- THE WORLD’S POPULATION WILL EXCEED EIGHT AND A HALF BILLION IN 2030, ONE AND A HALF BILLION MORE THAN TODAY, AND ALMOST ALL WILL COME FROM DEVELOPING COUNTRIES
- TWENTY-FIVE YEARS AGO JAPAN, THE UNITED STATES AND EUROPE WERE RESPONSIBLE FOR 65-70% OF ALL GLOBAL PRODUCTION. THIS HAS NOW FALLEN TO 45%
- IN CHINA, 50 CENTS OUT OF EACH DOLLAR PRODUCED IS SAVED. IN AMERICA ONLY 18 PERCENT OF EVERY DOLLAR PRODUCED IS SAVED
- GERMAN RESEARCH INSTITUTE IFO CONFIRMED THAT TRADE SURPLUS IN GERMANY WILL REACH AN ALL-TIME RECORD OF 310 BILLION EUROS THIS YEAR
«According to UN “Population Division”, the world’s population is projected to exceed eight and a half billion in 2030, one and a half billion more than today. Well: where will this one and a half billion come from? 1.4 billion will come from developing countries and the rest, the “small change”, from Europe, America and Japan. This figure alone is enough to show us where large companies – from manufacturing industries to infrastructures - will have to invest.»
Jacob A. Frenkel is one of the world’s leading economists. He was born in Israel and educated in America and is currently Chairman of JP Morgan Chase International and of the Group of Thirty (G-30) Board of Trustees after occupying top posts at AIG and Merrill Lynch International as well as being Governor of the Bank of Israel. He has also been a member of the New York Federal Reserve Bank Economic Advisory Panel and in the past was responsible for research at the International Monetary Fund and Professor of International Economy at Chicago University. He is currently focussing his research on “mega trends”.
What are “mega trends” and why are they so important to the economy?
«I realise that this is not an easy concept to digest in a world such as ours in which we only think short-term, which is typically valid in political terms but often also in economic terms. However we have to make an effort and think of what will take place over a much longer term, as this is where investments will have to be directed. I have a method: think about the questions we asked ourselves two or three years ago and think of those that are still valid today: well, those that are still valid are mega trends. Demography is the most important: still taking into account 2030 as the horizon, the population in Europe will be 786 million, the American population 381 million, the Chinese population one billion, 432 million, the Indian population 1 billion, 572 million. Now I’ll ask you a question: which is the most interesting area to look at?»
Do you think that large international corporations have been ready to take these new opportunities, especially with regard to investing in infrastructures?
«Only to a certain extent. In order to partially justify them, I have to mention the great speed at which this change is occurring. If a Martian had come to Earth just 25 years ago and asked, “Which is the most productive area in the world?” the answer would have been as follows: Japan, the United States and Europe are responsible for 65-70% of global production, in other words two thirds of GDP. If this same extra-terrestrial friend came to Earth today, he would find a very different situation, as the share in the three areas mentioned earlier has dropped to 45%: 20-25 points less. And Asia has taken all the difference. I myself remember when I was responsible for writing the annual outlook for the International Monetary Fund and noted that China and India were responsible for no more than 7% of global production, which seems light years ago as they now exceed 20%. Well, this is an absolutely crucial mega trend, we have to take this as a given fact and stop looking at the planet with the same eyes we used in the years after the Second World War.»
All this wealth should give provide solid help in solving inequality and poverty pockets. Does it?
«Only partially because it is one matter to produce wealth and another to use it in a productive way through efficient investments. Despite all the difficulties China has undergone lately, it still doesn’t conveniently use the wealth it produces. In my opinion this is a mega trend because it is something we will have to deal with for a long time. In China, 50 cents out of every dollar produced is saved, whereas this amount could be a formidable means of growth if spent efficiently. It’s not that the opposite way is better by definition: in America only 18 percent of every dollar is saved and this is excessive to the contrary. Let’s say that a happy medium would be ideal».
Should trade relations among the more developed economies be managed in a better way?
«Trade with China should be improved in the Western world: 28% of American exports currently go to China, which is better than the under 10 percent a few years ago, however there are still huge gaps and imports are even higher. There are similar percentages with regard to Europe. Luckily when asking the question, “What does China represent?” the answer is no longer “a danger” but “an opportunity”. The gap is closing: however there is much more trade between China and the rest of Asia than between China and the West in a global trade context that continues to grow by 3.8-3.9 percent every year. This growth has maintained high levels every year, with the exception of 2009, the year of the great crisis».
If global trade continues to grow, diffusing well-being and wealth, why is the matter of protectionism regularly raised?
«In mid-September, the German research institute IFO confirmed that Germany’s trade surplus will reach an all-time record of 310 billion euros. Well, at the same time young people made strong demonstrations against the free trade agreement with America in Berlin. Why is a nation of exporters so ready to oppose a free trade agreement? This is valid throughout the world, free trade is the only sure way to ensure better growth».
