The coming golden age?
Dr Linda Yueh – author, Oxford economics don and economics correspondent for Bloomberg TV – is optimistic about the future of the world. After all a third of the world's population is gradually being lifted out of poverty and into the middle classes. It's a coming 'golden age', she told the Aberdeen Asset Management conference in London's Savoy Hotel.
Quite right. The rich countries of the West might have suffered a knock – and the smaller developing countries who depend on their aid and trade too – but the larger countries, like China and India, are still growing. Pity about the West, right enough: things are nowhere near as bad as the 1930s Depression, but there are still a lot of countries in a lot of debt. When debt rises above 90% of GDP, a country finds it hard to grow under that burden.
It's markets, of course, that keep countries (relatively) solvent. Politicians would gladly raid the next generation's pockets as much as they could in order to pay for today's spending. It's markets that bring them up against economic reality. If you and I can borrow cheaper than a whole government, there must be something seriously wrong with that government. Once a country's interest rates hit 6.5%, it's usually only a couple of weeks later that they hit 7.0% and then the country has to appeal for a bailout. Italy's debt is 120% of GDP and its rate has just gone through the 6.5% barrier. Watch this space.
On the basis of past slumps, Dr Yueh reckons it takes about seven years for income to return to its pre-crisis levels. So we have a way to go. And meanwhile, India, China and the rest are surging upwards. Of course, the US remains the world's largest economy, its people earn ten times as much as the Chinese, and Americans are incredibly resilient and innovative. There is, as Adam Smith put it, a great deal of ruin in a nation. But the balance is changing. Still, says Dr Yueh, it's not just a good thing that large parts of the global population are finally rising out of poverty. A world with several super-rich countries in it might be a much more stable place than a world with only one, and provide more opportunities for smaller developing countries to trade and grow. You might expect her to say that, of course. But it's right.