Leadership Spotlight

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How large a swing in economic prowess between developed and developing countries do you envision?

I do a projection of stock market capitalization, which is now overwhelmingly in the developed world, close to 92 percent. By 2050 I think only one-third of the stock market capitalization will be in the developed world. Two-thirds will be in the rest.

It's inevitable. By the middle of this century developing countries will own most of the world's capital. They will have controlling interest in most of the world.

It comes back to demographics. The developed world is currently 15.2 percent of the world's population. But the developed world today produces 56 percent of the world's GDP. By 2050, the population of the developed world will shrink to 11.8 percent.

What does that mean? I put some productivity growth figures on various countries and I predict that by 2050 what we call the developed world today will only produce 23 percent, and the developing world 77 percent of the world's GDP.

Let's break that down even further. I think by 2050 the U.S. will contribute 11 percent of the world's GDP, Western Europe six percent, Japan two percent and Canada one percent. The sum of those is 20, which is the same as China.

By 2050 China will be 20 percent, and India 16 percent, of the world's GDP. And that's based on conservative projections. I wouldn't be surprised if India and China were even further ahead.

But actually, I think it's the best solution to a lot of our problems—Social Security, Medicare, the baby boomers retiring, what's going to happen to their assets. We need to make this trade. If I put it into my global model, this trade that takes place between assets and goods, I can get us retiring not at 62 but only at 67, which is still very reasonable.

This trade is just a global extension of a trade made through history, which is the old selling to the young and the young providing goods to the elderly.

So what are your thoughts on the U.S. trade deficit?

In that context the trade deficit is not worrisome. Of course I'd like it to be a little less now, but I believe we will have a trade deficit for the next 30 or 40 years. I think Europe will. I think Japan might. This is a lot to think about. It has tremendous implications. But it's vital. It's critically important.

The growth of the developing world is not just good for them. It's not just charity. Yes, we want the poor to not be poor. But it's also critical to us that the poor not be poor.

The workers and the goods the developing world provide actually prevent a much poorer future for developed countries if they relied instead on their own populations.

If we just had to rely on our own people, we would have to retire that much later, or we would retire earlier but poorer. And the markets would go down. People think they have wealth, but without the developing countries there are not enough buyers out there.

My feeling is the stock market will hold up, if we open markets to the buyers from Asia and the rest of the developing world. It's going to be really critical in terms of producing good returns in the future. That's why when I see developments like CNOOC and Dubai Ports World, I become very worried. If that protectionism becomes entrenched we would see a much poorer future.

Protectionism seems to be fueled in part by anxiety. What is society's responsibility to those who have lost their jobs to global trade?

As you go through this analysis, you see that globalization is just so important. All these Age Wave problems don't completely disappear, but they are ameliorated to a huge extent by a global outlook and the trade that can take place. Nothing that I see that the developed world can do by itself would come close to solving the problem.

If we want public policy to buy globalization, we must address the issue of who's going to be the loser from globalization. There's no question that for unskilled labor, their relative wages are going down because two billion workers from China and India are suddenly hitting. That's supply and demand. But the gains we're making from that trade are more than enough to provide these people with whatever support and income substitution they may need. One thing we learn from economics is you can have a win-win situation. It's not just zero-sum. The winners can win enough that they can, in fact, compensate the losers for their losses.

But it has to be done carefully. All the studies that have been done so far on protecting jobs show the costs are many times the salaries of the people whose jobs are actually saved. The loss to the consumer of protecting 100 workers in, say, a chemical plant, costs consumers a thousand workers' worth in income. That just doesn't make sense, from an economist's standpoint.

Can we compensate the workers who have lost? Yes we can. There's enough gain here for everybody to be winners. We have to develop ways to transfer some of the profits and higher incomes that globalization implies to compensate people who lose from globalization. It is much better to do it that way than to restrict globalization, because then everyone loses.