Changing the game

Wealthy and poor countries have experienced direct correlations during any major crisis. After the stock market crashed in 1929, the powerful countries led the rest of the world into a decade long depression. 2007 brought about the worst crisis since this event: the global recession. The global recession resulted in a universal crash of the stock market, the collapse of large financial institutions, and the bailout of banks by national governments. However, this time, the fall of the 21st century superpowers did not drag the rest of the world down with them; emerging markets were able to establish a stable economy despite previous patterns. Between trying to acclimate the euro-zone calamity and helping with the worlds’ halted economy, an impressionable amount of powerful countries have turned to acknowledge the increasing influence of emerging markets. Will such a significant change in the rules of the game affect the power of these hegemonic economies? The world’s future economy is usually unpredictable and volatile; yet with China’s expanding population and America’s growing unemployment rate, predictions of America’s future loss of power are becoming more foreseeable.

Commonly known as the BRIC countries: Brazil, Russia, India and China were coined in 2001 as a symbol of the shift in global economic power through their advanced economic development. These growing economies have reached a 7,1% growth rate notably surpassing those of hegemonic countries. According to data posted by Bloomberg in 2009, the BRIC countries held 4 best performing stock markets, in dollars, amid the world’s 20 biggest. Among these BRIC markets, China has undergone one of the quickest and obvious growths becoming the third largest market in the world.

China has been slowly increasing its influence onto the economies of many first world nations, becoming a prominent destination for production off shoring. United States outsourcing jobs overseas has played a key factor in maintaining a high unemployment rate at 8.2% as of June 2012, decreasing less than 2% in the past three years.

Currently, America is struggling to achieve a 2,7% growth rate. Despite these dilemmas, the United States continues to indulge in its worse vice – spending. Incessant spending, even after the recession hit, accumulated to $3.1 trillion in the past 4 years, adding to its record high debt of $15.7 trillion. On the other hand, America’s indulgence has not only helped balance the schism between emerging and developed markets, but has also aided in trade and productions in countries such as China and India.

The European Union was anothermajor superpower that was greatly affected by the global recession. They were the largest trading power in the world, holding 40% of global trade and a GDP equal to that of the United States’. However, the EU suffered following 2007, with heavy decreases in global exports, depreciations in currency exchange with respect to the US dollar, and growing situations of unemployment.

What was so different between the approach of superpowers and that of smaller markets that allowed such a contrast to occur? Emerging markets held a certain advantage when dealing with the 2007 crisis: previous experience with recessions that helped implement stricter, more conservative monetary and fiscal policies. Thus, by 2008, these markets had already established a stable foundation of conformist financial structure that the first world markets did not. Meanwhile, China continues to hold a massive scale of production at a low value, enforcing price control and maintaining its currency at a low value with its “top down” economy.

Will China soon overpower the United States of America? While the IMF bellows a resonating “Yes”, there are still some reputable American qualities to consider, such as a heightened level of opportunity that offers more power and significance in the United States than in China. Furthermore, Asian technology is regressing and 13.4% of the Chinese population – 128 million citizens – still live profoundly below the poverty line. Contrastingly, the strong American middle class dominates the schism between the upper and lower classes; though the 8.2% unemployment rate has left 12.7 million jobless. However, international dependencies also tie these two nations together: America is currently China’s number one customer in trade, while China owns one of the largest holdings in American government bonds.

Predictions on the United States’ loss of power are becoming more evident as emerging markets are able to control more of the world economy, and monopolistic superpowers are strained from the economic crisis. In a world consisting of 196 countries where the G20 holds 93% of the market power, it is logical that equilibrium slowly starts to take course and these emerging markets begin gaining power. The market has not eradicated the superpowers, but rather has entered a larger number of participants in the global economy.

Helena Vallvé. University of California, Irvine.
Laura Vallvé.
Boston University.


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1 respuesta

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