The cycle of the ages

Looking back on 2008, it’s easy to give in to the reflective, reflexive, periodic year-end ritual of branding the year gone by as annus horribilis: a year of limitless horrors, which made all previous dismal annual reviews seem, in comparison, like a champagne-and-caviar party.

That’s only partly because the human mind’s short-term memory of bad times is always more vivid than recollections of the miseries of the distant past. It’s inarguable that 2008 was a particularly bruising year. The nearest thing to a global financial meltdown the world has witnessed in one lifetime has wrought incalculable misery on millions around the world.

The fact that this time around, the financial crisis unravelled not in a far corner of the globe but at its core — in the heart of Wall Street — has compounded the problem and exaggerated its ripple effects.  Entire national economies have slipped into recession, and trillions of dollars have been lost to the sharp contraction in asset prices worldwide.

Earlier projections that Asian economies, including India, would be able to “decouple” from a recession in the developed world and insulate themselves from the storm have gone horribly wrong. If the Chaos Theory ever needed validating, it happened when the sub-prime mortgage butterfly flapped its wings in the US and set off hurricanes in faraway corners of the world, touching the life of a stock market investor in Mumbai, say, or a miner in Dhanbad, with just as much ferocity as it did with a Wall Street banker.

The economic outlook for 2009 doesn’t offer much comfort either. Even the unveiling of economic stimulus packages running to trillions of dollars — which are like the adrenaline shots pumped directly into the heart to prevent a seizure — haven’t restored confidence that the engines of the world economy will start humming again until well into the new year. If the responses to economic stimuli don’t play according to script, which is a very real possibility since economics isn’t driven by empirical truths, the downward spiral may last considerably longer.

Yet, for all the grim tidings of recent times and the uncertainties that cloud the outlook for the new year, a larger pattern is discernible to the global economic power balance. But just as works of art are best admired from a few paces away, an observer needs to zoom out from the chatter of everyday bad news to read the big-picture tectonic shift that’s taking place.

Today, the world’s three biggest economies are the US (which accounts for some 27 per cent of world GDP), Japan (8.4 per cent) and Germany (6 per cent); China comes in a close fourth (5.9 per cent). India doesn’t find a place in the top 10, whereas even Spain and Canada do.

Even the most conservative projections of economic growth will see a vastly different landscape — by 2050 at the latest. The three biggest economies then will be China (which will account for 18.5 per cent of the world GDP), the US (16.5 per cent) and India (12 per cent). What’s striking about that line-up is that it comes pretty close to mirroring the global economic power balance in the early 19th century. In 1820, for instance, China was the world’s biggest economy (28.7 per cent of global GDP), followed by India (16 per cent) and France (5.4 per cent); the US was a distant ninth, accounting for just 1.8 per cent of world GDP.

It was only in the 20th century that America rose as an economic superpower, and the term ‘American century’ wasn’t even coined until the 1940s. Whereas we know even so early into this century that it will inarguably be an Asian century; the timelines may have to be marginally reset, but there’s no uncertainty that Asia will achieve economic ascendancy in this century.

It’s been famously said that contemporaneous observers of events fail to distinguish between a bicycle accident and the collapse of a civilisation. What we’re witnessing today is a defining moment in the collapse of one civilisation and the ‘rebirth’ of another.