Robert J. Shapiro November 4 th 2008. The New Economics of Globalization The New Demographics of Nations Aging The New Geopolitics of a Sole Superpower.

Robert J. Shapiro November 4th 2008

• The New Economics of Globalization

• The New Demographics of Nations Aging

• The New Geopolitics of a Sole Superpower

The Forces Changing the Course of Nations

• Global exchanges soar: 1990 – 2006, share of worldwide GDP

traded across borders up from 18% to roughly 30%.

• 2005: 180 national economies trade over $12 trillion in goods and services (out of $42 trillion world GDP), the highest levels and the largest increases ever.

• U.S. imports top $2.2 trillion (2006), more than the GDP that year of all but five other countries.

The New Landscape of Globalization

• Traditional trade: Commodities from developing economies, manufacturing in advanced economies, and finished goods marketed among advanced economies.

• Modern globalization: FDI – driven networks of sophisticated operations around the world, to produce, market and sell everyone to the world.

Globalization Versus Traditional Trade

• Rapid modernization and growth, based on transfers of modern business organizations (FDI), investments in education and infrastructure, and reforms to allow more foreign and domestic competition.

• East Asia, versus Latin America, versus Africa: Case studies in the difference that public investment, macroeconomic stability, political stability, and FDI make.

Impact on Developing Nations

Impact on Advanced Economies

• Ideas replace physical assets as main source of wealth and growth in developed economies:

– US firms invest more in tangible assets than in physical assets;

– 1980: Market value of the physical assets of top 150 U.S. public companies = 75% of their stock value; 2004, this “book value” of the top 150 companies = 36% of the value of their shares.

– Nearly two-thirds of the value of large companies now comes from what they know and the ideas and relationships they own.

– Impact on US growth, productivity and incomes, versus Europe and Japan

• Intense global competition holds down inflation and interest rates;

• When intense competition collides with rising fixed costs, the link between growth and job creation is weakened;

• Same combination weakens the link between productivity gains and wage progress

• Result: Globalization reduces job opportunities and income gains for all but those most adept in an ideas – based economy

Impact on Advanced Economies – 2: The Case Study of the United States

• Focus on education and

infrastructure, like East Asia– 1990s: 5% GDP to infrastructure (2 x EU)

– Free university access

– 2005: 37% 25-34 year olds with post-

secondary training, versus EU 27%

• Policies to draw FDI, like China– 2004: Irish FDI stock, as share of GDP, 10 x

Germany, 5 x France, 4 x UK

Ireland: A Developed Economy Uses a Developing Nation Strategy

• Is a global recession in the cards?• The impact of a serious downturn

in advanced countries on trade and FDI

• The impact on politics: Rising demands for economic security

• How governments should respond

Will the Global Crisis Change These Dynamics?

• The historical uniqueness of an unusually large generation followed by an unusually small one, now happening across the world.

• Why: The spread of basic modernization, changing roles for women & technological advances.

• Result in most places: Average age of national populations rising quickly

• Signs of aging populations: elderly populations growing 3%/year in most advanced countries.

• Why Ireland is different

The New Demographics

• The problem for Europe and Japan: 2005 – 2020, the number of elderly people will increase 35%-50%, as the working age, tax-paying cohort shrinks.

• Early costs of these changes: Falling saving, investment, and growth rates Fewer sources of revenues as demand for public

goods rise sharply.

• Longer term challenges: The political battles over pensions and health care.

The New Demographics -2

Impact for Different Countries

• Hit very hard: Japan, Italy & Russia

• The hard time facing France and Germany

• Why China will be less affected, even with the world’s fastest aging population

• How Ireland and US can avoid many of these costs for a generation

– Role of immigration

– Role of public pension policy

– Role of globalization-based economic policies

Demographics and Prospects for Ireland and the US

• How the combination intensifies inequality

• The crisis of financing health care Fast–rising numbers of older people, meets,

concentrations of serious illness in older people, and fast-rising costs to treat those conditions

The increasing role of regulation

• Ireland’s trump: The relatively small numbers of elderly Irish

Demographic Shifts Meet Globalization

• The effects on economic growth

– Spectre of a generation of slow growth for Japan, Germany, France, Italy and others

– Why the outlook is better for the U.S., China and Ireland

Demographics Meets Globalization - 2

• Historical anomaly of a sole military and economic superpower with no near peer – the United States.

• Iraq War: The test the superpower passed and then failed

• Importance of collaborative arrangements for on-going challenges – trade, finance, terrorism, drugs, climate

• The inescapability of US leadership

The New Geopolitics

The New Geopolitics & Globalization• The two poles of globalization

– U.S. (Western Pole) – where new ideas are born and spread first.

– China (Eastern pole) – the world’s production and assembly platform.

• US- Sino comity and conflicts

• The global challenges:

– Energy and Climate Change– The new petro-politics – Russia, China and

OPEC– Terrorism and Islamist fundamentalism

• Its origin in globalization

– The globalization of capital– Role of global competition in asset bubbles– The role of America market ideology

• Tensions between national and global solutions: Whither the EU?

• The outlook: How long and how bad?

A World in Financial Crisis

• Strategy combining public investments (the path of the Asian Tigers) and waves of foreign investments (see China)

– Public education spending up 150% since 1985

– Tax and other preferences for foreign firms

– Small welfare provisions

– Geography (EU) and the value of low wages

– Direct transfers focused on idea-based sectors – IT, pharmaceuticals, medical equipment, financial services

– Language

Why Ireland Has Succeeded

• Can avoid the economic costs of aging population and the public pension crisis looming for other countries

• High growth rates will likely settle down

• Can Ireland end its “dual economy,” wean itself from dependence on FDI, and promote productivity spillovers to domestic firms, especially in services

• Implications of recent education, tax and health care policies on FDI and long term growth

• Unsettled: Competing with the accession countries

The Future for Ireland