For two centuries Europe and America dominated global output, manufactured and exported the majority of the world’s goods and invested and consumed far more than the rest of the world combined. Now in 2010 the US and the European Union are being out-produced, out-manufactured, out-traded and out-invested by the rest of the world – but not out-consumed. All the individual dramas of the last three years – the subprime mortgage disaster, Lehman’s collapse, Greek deficits, and Irish bankruptcies – can highlight, but should not obscure, these global economic shifts that now threaten the west. The danger for America and Europe is years of low growth and high unemployment.
But decline is wholly preventible. Over the last decade, in which rising rates of Asian production have gone unmatched by similarly rising rates of Asian consumption, a fundamental imbalance has developed between east and west. Fortunately, the same forces that have already restructured our economic lives – the global sourcing of goods and the global flow of capital – are now starting to engineer a second transformative shift. Within a decade, a richer Asia (alongside other emerging market countries) will be home to a middle class revolution equivalent to the consumer power of two Americas. Even if we exclude Japan, Asia’s consumer market will rise from 12 per cent of world consumption prior to the crisis, to about 32 per cent in 2020, becoming the main driver of world growth.
This shift can be the most effective exit strategy from the crisis, and help to rebalance the world economy – but only if Europe and America re-equip, and are able to export their superior innovations and global brand name goods to Asia’s new billion-strong middle class. Yet delivering these value-added, technology-driven, custom-built products and services will only be possible with high levels of investment.