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world bank pres. on global financial crisis

Friday 21 January, 2011

James Wolfensohn, former president of the World Bank spoke about THE GLOBAL ECONOMY IN THE WAKE OF FINANCIAL CRISIS at the invitation of the Chicago Council on Global Affairs.  Growth has changed now, compared to 1960-2000.  Then the 5B in the developing world had 20 % of the world’s wealth.  Jacque Chirac invited representatives from less-developed countries to the G7 meetings for the 1st time in 1997 & they each had 12 minutes to make a presentation.  The G7 is no longer relevant & has become the G20-the next summit will be held in Brazil.  The world GDP has grown @ 4%/year, but the mature economies have grown 2% while the emerging economies grew 8%.  By 2050, the original G7’s 80% of world GDP will have shrunk to 25%.  At that time, 65% of world GDP will come from Asia, 50% from China & India, which is a historic change.  The specific accuracy of those projections is unimportant-there will be a tectonic shift regardless.  Much of the west refuses to look at the extent of this change.  350K Indians & Chinese are studying abroad to earn their PhD’s.  We are not responding adequately:  we only send 13K to China & 1300 to India.  Education is the 3rd largest industry in Australia, many teaching Indian & Chinese students.

Financially, coffers in emerging economies hold most of the world’s reserves.  Our orientation must change towards Asia in manufacturing & technology.  The US$ is still favored, but we have $1 1/2 TR out there & there are limits to debt levels.  This problem cannot go on, especially when health care & retirement benefits rise to become 30% of GDP.  Growth is required, but the American educational system is appalling & fallen to #18 in the world.  You can’t solve these problems in 2 year election cycles or this year’s budget.  We must think long-term & strategically with a 10 year view, but we haven’t shown the maturity to deal with it.  Neither side shows that thinking is necessary.  Our most serious challenges are not immediately visible & we’re not prepared for them.

Africa’s GDP will grow from $1200 to $4000 per person by 2050 when the same will grow to $30-40K in India & China & $80K in the US & Europe.  Cellphones have made Africa aware of the rest of the world.  Transportation & nasty people are a potent mix.  There is no social justice there now, but we need to create opportunities for peace.

Q&A

  • interest rates are currently not a problem, but they inevitably will rise because they can’t go any lower
  • start by communicating with your governmental representatives
  • the World Bank’s role/challenge has changed.  It’s biggest clients used to be India & China, but is now focused on Africa.  They all still require technical assistance.
  • Latin America & Brazil are generally in good shape, but haven’t benefited as much as other regions.  Brazil is growing @ 1/2-2/3 the rate of China & India.  Hydrocarbons in Brazil are an opportunity, but they’re 6X as deep & will take 10 years to develop for export.  Mexico has had a tough time because it’s so closely allied with the US & the US hasn’t done well.
  • Today totalitarian regimes, such as China, are well-managed countries which have the short-term under control & develop leadership in advance of change.  There has even been some progress in corrupt Africa, but they must come up with African solutions, not those imposed by others.
  • European leadership says they must keep the Euro together, but can they afford it & how can they pay for it?  It’s a currency union, but there is no mechanism to coordinate economic development, so there could be a crack in the Euro.
  • Although India was poorly managed, it’s now well-managed, so expect India to overtake China by 205o because of China’s 1 child policy demographics.
  • As economies change, the issue of who is the world’s policeman will have to be addressed.  China is building a huge navy…
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