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A new world is around the corner, are we prepared?

To reach the advantage of 2050, we will have to pass through the fire of the next three years through 2013, writes Gautam Chikermane.

india Updated: Feb 07, 2010 20:37 IST
Gautam Chikermane

Discussing global finance with my friend from the US, the conversation turns cold: he is planning to foreclose the mortgage on his beach home. Less than six months ago, when he told me that he had gone in for a house facing the beach, I had warned him, saying it might be a little risky for him to take on a second mortgage in the middle of the greatest financial crisis since the Great Depression. He said, banks are offering him a rate that’s so low that it’s almost like they’re paying him to buy the house.

Between the illiterate, unethical but highly-skilled commission-chasing salesmen-executives, the sophisticated instruments that the financial sector has “innovated” to serve itself and a political push towards a regulatory insight that’s turned completely opaque, it is average folks like my friend who may lose their second, and many unfortunates their first, homes.

Suffering is not going to be restricted to US shores alone. As the cold insecurity of losing their homes looms large over the world’s largest economy, a G7 meeting in Iqaluit near the Arctic Circle in Canada continued to push for more taxpayers’ money to finance the banks responsible for this debacle. Doesn’t matter if much of that money goes as bonuses to the executives who brought upon us a crisis that has left many outside the financial engineering circles jobless, homeless, hopeless.

As finance ministers of the once all-powerful G7 — comprising Japan, the US, the UK, France, Italy, Canada and Germany — took potshots at China yesterday for keeping its currency undervalued and worried over Greece, Spain and Portugal teetering over the fiscal and financial edge (as Iceland did last year), they’ve forgotten that it is a financially, strategically and demographically enfeebled group talking to one another, drawing plans on a lazy beach where a high tide of change is approaching.

Financially, the economic driver of global growth has moved to China, India, Brazil and to a smaller extent Indonesia and South Africa. Strategically, China now leads the aggression with its trillion-dollar investment in US securities, strong economic expansion in Africa and circling India through military support to Pakistan and Myanmar.

Futuristically, the demographic advantage has moved to India (while the West Asian area shares this benefit, the cultural and religious isolation there prevents any meaningful dialogue at a global level).

And while financial and strategic advantages can be volatile, demographic change has a longer shelf life.

“The relative demographic weight of the world’s developed countries will drop by nearly 25 per cent, shifting economic power to the developing nations,” wrote Jack A. Goldstone of the George Mason School of Public Policy in a recent article in Foreign Affairs.

As a result, while it is getting increasingly clear that the future belongs to the larger council of G20 — where G7 is a part — and any decision on international finance or the global economic recovery won’t hold any legitimacy until it’s been subscribed to by this wider conglomeration, the demographic advantage will further strengthen this gathering.

But we are jumping the gun.

The demographic advantage will deliver dividends only if we are able to plan for it now.

Today’s world is skewed towards the US, the EU and China in terms of economic as well as strategic lead. To reach the advantage of 2050, we will have to pass through the fire of the next three years through 2013.

This is going to be a period of great change — political interests of developed economies will ensure that the global financial architecture changes to serve their citizens; economic interests of trade while talking of openness will attempt to selectively close their borders; and strategically, the developed nations would be happy to promote insecurity (this is, of course, apart from selling arms in the process).

While the world adjusts to these changes, global capital will move from one country to another as it chases growth on the one side and avoids risk on the other.

We, the citizens of this re-globalising world, will pay the price through loss of asset values or funding this new world with our taxes. And once this Tsunami recedes, get ready to build a new future from that debris, a future that is heavily skewed in India’s favour.

Question is: are we prepared?