Globalization advocates celebrated the 2003-08 period, pointing to the rapid rate of growth of many third world countries as proof of capitalism’s superiority as an engine of development. Overlooked in the celebration was that fact that growth and development are not the same thing, and in most countries the benefits of growth were only enjoyed by a small minority. Also overlooked was the fact that this growth was achieved at the cost of ever increasing damage to the health of our planet. Finally, these cheerleaders also minimized the unbalanced, unstable, and unsustainable nature of the growth process; some seven years after the end of the Great Recession most countries continue to struggle with stagnation, with working people disproportionately suffering the social consequences.
The following figures, taken from the World Bank’s latest annual Global Economic Prospects report, highlight the severity of the post-crisis growth slowdown.
Figures 1 and 2 illustrate the extent of the growth slowdown. Emerging Market and Developing Economy (EMDE) commodity exporters have suffered the worst declines. In terms of region, EMDEs in Europe and Central Asia and Latin America and the Caribbean recorded the lowest rates of growth. Sub Saharan African countries experienced one of the sharpest declines in growth relative to the 2003-08 period.
Figure 1: Gowth By Group
Figure 2: Regional Growth EMDEs (weighted average)
This ratcheting down of EMDE growth rates means a significant setback in progress towards achieving advanced economy levels as shown in Figure 3 A and B.
Figure 3: Catch-Up of EMDE Income To Advanced Economies
The Financial Times discusses the significance of this development:
That downgrade [in world growth] came alongside a new analysis showing that for the first time since the turn of the century a majority of emerging and developing economies were no longer closing the income gap with the US and other rich countries.
Last year just 47 per cent of 114 developing economies tracked by the bank were catching up with US per capita gross domestic product, below 50 per cent for the first time since 2000 and down from 83 per cent of that same sample in 2007 as the global financial crisis took hold.
That, the bank’s economists warned, would have a meaningful impact on the future people in those countries could expect.
“Whereas, pre-crisis, the average [emerging market] could expect to reach advanced country income levels within a generation, the low growth of recent years has extended this catch-up period by several decades,” they wrote.
Leading International Monetary Fund officials have warned in recent months that the so-called process of “economic convergence” had slowed to two-thirds of its pre-crisis rate. But the warning from the bank paints an even starker picture.
In the five years before the 2008 financial crisis, emerging markets could expect to take an average of 42.3 years to catch up with US per capita GDP, according to the bank’s analysis.
But over the past three years, as major emerging economies such as Brazil, Russia and South Africa have slowed or fallen into recession, the slower average growth means the number of years it would take to catch up with the US has grown to 67.7 years.
For frontier markets, those more fragile economies further down the development scale, such as Nigeria, the catch-up period more than doubled from 43.1 years to 109.7 years.
And, it is important to add, even these projections are likely optimistic. The IMF and World Bank have repeatedly overestimated future rates of growth and tend to downplay the possibilities of yet another global crisis.