What has brought us to the world we now live in? What are the markets telling us? Where does Canada fit in to the global economy?
Answers to these and many other profound questions came rolling off the tongue of Dr. Fareed Zakaria, the editor of NEWSWEEK INTERNATIONAL, at the Annual Global Sourcing Forum in Toronto in April. Fareed was a keynote speaker at the forum, which was the brainchild of CORE, the Centre for Outsourcing Research & Education. The non-profit group (www.core-outsourcing.org) provides research and education on outsourcing, global sourcing and other innovative collaboration.
What does global sourcing have to do with mining? Thats easy. The copper you buy could have been mined in British Columbia and smelted in Manitoba, but could just as easily have come from a Chilean mine and SX/EW plant. The guy manning the computer help desk for your company could be down the hall or in any other location on Earth, as long as the language and time zone are compatible. You could look on global sourcing as a threat, but it is just as much an opportunity.
Here are a few of the big picture nuggets that Dr. Fareed shared with his audience that may interest you.
In 2000, most pundits predicted that over the next six or seven years there would be terrorist strikes, a destabilized Middle East and a lot of political unrest in world leading to economic instability. They got the political predictions right, but the economics all wrong. In fact, the global economy has grown over the last seven years faster than in any time in the last 40 years.
There were similar positive supply shock economic trends in the 1950s and also in the 1880-90s. In the 1880s two great new playersthe United States and Germanywere industrializing. In the 1950s Europe was rebuilding and Japan was beginning a 20-year period of 9% annual growth. (Japan was the China of its day, said Fareed.)
Now the biggest positive economic shock is that 2.3 billion peoplethe populations of China and Indiahave joined the global economy. The current growth began in 1992, three years after the collapse of the Soviet Union and national capitalism.
The greatest beneficiary of todays technology is the largest economy with the worst infrastructureIndia. Thanks to the IT bubble of the late 1990s, the world is wired with fibre optic cable. Although half the IT companies went out of business, the world remains wired, which has changed the nature of transportation costs. Countries like India, Brazil and Turkey are doing much better now as they are able to take advantage of high-speed communications without having to build the rest of the infrastructure.
Certainly countries in AfricaKenya, Tanzania, Mozambique, Botswana and South Africahave some semblance of good governance, and are helping to turn around the African economy. Inc fact, South Africa has impeccable public fiscal management. Despite predictions that the money would flee South Africa with the end of the Apartheid system, essentially none of it left largely due to the extraordinary leadership of former president Nelson Mandela.
Todays economy is driven by China and India. Any number, no matter how small, multiplied by 2.3 billion becomes a very large number. China is run by the most extraordinary political system todaya growth-oriented dictatorship. India is the oppositea democracy with rule of law that prevents massive changes from happening quickly. The engines of growth in India and China are now unleashed and they will probably not be halted any time soon. China is growing at 7% per annum and India at 5%, while the economies of other countries are shrinking. There is a huge new business class in India, so that the country now consumes 60% of its GDP, almost as much as the United States.
We worry about many things politically, but the greatest challenge is managing success. What if things dont break down but keep on growing? Commodity prices arent at a 20-year high, they are at a 200-year high. We cant shrug off the impact of high oil prices, which are reacting to the first true demand shock (not artificially induced by OPEC). Because of this, oil-rich countries such as Iran, Russia, Saudi Arabia, Nigeria and Venezuela are going to have money. Africa is doing well because commodities and natural resources are doing well. Canada and Norway are the only two natural resource-rich countries that have not turned themselves into kleptocracies, and for that reason there is the hope in these two countries that the resources can be managed and developed in an orderly fashion, using 20-year plans instead of the short-term plundering that most other countries employ.
The coal-fired generators that China and India are committed to building are going to emit five times the total CO2 that would be saved if the Kyoto Accord were completely implemented. If planners dont deal with this fact, they are not dealing with the real global-warming problem.
Solutions to all major problems (such as global warming or public health pandemics) are taking place at a national level, but the solutions that are needed are global.
The rising work economy is resulting in a rise in nationalism. This unleashes pride and aggression, and we have to deal with that. Although some of the aggression is aimed at the United States, in some ways this is a post-U.S. worldthe first really global periodaffected more by things that are happening outside of the U.S.A. than what our neighbours to the south are doing.
No matter how much it seems that this time its different history will tell us that the 1880s and the 1950s didnt last forever. Eventually there will be a return of political impacts that will slow the economy, unless we manage the system so that it wont all fall down at once.
There are some major risks. China will have some huge water problems in the cities, but it is moving faster on alternative energy projects and nuclear power. Be clear that saying No to nuclear energy is saying Yes to coal-fired plants, and coal is the dirtiest fuel source by far when burned in conventional plants. HIV/AIDS is a problem that largely affects Africa, except that India is just before the tipping point when the problem is going to become difficult to handle. China is now handling the problem effectively, but there has been a slower response in India. The global institutions like the United Nations and the World Health Organization are extremely weak The WHO does not have the health labs and the communications networks that it needs to collect data and alert the world to imminent problems.
The United Nations works pretty well as a professional institution but has problems as a political institution. The permanent members of its security council are the countries that won the Second World War. How representative of todays world is it when India is not represented, and there is no significant African representation, nor Japan? Perhaps the future is in regional organizations with some direction from the United Nations.
Canada has two things going for it economically. It is a resource-rich country with a variety of resources and is not a kleptocracy. Long-term investments to harvest these resources can be made to make maximum benefit to the country.
Canada has a great opportunity to get involved in the knowledge economy because it is English-speaking, has an impeccable economy and close ties to both the United States and Europe. But it hasnt taken advantage of this. Where is Canada in the cutting edge new products for the financial and banking industries? Of the top 50 universities in the world, Canada has only one. This sector needs a more significant effort in Canada.
The reality is that the top 10% of the population with post-secondary education will do fine in any economy, but that is not true of the people with only a two-year diploma. What will that person do if his/her job is disrupted by global sourcing? This is both a moral and a political issue. They too will have to see the advantages of a brave new world of global sourci
ng or they wont vote for the incumbents in the next election.