EMERGING CHALLENGES : WHAT'S IN STORE FOR THE NEW GLOBAL POWERS / DER SPIEGEL

10/16/2013 06:47 PM

Emerging Challenges

What's In Store for the New Global Powers

An Essay by Erich Follath

China, India and Brazil are taking the global economy by storm, becoming more politically confident on their way. But even as they form a front against the West, they will have to tackle slower growth and major domestic problems that their newly prosperous citizens are no longer willing to tolerate.

What will be the world's most important cities in the future? To answer this question, the US-based journal Foreign Policy and the McKinsey Global Institute examined criteria such as economic growth and receptiveness to technology. The result? Shanghai edged out Beijing and Tianjin, followed by the first non-Chinese mega-city, São Paulo in Brazil. No Western European city ranks among the top ten "most dynamic cities." Berlin, Frankfurt and Munich don't even appear among the top 50, but other cities in China, India and Brazil do. If we are to believe the study's conclusions, humankind will be speaking Mandarin, Hindi and Portuguese in its urban centers in 2025. "We are witnessing the biggest economic transformation the world has ever seen," the experts say.

And what are currently the most competitive countries in terms of industrial production, and what will they be in the future? The management consulting firm Deloitte Touche Tohmatsu has established that China is now ahead of Germany, the United States and India. But according to the projection, for which 550 top executives of leading companies were surveyed, the hierarchy will already have shifted by 2017. Germany and the United States will drop out of the top ranks, and "old" powers will no longer lead the pack, having been replaced by China, followed by India and Brazil.

What's more, according to the 2013 United Nations Human Development Report, "the rise of the South is unprecedented in its speed and scale." For the first time in 150 years, the combined output of the developing world's three leading economies -- Brazil, China and India -- is about equal to the combined GDP of the longstanding industrial powers of the North -- Canada, France, Germany, Italy, United Kingdom and the United States. In addition, this year Beijing will, for the first time, import more oil from the OPEC countries than the United States.

Getting in on Western Commerce

It isn't just the sheer land mass and huge numbers of consumers in these three countries, which make up close to 40 percent of the world's population. China, India and Brazil are also stunning the world with their impressive performance in many areas, including research and technology. The owner of the world's biggest beer brewery is Brazilian billionaire Jorge Paulo Lemann, who acquired US-based Anheuser-Busch. The South American country is also considered an international leader in food research. São Paulo, together with the surrounding area, is the world's top location for German business, with about 800 branches of German companies headquartered in the area. Brazil has literally taken off, providing a home to Embraer, the world's third-largest aircraft manufacturer after Boeing and Airbus. And Rio de Janiero is an undisputed party capital, especially now that the city has been selected to host the 2014 World Cup and the 2016 Summer Olympics.

The most expensive private residence in the world, owned by entrepreneur Mukesh Ambani, is in the Indian city of Mumbai. Anyone who drives a Jaguar or a Land Rover is driving a car made by an Indian company, now that Tata Motors has bought the traditional British automaker. India is the world's largest producer of polyester and a leading force in renewable energy. Pune in western India is home to wind turbine maker Suzlon, which acquired Hamburg-based REpower. New Delhi is one of the world's leading producers of computer software and space technology. Though, on a less positive note, India spends more on arms imports than any other country.

Volkswagen has been selling more cars in China than in Germany for a long time, and the company plans to open five new plants there in this year alone. Conversely, the Chinese are also investing in Germany, where they already own automotive supply companies and have purchased some of the pearls of Germany's mid-sized companies, known as the Mittelstand. Changsha-based Sany, for example, has acquired Putzmeister, a concrete pump manufacturer based in southwestern Germany's Swabia region. The people who assemble London taxis, which are about as quintessentially British as Bobbies or plum pudding, report to Chinese bosses, as do many workers at the port of Piraeus in Germany. It seems that nothing works anymore without the wealthy Chinese, who have accumulated the world's largest foreign currency reserves. Beijing is also home to the world's fastest computer.

Forming a Front

Politically speaking, the new major powers are also becoming increasingly self-confident -- and sometimes form a united front against the West. In the United Nations Security Council, China blocks every Middle East resolution it doesn't like, while the Chinese navy flexes its muscles in the waters of the Far East. India is bucking the international trend by beefing up instead of reducing its arsenal of nuclear weapons. Brazilian President Dilma Rousseff demonstratively cancelled a trip to the United States and a meeting with US President Barack Obama to protest the NSA's surveillance practices. It's difficult to imagine German Chancellor Angela Merkel taking such decisive steps to represent Germany, which has seen similar treatment by the NSA.

A few years ago, the three emerging economies joined forces with Russia and South Africa to form the BRICS group. In March, the BRICS leaders decided to launch their own development bank, with a starting capital of $100 billion. It is apparently intended as an alternative to the US-dominated World Bank. Together, these countries are also trying to thwart the imposition of stricter environmental protection rules on their industries and gain influence in the traditional international centers of power. With Beijing's and New Delhi's votes -- and against the wishes of the United States -- Brazilian Roberto Azevêdo was chosen as the new head of the World Trade Organization (WTO) in May, and is now in a position to help shape the flow of goods around the world.

Forty years ago, Brazil was still a bankrupt military dictatorship, India was a backward agricultural country and China was groaning under the harsh dictates of the Cultural Revolution, with no private automobiles in the streets. But today we are on the edge of a new historical turning point.

Confronting Domestic Turmoil

But that's only one side of the success story that is constantly and proudly repeated in Beijing, New Delhi and Brasilia, not to mention by international institutions. There is another truth that isn't as pleasant: China, India and Brazil are currently being shaken by inner turmoil. In all three countries, people are taking to the streets to protest corruption, nepotism and inefficient government. At the same time, the economic recovery is flagging.

Ironically, the emerging nations have begun to see a considerable weakening of their economies in recent months, just as they pull ahead of the West. Growth rates in 2013 are expected to be about half of what they were in the boom year of 2007, declining in China from 14 to about 7.5 percent, from about 10 to 5 percent in India and from 6 to an estimated 2.5 percent in Brazil. These are still better figures than in the United States and the European Union, but they are not good enough to satisfy the rising powers' expectations. And now that the glitter is fading, differences are also coming to light once again. The three new powers may be in agreement most of the time when it comes to opposing Western dominance and a possible dictate on CO2 emissions, but their political differences are substantial.

They couldn't be more different when it comes to their own development models. China is a centralist, one-party dictatorship with clear elements of brute capitalism. India is a federal, chaotic democracy that is often its own worst enemy. And Brazil has a presidential governing system with a calcified party landscape. Shockingly, little has changed for hundreds of millions in the rural areas, where farmers have generally not benefited from the booming economy. But a new urban middle class has also taken shape. And, while earlier it seemed to be politically sedated by the steady rise in standard of living, priorities are shifting now that their basic economic needs have been met and the economic upturn has slowed down, at least temporarily. People are increasingly noticing societal injustice, the nepotism that enriches officials and the sharp divide between rich and poor.

The People Demand Justice

Ironically, the very people from whom the political elite believed they could expect gratitude, or at least tacit support, are now taking to the streets. It's a testament to the theory of French world traveler Alexis de Tocqueville, who wrote in the mid-19th century that it is not the impoverished masses who bring about change, but the people who have something to lose. In India, they are protesting the construction of pollutive factories and a sluggish legal system. In China they are speaking out against toxic food and the privileges of the party elite. And in Brazil, they are protesting the lack of educational opportunities and sinfully expensive vanity projects. They have become increasingly self-confident in demanding accountability, responsibility and good governance from their politicians.
Which of the three models can best cope with the economic setbacks and react most flexibly in the interest of its citizens? Are authoritarian systems better equipped for the challenges of the future than democratic systems? Is this just a temporary economic weakness, or have the predictions for these three new powers been too euphoric all along? And what does all this mean for the United States and Europe? Will they continue to fall behind, or could the West be on the verge of a comeback?

Some experts would have us believe that we are truly ailing, while Beijing, New Delhi and Brasília merely have a slight cough. But does Germany really have to get used to rising unemployment? Or can we actually expand the edge we still have when it comes to demanding jobs and high-tech research?

Corruption Remains a Problem

A few years ago, Harvard Professor Amartya Sen, the Indian winner of the Nobel Prize in Economics who helped create the UN's Human Development Index, told me that while GDP and per-capita income are important, they are by no means the only criteria that determine quality of life. "In my view, development means material prosperity as well as access to education, basic medical care, the right to free exercise of religion, the ability to exert political influence and protection against police repression," he said.

And this is where he sees considerable deficits among the new global players. "One country's weakness is another country's strength. China has achieved greater successes in expanding basic medical care and education. Life expectancy is high and the illiteracy rate is low. India fares better when it comes to protecting civil rights. The governments must comprehend that development means freedom -- freedom from poverty and tyranny." Sen is convinced that democracy, despite many setbacks, has proved to be successful on the whole. Unlike autocracy, said Sen, democracy helps to correct extreme aberrations.

And yet Sen, 79, was overcome by rage when he spoke about his native country. He deplored India's high child mortality rate, and the lack of access to clean drinking water and toilets. There are reasonable social programs in India, he said, but the authorities have failed in terms of implementation -- unlike Brazil were, despite many problems, things are at least slowly progressing. The South American giant has surged ahead of China and India in Sen's UN index. However, all three countries fare poorly on Transparency International's Corruption Perceptions Index, with Brazil ranked 69th, China 80th, and India in last place among the three powers at 94th.

Difficult Stage Ahead for New Powers

A visit with Lee Kuan Yew, the former prime minister of Singapore and a globally respected elder statesman of Chinese descent, provides another perspective. Even the political leadership in Beijing reveres this man who, in his 45 years as premier and senior minister, transformed the former British colony into a flourishing city-state -- and one with a largely authoritarian government. "I will cultivate an intelligent, constructive opposition," he said in 1986 during our first interview.

Lee, 90, a friend of former German Chancellor Helmut Schmidt and former US Secretary of State Henry Kissinger, has long seen a shift in global policy in the direction of Asia. "The 21st century will be an age of competition between China and the United States. I cannot predict how long the Americans can remain ahead. China is relentlessly on its way to number one," he says. Lee sees most of the excessive human rights violations in India, not in the land of his ancestors. "However, the idea of human rights is only gradually beginning to take hold in China. The notion that the state is the supreme authority, and that it cannot be questioned, still dominates their way of thinking," he adds.

Singapore's leader was long a devotee of Confucian values, and he is pleased that the great philosopher enjoys considerable respect in the People's Republic once again, after being banned for many years. But Lee doesn't just see Confucian teachings as promoting authority. Instead, he believes that Confucius emphasized education and the government's responsibility to the people. The absence of constitutional mechanisms and Chinese culture's mistrust of a free competition of ideas is harmful in the long term, says Lee. These are astonishing words for a thinker who spent a significant portion of his life flirting with the superiority of Asian values.

Necessary Competition

Lee believes that the new Chinese leadership has recognized, under the "impressive" Communist Party leader Xi Jinping, that the system must become more open. But Lee does not feel that this will automatically lead to a Western-style multi-party system. According to Lee, a confrontation with the United States can only be prevented if Beijing interacts intensively with the West in all areas.

Nobel laureate Sen and political professional Lee agree that the West has no reason to timidly withdraw from the competition between systems. So what could the world look like in 2025? Can we combine the predictions of economists, academics and politicians and, by conducting our own research, arrive at a relatively solid prediction?

China, India and Brazil are likely to continue their unstoppable ascent in the coming decade, but at a slower pace and without achieving the record growth rates of the past. It is now a question of the next, more difficult development stage, in which the three countries will be forced to recognize that the road from the world's underclass to its middle class is easier than the road to the top. In Beijing, in particular, something called the Lewisian turning point, named after a British economist, is likely to occur. This is when low-wage farm workers, long beneficial for the economy, are increasingly absorbed into the industrial sector, where they become a burden because of rising wages and the fact that the government must now provide them with health insurance and retirement pensions. India and Brazil, which, with their high birth rates, have at least a theoretical advantage over China and the West, are exposed to another unpleasant phenomenon -- the "middle income trap," in which the rising cost of production causes rapid, relatively simple growth to stagnate.

What About Europe?

In 2025, no one will be talking about the "Chinese dream" anymore, which Communist Party leader Xi Jinping recently touted as an alternative to the American dream. By then, everyone's illusions about Beijing's brand of authoritarian state capitalism will have been shattered, much like what happened with the so-called "Washington Consensus" of market fundamentalists who advocated giving completely free rein to forces in the financial sector. China, India and Brazil will have to find the ideal development model on their own. Models that have proven to be effective in Western societies cannot necessarily be transferred to other regions, at least not directly. But in the face of pressure from their increasingly well-informed citizens, they will have to turn their attention to the environment and strengthen institutions in the next decade. Russia will likely face the most difficult path. The population is shrinking, the economy is based almost exclusively on commodities, and civic participation in government has long since fallen victim to cynicism. In international diplomacy, Moscow's clever use of tactics on the Syrian issue was nothing more than a last gasp. Russia's rival China will get the better of Moscow, from Central Asia to Africa.

Despite the tendency toward self-destruction that it has demonstrated once again with its current government shutdown in Washington, the United States has a strong economic outlook, and it can be summed up in one word: fracking. As a result of this environmentally controversial technology for extracting natural gas from substantial depths, the United States will become independent of energy imports in the coming decade and can focus on nation-building at home.

But Europe remains the big puzzle. Will the old Continent, which former German Foreign Minister Joschka Fischer once called a "European chicken yard," have pulled itself together by 2025, after embarrassing years of petty disputes? Berlin will play a key role in the next decade. The successors of Germany's dithering Chancellor Angela Merkel could agree to a communitization of debts through Eurobonds, under strict conditions, and the institutions in Brussels could become more effective, transparent and democratic. A banking union could become reality, and there could be a sharp decline in youth unemployment in the south. A few high-tech jobs will likely return to Germany, when it becomes apparent that conditions abroad are not as favorable as some had believed.

That's the optimistic scenario. But it's also possible that Europe will persist in its current lethargy and become a pawn in the hands of the new powers -- a cultural amusement park that will be visited and admired by the winners of globalization as something of a well-preserved museum. According to a study by the Mercer consulting firm, Vienna, Zurich, Auckland and Munich are the cities with the highest quality of life worldwide. It is up to us to decide whether they simply remain pleasant places to live or also become dynamically oriented toward the future.

Translated from the German by Christopher Sultan