• by Mario Osava (rio de janeiro)
• Thursday, February 17, 2011
• Inter Press Service

Two decades ago, Japan was the main threat to U.S. global economic dominance, but this challenge waned before the advent of the 21st century. Now China and India are the new champions of growth, with the clear implication that population size is a decisive factor in their rise to power.

The most populous emerging nations have gained a voice and status on the global chessboard, so much so that an attempt has been made to give them a group identity and a collective title, BRIC (Brazil, Russia, India and China), in spite of their totally different development paths and history.

With the exception of Russia when it headed the now-vanished Soviet Union, this foursome of countries used to have scant economic and political power in comparison to the international clout of countries like France, the U.K. and Italy, with about 60 million people apiece, one-third of the Brazilian population and one-twentieth of China’s.

Now, the developing world giants are set to catch up with the powerful industrialised countries, due to their continued rates of higher growth, as predicted by the World Bank and other institutions, said Cláudio Dedecca, a professor at the Brazilian University of Campinas who does research on labour economics.

The gap between these groups of countries is narrowing, but 'international imbalances remain, in a different way,' he said, lamenting the misfortune of Africa, which has no solutions in sight yet for its problems, in contrast to Asia and Latin America.

Many African countries are among those that are predicted to post the highest economic growth in coming years, but this will be due to investment by China and its purchase of commodities from that continent, in an unequal trade balance similar to China’s present trade with Brazil.

In Dedecca’s view, China, India and Brazil have turned their enormous populations to advantage because they have adopted policies that 'combine development of the domestic market with insertion into international markets' to produce accelerated growth.

In the 1980s and 1990s, the predominance of what Dedecca calls conservative thinking and the casino economy 'underrated the importance of domestic markets,' despite their immense potential in countries with huge populations and low levels of consumption. Labour has also been restored to a preeminent place in the economic equation, after being previously disregarded, he said.

The spread of free trade in recent decades encouraged this re-evaluation, through the relocation of industries in search of cheap and abundant labour, to places like China and India, and the large-scale production made possible by their huge domestic markets.

The lowering of tariff barriers protecting national markets intensified international competition, thus obliging companies to cut costs by migrating abroad, or putting pressure on their own countries to flexibilise labour laws and reduce taxes and wages and weaken social rights, Dedecca said. Such pressure eases up when the economy is growing, he added.

Industry relocation in order to reduce costs is contributing, for example, to the development of Brazil’s northeastern region, the poorest part of the country, where industrial production has recently grown fastest because it has attracted labour-intensive companies.

Local workers no longer leave to seek work in other parts of Brazil, as they used to.

Paraguay, too, is reaping benefits from the high cost of energy and labour in Brazil. Many industries are transferring to the poorest country in the Southern Common Market (Mercosur, made up of Argentina, Brazil, Paraguay and Uruguay), attracted by cheap, abundant electricity and lower wages.

This is a recent phenomenon. The growth of Japan until the end of the 20th century was characterised by technology, industry, stringent quality control, efficient management and an obsession with education.

Markets everywhere were swamped with cars and electronic goods made in Japan; digital watches by Seiko, Citizen and Orient overtook the Swiss reputation for precision timepieces, and Japanese cameras became ubiquitous.

Sony, Toshiba, Toyota, Honda, Nikon, Canon and many other brands won consumer preference worldwide. In the wake of Japan, the 'Asian tigers' emerged, establishing the Pacific basin as a new axis of the global economy.

This apparently confirmed the views of those who pointed to technology as the key factor in development, more significant than natural resources or population. Japan, in spite of lacking raw materials, especially oil, managed to maintain strong economic growth even after the 1970s oil crisis.

Japan also amassed financial power, allowing it to spread its tentacles around the world.

Its foreign investments climbed from 85 billion dollars in 1985 to 300 billion dollars in 1990. In 1989, Sony acquired movie giant Columbia Pictures and Mitsubishi bought New York’s Rockefeller Centre, a defiant symbolic blow to U.S. hegemony.

But by that time, Japan’s decline was already sealed by the signing of a 1985 agreement with four Western powers to revalue its currency, the yen, against the dollar.

Now, China is avoiding a repeat of that 'error,' while Brazil is struggling to hold down the exchange value of its currency, the real, the strength of which is undermining the competitiveness of its industrial products, especially compared to Chinese goods.

Nevertheless, Brazil has managed to create 15 million new jobs over the past eight years, while expanding its domestic market with increases in the real minimum wage and social programmes that have lifted 28 million people out of poverty.

Job creation is also an obsession in China at the moment, even in its investment projects abroad, which are being carried out with the participation of large numbers of Chinese workers. In India, some 200 million jobs need to be created in the next 20 years to absorb the next generation of young people.

The ascent of these three countries, which are home to 40 percent of the world’s population, highlights the previous dissociation between size and economy. It was not until the mid-20th century that the domination by small nations, like Belgium, the Netherlands and Portugal, of much greater countries and territories, came to an end.

But the dominance of large states was an underlying trend. 'Perhaps the conflict between the United States and the Soviet Union was the first chapter' of this, and the euro zone was a response, said sociologist William Nozaki, a researcher at Brazil’s Institute of Applied Economic Research (IPEA) who is working on his doctorate in economic development.

The economic growth of China, India and Brazil may be regarded as a continuation of this process, but their cases are different and relations between them 'are asymmetric,' with Brazil overwhelmingly exporting commodities to its Asian partners, he pointed out.

China and India possess industrial technology parks and complexes for innovation and production, and have fomented industrial and technological progress, he said.

Countries with large territories and populations tend to excel in the contemporary global economy, but 'the place occupied by each will depend on how they come to be positioned regionally,' as well as on 'the strength of their currencies and their military might,' Nozaki concluded.

© Inter Press Service (2011) — All Rights Reserved. Original source: Inter Press Service

Where next?

Advertisement