Future of Global Economy I


Dr. Mohammad Sabah AlSalem AlSabah's speech, in the Sixth Session titled: “Future of Global Economy I”

Leaders of Change Summit

March 14, 2011

BismAllah Arrahman Arraheem,,,

First of all let me say how much I enjoy being here in this beautiful city of Istanbul, as in the previous session, as the representative of the OECD dissected the name of Istanbul, I would add that this country, this city itself,  to me at least has three magical bridges, a physical bridge between East and West, a spiritual bridge between Islam and Christianity, and an inter-temporal bridge between a glorious past and a promising future, so I’m very glad to be here with you today.

I was asked to talk about the future of global economy, and I think that as one looks ahead, and see how the global economy or global economic relations are going to change, one has to identify the instrument of change, and I here can identify three fundamental changes that are occurring in international economic relations. The three that I will talk very briefly about are 1) change in the global center of power, 2) change  in the perception of global threat, and finally I will talk very briefly about 3) the change in the dynamics of demography.

With respect to the first change, the change in the center of global power, I would remind you that, if we look at the last 50 years, and try to understand the relationship between the countries and agents, we would see that since World War II, the world had a bi-polar security structure, the United States and the Soviet Union lasted till the fall of the Berlin War, when the world turned into a uni-polar system, and now we see that this system, the uni-polar system is being increasingly attacked, and cannot be sustained and we are entering now in the phase of a multi-polar system, we can identify and see how this multi-polar system is developing by looking at the response to the international economic crisis, that happened a few years ago in 2008, we see that the United States by itself cannot handle that kind of crisis by itself, it has to enlist the powers of different countries. We see that the fundamental base of the economic  relationship that existed for the  last 50 years, the Bretton Woods system has basically stopped functioning and on the verge of collapse, the G20 has called for a new economic paradigm, the emerging of a new economic bloc which is called the BRIC (Brazil, Russia, India, China), signified the importance of new fundamental economic players in the economic sphere, we see the G20, no longer is the G8 the one who is holding the steering moves of the international economy, but the G20 has to include countries like Turkey and Saudi Arabia, and that also signifies the shift in the center of international power, and most importantly we see that the United States has agreed with the call of India to have a permanent chair  at the Security Council, these are significant and important changes in the center of global power, but even apart from the shift in the center of global power, we do see also simultaneously within countries a shift in the center of the decision-making process, in the past 50 years, governments dominated the economic process and the decision-making process through political groups, parliaments, and the established press; not anymore. Now we see the era of the blogs, twitter, facebook, which are virtual societies which have a direct and very significant impact on the  decision-making process itself, so that’s a very fundamental change also in the center of the decision-making process within countries.

Now the other change which I can identify is the change in the perception of global threat. 50 years ago, whenever we have a conference on the nature of global threat, the existential threat to humanity, we talk immediately about nuclear warfare, that is the principal source of threat. Any conference now about global security, will be talking about something else, will be talking about environmental degradation, will be talking about global warming, and as a matter of fact the tragedy that struck Japan a couple of days ago, and its unfolding now, has been identified as the second most devastating impact on Japan since World War II. That means the perception of threat has changed from conventional nuclear warfare to an environmental threat, but not only that, we talk now also about disease, HIV, malaria, as another extension of global threat to humanity, and lastly we talk about a new conventional warfare, we talk about terrorism as an instrument of threat to life and society, and the way of life as we know it. So that’s a fundamental change in the perception of threat that took place, that was not in existence 50 years ago.

Finally, I will very briefly talk about the change in the dynamics of demography. We have a dying North, as you call it, with the Northern Hemisphere with a declining population growth, and a very robust and high growth rate of the South. So we have to use the terminology of Earth Science, we have two tectonic plates, population plates, that are in a collision course : a rising population growth rate and a declining one, and they are about to crash and collide, and that would produce a major population earthquake. Now that process has been taking place for quite a period of time and the world, the international community has created a mechanism to collaborate these two conflicting trends through a process of migration. So we have seen Europe accepting more migrant workers from the developing world and so had North America, Australia, and others. But this process cannot continue, we do see that this liberal migration policy has produced some kind of a backlash. We see the emerging of xenophobia, Islamophobia, to be specific, we see calls for the death of multiculturalism, so there has been a reaction to this liberal policy of migration, and that means migration would not be the equilibrating factor in this disequilibrium situation, so we have to think about another way of mitigating these colliding tectonic plates.

Finally, if there is absolutely any final thing which I’m absolutely sure about, it is that the standard Keynesian, or neo-classical, or Marxist interpretation of the global economic relationship is no longer valid. What we need is a new paradigm that would guide us through these unchartered waters.

Thank you very much.

Q&A Session

In the political scene, Tunisia and Egypt have been relatively nonviolent while we do see an ongoing violence in Libya. Now the impact of these changes in Egypt and Tunisia, of course we have to wait for the internal dynamics in terms of setting up a new constitutional reform, to allow the new regime to emerge, a regime that would be more representative, and I expect that once these reforms are enacted, that Egypt will regain its position as a robust emerging economy as well as Tunisia. The question with regard to Libya is more difficult to answer because there is an ongoing war between two opposing factions. The impact of that on the international economic scene can only be detected through the oil prices. We have seen that there has been a big jump in the oil prices reflecting these concerns, but I can tell you that GCC producers, Saudi Arabia and Kuwait have already announced that they are going to do whatever they can to produce the deficiency in the oil supply side of the equation to prevent a spike in the oil prices. We as large producers with extensive reserves, we don’t like spikes in oil prices. We prefer a stable oil market, we have invested heavily in the international economy, we stand to be the most to lose if there is an international or a global recession, so it is in our best interest to see through that the international recovery  as my colleagues have indicated that there are certain encouraging signs coming from the United States, this is something that we are going to support through a moderation in the oil prices.

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