The Rise of the South: A Cautionary Tale on Globalization and Competitiveness
The period from 2002 to 2008 witnessed significant growth in the South, with a notable increase in global trade and foreign direct investment. However, concerns arise regarding the concentration of companies in specific sectors, the imbalance in investment flows with China, and the implications on the global economic order. The US's role in overseas investment and profitability is analyzed, highlighting shifts in sectoral leadership between the US and China. These developments raise questions about the traditional core-periphery model and signal a transformative phase in the global economic landscape.
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Rising South? (i) Rise of South (ii) A note of caution (the end of core and periphery? The US and globalisation. Competitiveness. Inequality. (iii) Boom and bust
1. The Rising South 2002 to 2008 saw high growth rates for much of the South, a rapid expansion in world trade and increase in share of South in world trade, by 2010 South s share of FDI matched the developed countries ; Shifting Wealth OECD report; UNDP Rise of the South Growing imbalances in world trade, as the current accounts of the developed world as a whole grew worse. Largely accounted for by US (and Britain) and on surplus side, by China, East Asia more generally and oil exporters. So some talk of transformation of international order, even some developmental convergence Rise of BRICs, and others N-11, MINTs. Is a fact. Reflected not only in growth rates, but challenges to (post-)Washington consensus, geopolitics (challenge to liberal intervention), South-south trade, DFI from the South, new assertive politics within international institutions, aid. Some even link this to US decline Iraq fiasco, financial crisis, US deficits and debt, China s trade surplus with US. Rise of South means decoupling and end of core/periphery?
A note of caution: the end of core/periphery? (i) Number of companies from the South in the FT 500 increased from 8 in 2000 to 79 in 2010, but concentrated in a narrow range of sectors banking, oil and gas, metals and telecommunications services and not in sectors which draw on the most advanced technology (such as aerospace, chemicals, electronic and electrical equipment, pharmaceuticals, retail, It hardware) (ii) Far more DFI into China than Chinese investment into developed world. In 2009, $27 billion of Chinese investment was in high income countries, compared to the $500 billion of FDI from high income countries that went to China from those same countries
A note of caution (cont) US and globalisation US earnings on overseas investment is higher than foreign investment into the US by a considerable margin. Gourinchas and Rey (2005: 10-11), from 1960 to 2001 US overseas assets earned an annualised rate of return of 5.6 per cent, compared to foreigners earning 3.6 per cent on US assets. Why? US DFI in highly profitable sectors, much foreign investment in US, not that lucrative.
A note of caution (cont) US and globalisation Starrs (2013): comparison of the national sectoral profit share of the top 2000 corporations in 2006 and 2012. Indeed, in aerospace and defence (from 66 per cent in 2006 to 67 per cent in 2012), casinos/hotels and restaurants (46 to 64 per cent), computer hardware and software (70 to 74 per cent), financial services (45 to 53 per cent), media (59 to 67 per cent) and transport (27 to 31 per cent) US leadership increased in this period. The share of Chinese companies in all these sectors was minimal, and never as much as 5 per cent except in the case of transport. Even in electronics, a sector in which China is the world s largest exporter, its share in 2012 was just 4 per cent, reflecting China s role as an assembler of final goods produced as part of a global production network dominated by multinational companies.
A note of caution (cont) US and globalisation In 18 of the 25 sectors outlined by Starrs, US companies are still the global leaders, and in 12 of them they have a share of 40 per cent or more and in two others they have a share close to 40 per cent (Starrs 2013: 823). Foreign shareholdings in US companies amounts to about 16 per cent of total shares of US companies in 2012. Meanwhile, the number one national owner of the top 20 European companies was the United States (Starrs 2013: 824-5). Thus, not surprisingly, while US GDP stood at about 22 per cent of world GDP in 2012, the US accounts for approximately 42 per cent of all the world s millionaires and even 41 per cent of all global household wealth (Starrs 2013: 826).
A note of caution (cont) Competitiveness The World Economic Forum s annual report on global competitiveness is a useful, if imperfect, measure of the competitiveness of nations in the global economy. Competitiveness is defined as the set of institutions, policies, and factors that determine the level of productivity of a country. (World Economic Forum 2013: 4) For 2013-14, the US stood at number 5 in the world, behind Switzerland, Singapore, Finland and Germany. China however, stood at 29, South Africa at 53, Brazil at 56, India at 60 and Russia at 64 (World Economic Forum 2013: 15). In 2010-11, Brazil ranked 42nd, Russia 57th, India 39thand China 26thin the world (Beausang 2012: 153).
A note of caution (cont) Inequality Less than $2 $2-$10 $10-$50 $50+ $75+ Global total Global Absolute Poor Global Insecure Global Secure Global Prosperous Top 1% Total (millions) 2407 2914 1347 227 67 6894 100 As % of global population 35 42 20 3 1 Regional distribution (millions) East Asia and Pacific (EAP) Europe and Central Asia (ECA) Latin America and Caribbean (LAC) Middle East and North Africa (MNA) North America (NAM) South Asia Region (SAR) sub-Saharan Africa (SSA) Distribution by income category (millions) 542 27 70 48 1270 269 317 262 366 542 181 68 175 23 54 20 3 2202 891 589 383 344 1633 854 11 3 2 5 0 43 125 49 1092 627 537 214 4 0 0 0 0 12 LICs 543 1459 404 177 1097 1491 148 1 0 0 0 0 3 722 2625 2405 1142 LMICs UMICs HICs 70 483 793 28 1 199 65
The 1992-2007/8 boom 1. Particular relationship between China and the US debt in US, exports from China (Walmartisation) 2. High commodity prices in 2000s demand from China 3. Nature of US debt Treasury securities but also housing, China heavily involved . 4. Crisis housing market, securitisation. Negative growth in 2009, fall in world trade, since then Chinese export growth slowed.
The end of the boom and recovery in the South 1. Fall in growth, slower growth from 2009, especially in North. 2. But South recovery rapid, Chinese growth still high, fiscal stimulus, investment led boom in China, demand for commodities from rest of South, so prices up after sharp fall (tables 2 and 6). 3. Some austerity in North, especially EU, but also Quantitative Easing designed to rescue banks, stimulate recovery through increased lending (in fact effect more ambivalent than this). 4. So on face of it post crisis adds to the picture of a rising South and declining West, including the US.
Boom and bust (i) But the virtuous circle of the boom has ended Chinese export growth to US slowed. (ii) Growth in China through fiscal stimulus but NOT consumption, investment boom, housing bubble. This investment boom has led to recovery in commodity prices but not to 2007 level and appears to be slowing down.
Boom and bust (cont) (iii) China still purchasing US debt especially Chinese central bank thus US deficits and debts In period preceding crisis, proportion of official net purchases of US long term Treasury securities went up from 16.6 per cent to 35 per cent (Jan- June 2007 and then Jan-June 2008); (iv) For rest of South, dependence on demand from China but growth is slowing. (v) But also, with QE in West, capital inflows to South have soared. Net private flows into the South peaked in 2007, and then fell sharply in 2008, recovered slowly in 2009 and substantially in 2010, though not back to the 2007 level. However, foreign direct investment inflows were weak, and had fallen from a peak of $509 billion in 2008 to $350 billion by 2010. At the same time, more mobile (and thus volatile) portfolio investment has increased enormously since the outbreak of the crisis, from $97 billion inflows in 2007, to minus $86 billion in 2008, back up to $153 billion in 2009 and $199 billion in 2010 (Akyuz 2011: 10). SSA and LA have gone from current account surpluses to deficits despite high commodity prices. In 2013 capital inflows slowed and some withdrawal, economic and social problems in Brazil and India.
Conclusions (i) there has been some rise of the South (ii) this has not led to the end of structured hierarches in the international order, nor to the end of a global North- South divide (iii) questionable whether the US is in decline US power has globalised more than it has decline (iv) we are living in a period of uncertainty the boom conditions are no longer present, the fiscal stimulus in China that helped to fuel recovery elsewhere has run out of steam, but we remain locked into the pre-crash international order. This is a problem for the US, but it is a problem for the rest as well, and not least the global South.
