Multipolarity & inter-state cooperation

1. Multipolarity & inter-state cooperation Robert H. Wade LSE June 2011

2. Continued rise of multipolarity? • Techno-optimists see technology as unstoppable vehicle of progress on world scale. • Bill Gates: “Think of all the progress made in 20C”. “What abt WWI, WWII, Depression?” “There will always be blips.” • Danger of forecasting to 2025: J K Galbraith

3. Multipolarity: near-term obstacles • My role as advocatus diaboli. • Current crisis: not a “blip”, no return to “normal” within 3 yrs. Remember 1929-1940. • In West, all policy tools exhausted: • Eurozone.

4. US: fundamentals unchanged • households too much debt; • real estate values still falling; • stimulative measures blocked by pol paralysis; • banks wh caused crisis are the big winners; • long-term unemployment crisis, infrastructure crisis.

5. China: looming disturbances • Premier Wen Jiabao: economy is “unstable, unbalanced, uncoordinated, & ultimately unsustainable” • Growth will slow sharply, b/c driven by (1) heavily subsidised investment; (2) Xs to West. Transition to grter reliance on C will be bumpy & long. • Slow-down  SE Asia; commodity Xers

6. Multipolarity: longer-term obstacles • Middle-income trap: MICs find it difficult to sustain productivity increases and enter higher value-added positions in GVCs. • The ONLY economies to escape the trap & enter ranks of “developed” in past 60 yrs: Jpn, Taiwan, SK, HK, Sgp.

7. For most DTCs 1980s, 1990s, early 2000s “lost decades”, fell further behind West in GDPPC. • Exceptions: East Asian Tigers, China, India

9. SE Asia • Malaysia, Thailand, Indonesia: “contenders”. • All remain heavily dependent on MNCs for mfg Xs. Weak backward links fr MNCs to domestic economy. No national innovation systems. Few firms have regional brand names. • China re-concentrating regional production chains back into China • S. Yusuf: “Malaysian industry appears to be sliding down the technological slope, and the incentives for workers to improve their skills are weakening… technological capabilities are relatively static (and may even be declining)… industrial competitiveness is marking time.”

10. Latin America • Regional manufacturing VA/regional GDP: • 1980: 27% • 2009: 18% (= eurozone) • Brazil: in past 10 yrs share of commodities in Xs doubled, to 46%; share of mfrs collapsed, mainly b/c China. Textiles, shoes, steel.

11. “In the grip of a great convergence”? • Title of Martin Wolf, FT, 5 Jan 11. • Wolf’s response to those who doubt continued convergence: “powerful mkt & tech forces are spreading stock of knowledge across globe. No one doubts that Chinese & Indian people are capable of applying it. They are as entrepreneurial as westerners”. • Misleading!

12. More inter-state cooperation? • GDH report recognizes that more multipolarity makes inter-state cooperation more necessary, & more difficult, than when G7 (G1) ruled the world. • G20: held up as triumph of: multipolarity  multilateralism • G20 is unsustainable: • Illegitimate on “input” (membership) side: no explicit criteria; 173 states not represented. • Regional governance? Chiang Mai Initiative Multilateralization:

13. Conclusion: multipolarity  multilateralism? • I have raised doubts that multipolarity will continue. • I have raised doubts about translation of multipolarity into multilateralism. • Overarching danger: we have now crossed growth/climate/natural resource/population redlines all at once. • Before 2025 we will face crisis-driven choice b/w collapse & a “reduced consumption” growth model. • How can economy grow within constraints of sustainable GHG emissions + resource use? • How stupid are we?