Uneven growth, rising global heat
The technology revolution in the west is replacing blue-collar factory workers with robots.
On a bitter evening in mid-January, a group of bankers and book publishers gathered on the 42nd floor of Goldman Sachs’s global headquarters here. The setting could not have been more New York — skyscrapers twinkled out the windows to the north and a jazz ensemble played softly in the corner. But the appetizers, reflecting the theme of the event, were an international mishmash: thumb-sized potato pancakes with sour cream and caviar, steaming Chinese dumplings, Indian samosas and Turkish kebabs.
The party was in honour of the Goldman thinker who had served notice to the western investment community a decade ago that the world was being transformed by the rise of emerging markets, in particular, the four behemoths that Jim O’Neill, then chief economist at Goldman Sachs, dubbed the BRICs: Brazil, Russia, India and China. In a new book that O’Neill has published, “The Growth Map: Economic Opportunity in the BRICs and Beyond,” he argued that the BRIC concept had “become the dominant story of our generation” and described the next 11 emerging markets that are joining the BRICs.
But there is another force that is reshaping the global economy today, and the Goldman executives who toasted O’Neill are a reflection of that: the rise, in the developed western economies, of the “1 percent” and the creation of what many are calling a new gilded age. In the 19th century, the Industrial Revolution and the opening of the American frontier created the Gilded Age and the robber barons who ruled it. Today, as the world economy is being reshaped by the technology revolution and globalisation, the resulting economic transformation is creating a new gilded age and a new plutocracy.
Different gilded ages
The two forces are intricately related. Indeed we are living through slightly different gilded ages that are unfolding simultaneously. The west is experiencing a second gilded age, while the emerging markets, as O’Neill and others have documented, are experiencing their first gilded age. The resulting economic transformation is even more dramatic than that in the Gilded Age. Now, billions of people are taking part across much of the globe, not just the inhabitants of the West.
“It is structurally much more extreme now in multiple dimensions,” said Michael Spence, a Nobel-winning economist, adviser to the Chinese government’s 12th five-year economic plan and author of “The Next Convergence: The Future of Economic Growth in a Multispeed World.” “Now that the emerging economies are pretty big, this is just a harder problem. It is so different from previous economic change that I think these are issues that we have never wrestled with before.
“In the 200 years from the British Industrial Revolution to World War II there were asymmetries in the world economy, but the entire world wasn’t industrialising and it wasn’t interacting in the same way,” Spence said. These are complex phenomena, he added, “and we should approach them with humility.”
To be sure, the gilded age in the developing world has its strains and conflicts. Now that television and the Internet can bring to vivid life the economic gap between a factory worker in, say, Brazil, and the things the middle class takes for granted in the West, even economic growth of 5 per cent or so might feel too slow. That will be especially true when the rich in developing countries live a life of 21st-century plutocratic splendor, including perks like a private jet or heart bypass surgery that would have dazzled a Rockefeller or a Carnegie. Just as the machine age transformed an economy of farm labourers and artisans into one of combine-harvesters and assembly lines, so the technology revolution in the west is replacing blue-collar factory workers with robots and white-collar clerks with computers.
At the same time, the west is also participating in the gilded age of the emerging markets. Those who own companies in Dallas or Düsseldorf now employ many of the urbanising peasants of the emerging markets. That is good news for the plutocrats in the west, who can reap the benefits of simultaneously being 19th-century robber barons and 21st-century technology tycoons.
But it makes the transition even harsher for the Western middle class, which is being buffeted by two gilded ages at the same time. A survey of about 10,000 Harvard Business School alumni released last week illustrated this gap. The respondents were very worried about US competitiveness in the world economy — 71 per cent expect it to decline over the next three years.
The two gilded ages can also get in each other’s way: As good an explanation as any for the 2008 financial crisis is that it is the result of the collision between a gilded age in China and one in the West. The financial imbalances that are an essential part of China’s export-driven growth model played a role in inflating the credit bubble that burst with such devastating consequences in 2008.
