall in the FTSE 100 wiping out all the gains of the last 18 months and putting renewed pressure on pension funds.
The emerging markets have fared much better. Growth in emerging economies has quickened, partly thanks to demand at home. In the first half of 2007 the increase in consumer spending (in actual dollar terms) in China and India added more to global GDP growth than that in America.
This does not mean emerging economies will grow fast enough to make up for the entire fall in America’s output. Most of them will slow a bit next year: for instance, China’s growth rate may dip to ‘only’ 10 per cent. Global growth will ease — which, after five years at an average of almost five per cent, is close to its fastest pace ever. But thanks to the vigour of the new titans, it will stay above its 30-year average of 3.5 per cent, while the West will hardly grow at two per cent.
While share prices have been falling in the US and UK, share prices in the emerging markets, including Pakistan, have been rising. The immediate effect of the US depression was a tumbling of stocks all across the world including Pakistan, but the impact on emerging markets is not as deep as historically it has been.
The role reversal for supremacy has started. Military might alone is insufficient in today’s world to give you the right to rule the world. Increasingly it is economic strength which makes countries rise and rule. For a long period of time it was America and Europe which produced and sold every thing worthwhile in the world.
Today the Asian giants are making deep inroads into these areas of dominance. The multinational structure was invented by the Americans to dominate by sheer scale and scope in most parts of the world. The scope expansion was fuelled by the strategy of mergers and acquisitions where they would simply go into another country, buy local companies, and make them part of the multinational system. The turnover of these multinationals was many times more than the GDPs of smaller countries.
General Electric with its revenues of almost $150bn can outdo the GDP of Pakistan and many other countries. Thus the political subjugation by British colonialism and American imperialism was replaced by economic dominance of the multinational where the Cokes and Pepsi economies of scale and the prevalence of pop culture became the ‘lifestyle’ determinants for most part of the world. However, the end of the last century saw the emergence of Japanese and South Korean conglomerates as serious threats to the American dominance while the beginning of this century saw China and India turning the tables on the world.
The prestigious American and British auto industry was under attack previously from Japan and recently from India. Ford bought Jaguar but could not handle it and finally sold it to Tata of India. Mittal steel has taken over Arcelor from France and Tata has taken over Corus steel from UK. Chinese brands are now threatening another industry in which Americans used to rule the world, that is, computers. Lenovo computers of China have bought over IBM’s personal computer business.
No wonder the Americans have been so desperate to seize control of the most precious resources in the world by hook or by crook. The oil confiscation in Iraq and Afghanistan by American military might is a substitute for the British ploy of enslaving their colonies and using their cheap labour and resources to establish new innovations at home to rule the world.
It is sad that at a time of such fortune flowing from North and West to South and East, Pakistan has been facing such internal turmoil that it has been unable to capitalise on this huge opportunity of becoming a hub of international outsourcing of services and also a natural partner for South Asian countries to spread and share the fruits of relatively cheap skilled labour and a huge consumer market.
It is time for the forthcoming political managers of this country to realise that our US dependent policy has not only lost its political mileage but its economic advantage as well. It needs to link itself economically with markets in the south to keep abreast with a world where the Asian prominence will supersede the western dominance.

