|Robert B. Zoellick
In a village in the mountains of Guizhou Province, China – a village like others in Africa, Central America, or India – people assemble to discuss the future. They don't want handouts, they don't want policy prescriptions, they certainly don't want lectures from visiting dignitaries. They want a chance. They are ready to leave the past behind. Are we?
Two eminent Harvard professors of government and history, Richard Neustadt and Ernest May, combined their experience in a book titled Thinking in Time. So-called “Lessons of History,” they argued, were often misused – and led to bad decisions. History was better, they said, for helping people to think in “time streams” by considering present issues within a continuum of experience and future possibilities. History suggested questions rather than supplied answers.
So what questions, what future possibilities should we be considering in the uncertain Autumn of 2011? And how do today’s challenges relate to what has gone before?
The World Bank Group’s upcoming Annual Meetings are a distant descendant of a gathering in 1944, when representatives from 44 states met in Bretton Woods, New Hampshire. In 1944, the world was still at war, a conflagration that extinguished some 60 million lives. The task at hand was daunting: to ask why the diplomacy and the economies of 1919 failed so terribly in the 1920s and 1930s; to devise a new multilateral international economic system; to win the peace and rebuild for the future.
That historic conference laid the groundwork for three projects that formed the basis for what we still refer to today as the Bretton Woods system: A project for the International Monetary Fund to finance short-term imbalances in international payments to manage adjustments in exchange rates, so as to avoid “beggar thy neighbor” currency competition and capital outflows that could break economies and societies; A project for the International Bank for Reconstruction and Development, today’s World Bank, to make long-term capital available to states needing investment and assistance, so countries could grow, buy from one another, and offer hope to war-weary societies; And a project to reduce barriers to international trade, to foster open markets, to resist downward spirals of retaliatory protectionism and economic conflict.
The architects of Bretton Woods created a system designed for their world. Let’s take a moment to recall that world. In that world, even amidst the post-war devastation, developed economies’ share of global GDP was about 80 percent, with the United States alone accounting for over 40 percent. In that world, developed economies accounted for over two thirds of trade. In that world, most of today’s developing countries were still colonies.
For almost seventy years now, the multilateral architecture of 1944 has persisted. It has creaked and groaned – with currency and oil shocks in the 1970s, developing countries’ debt debacles in the 1980s, and expansions and crashes in the 1990s – but the system has remained broadly intact.
For all its weaknesses, critics, and patch-ups, the Bretton Woods system provided the enabling framework for the greatest era of growth and the largest, most successful, economic transformation over the shortest time in history. Some nations doubled their GDP per capita in a decade rather than the quarter century it had taken the now industrialized countries in the 19th Century.
But the Bretton Woods system itself is not inviolate, cast in stone for all time. The key insight the Founders of Bretton Woods left us was the need for wisdom to recognize when something qualitatively new is going on, and for the wit and will to face and accommodate what’s new – to act boldly, decisively, yet cooperatively.
Today, history’s warning lights are flashing again: red, yellow, and yes, some green, too. Will we face the challenges of 2011 with nostalgia, with a longing for times past? Will we face them with denial, with our heads stuck in the sand? Will we face them with blame, with acrimony obscuring the potential? Will we face them with timidity? Or will we face the challenges squarely, constructively, creatively? Will we reason from experience, but think afresh for our own times? Will we recognize drastically changed circumstances and find a pathway to allow for all men – and women – from all countries to advance side by side?
II Tectonic Plates are Shifting
As with every great historical shift, we need to ask questions about what is really going on. Tectonic plates are shifting. In the 1990s, developing countries accounted for about a fifth of global growth. Today, developing countries are the engine driving the global economy. In the 1990s, developing countries accounted for a little more than 20 percent of global investment. Today they attract about 45 percent. Over the past ten years, developing countries have grown nearly four times faster than developed, and that trajectory is expected to continue. Some forecasts estimate that by 2025, six major emerging economies – Brazil, China, India, Indonesia, the Republic of Korea, and the Russian Federation – will collectively account for more than half of all global growth.
Already we live in a world where, if China’s 32 provinces were countries – and the provinces are more populous than most states – they would be among the 33 fastest growing countries in the world over the last 30 years.
Today, China is consuming over half of the world’s cement; almost half of the world’s iron ore, steel, and pigs; a third of the world’s eggs. Today, China is the world’s biggest consumer of minerals such as copper, aluminum, and nickel. Today, net FDI inflows into China are around $180 billion, up from some $40 billion just ten years ago. As China shifts from building a foundation of growth, some of this demand for materials and minerals will ease – but India will be next to gear up. This is not the 1944 world.
But beware of assuming straight-line trends. As China’s leaders know, the country’s successful growth model is unsustainable. China is recognizing that it needs to face challenges of environmental degradation, inequality, resource use, demographics, productivity growth, and over-reliance on foreign markets.
If China reaches $16,000 of income per person by 2030 (up from today’s $4,000) –a reasonable possibility – the effect on the world economy would be equivalent to adding 15 South Koreas. It is hard to see how that result would be sustainable within a model of export-and investment-led growth. I am also skeptical of predictions of advanced economies’ inevitable decline. With credible and definitely possible action – not just short-term fixes – on debt and deficits to restore confidence, and with a focus on structural and tax reforms to spur private sector growth, boost productivity, and create jobs, advanced economies can turn around and power ahead. Predictions of inevitable stagnation and decline -- from the Central European pessimism of Oswald Spengler to the stagnation hypothesis of the distinguished Harvard Keynesian Alvin Hansen -- have time and again proved to be wrong.
Nor is it a time to say developed economies can no longer afford to face up to challenges beyond their borders. In 1947, in the United States of Harry Truman, an average American produced less than a third of what each American produces today. If the generation of 1947, with less than one third our wealth per person, could face the world boldly – shouldn’t we be able to do the same?
Americans, Europeans, Japanese, and other developed world countries play vital roles in innovation, investment, technology, security, and, yes, development. Their contributions still provide the underpinnings of the current international system. It is in the self-interest of the major developed states – and in the global interest – to be, with others, architects of the future.
Something fundamental is going on, but the lesson is that we must modernize, not abandon multilateralism. Something fundamental is going on, but the lesson is that we must democratize development, not retreat behind borders or cloak ourselves in the false warmth of old verities. The lesson is that we must change our old concepts and constricting labels, not our multilateral commitment. Listen to those labels for a moment.
“First World” and “Third World,” “North” and “South,” “developed” and “underdeveloped,” “advanced” and “emerging,” “donor” and “recipient,” “provider” and “supplicant,” “rich” and “poor,” “them” and “us.” The language of development has been the language of old hierarchy. Old World. Old Order. And not without a whiff of hypocrisy.
When countries that produce almost 50 percent of their electricity from coal tell poorer countries with no energy alternatives that they cannot use coal – what are they really saying? “Do what I say, not what I do.” When countries with large fiscal deficits preach fiscal discipline to poor countries – what are they really saying? “Do what I say, not what I do.” When countries pay homage to free trade but hold back developing countries with barriers, what are they really saying? “Do what I say, not what I do.” When countries advocate debt sustainability for the poorest, yet have debt levels at historic heights, what are they really saying? “Do what I say, not what I do.” A “do what I say, not what I do” world economy will fracture, to the detriment of all. The old ways can and must change.
By Robert B. Zoellick
President,World Bank Group