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Brexit: Boon Or Bane
IMF predicted that in a worst-case scenario, Britain’s departure from the EU could reduce this year’s world economic growth by up to 5.6 per cent
Photo Credit : Reuters
It is unfortunate that the Emerging Market Forum launched an important compendium on the future of emerging markets and developing economies just weeks ahead of the tectonic shifts ushered in by Brexit. The 472-page anthology titled “The World in 2050: Striving for a More Just, Prosperous and Harmonious Global Community” barely mentions the European Union (EU). Even so, it is clear that the threatened disintegration of the EU will have a significant impact on the future of emerging markets, which the International Monetary Fund (IMF) had forecast would generate 62 per cent of global growth in the next 35 years.
This rosy estimate will surely need to be scaled back as European growth post-Brexit is most likely to be substantially lower than anticipated. Indeed, as emerging markets growth had been predicated upon exports to the world’s largest market — the EU — Britain’s ‘leave’ vote will have serious consequences beyond UK borders. In fact, the IMF predicted that in a worst-case scenario, Britain’s departure from the EU could reduce this year’s world economic growth by up to 5.6 per cent.
This means that the contributions made to the global economy by China, India and other developing economies would become more important than ever.
Leaving aside unforeseen developments like Brexit, “The World in 2050” offers valuable information and analysis as businesses and officials plan the future. Edited by Harinder S. Kohli with contributions from 26 international economists, the massive volume digs deep into major economic and social trends to offer some forecasts. The analysis, while flattering to developing economies, nevertheless points to major challenges that their projected growth is likely to bring.
One of the startling data points is that, based on current population growth trends, the world in 2050 will have 9.7 billion people, of which two-thirds will live in urban areas. Since most of this growth will be in Africa and the Middle East, rising urban sprawl will present governments with enormous problems of health and hygiene. Equally stunning will be the rise of middle class. By 2050, some 84 per cent of the global population will belong to upper or lower middle class, with a per capita income about half of the developed world.
Two other forecasts, however, cast a shadow on this rosy picture of growing prosperity. One wonders if the projection has factored in the “technological unemployment” that John Maynard Keynes warned of, which could be brought by “our discovery of means of economising the use of labour.” Given the sharp rise in automation, robotics and 3D printing, the bulging middle class — unless properly trained — will face a serious unemployment problem. As R.A. Mashelkar notes, automation might alter export-based economy model: “If a robot can operate as cheaply as in Detroit as in Chennai... then why pay to ship materials and finished products round the world?”
A growing middle class also means increasing consumption and use of energy causing a further rise in CO2 emissions, vastly complicating the challenge of climate change. As it has been often noted, the vast masses of the emerging economies achieving even half the lifestyle of the developed world would require the resources of several earths.
To their credit, the authors of the volume do not shark the fundamental question raised by their optimistic forecast. They propose adopting a normative goal of life standard that can mediate between national, international and intergenerational justice — a policy that does not deprive future generation of a similar life.
While the goal is laudable the authors do not, rather cannot suggest how to persuade the 190 nations to work for a common goal. The Brexit has given a stunning reminder of the challenge facing the world.