Articles / Rubric: Global

When the South Overtakes the North
July - August 2013 | Global

It seems that the persistent association of "rich North – poor South” is no longer fitting. Recently analysts are more inclined to note a new trend – the strengthening of the southern countries, in terms of both economic criteria and political influence.

Global Rebalancing
By 2050, according to a recently released UN forecast, China, India, and Brazil will together account for exactly 40% of total world production, which is significantly higher than the projected total current output of the Group of Seven. No doubt, this will dramatically change the balance of the world economy in favor of the South, which is traditionally considered as "catching up" in a conventional economic duel with the North.

The South’s ascent is unprecedented in both its scope and speed. Never before have the living conditions and prospects for the future of so many people changed so dramatically and so rapidly. For the UK – the country where the Industrial Revolution began – it took 150 years to double its per-capita output. For the United States, whose industrial development came later, it took 50 years. But China and India have doubled their output per capita in less than 20 years, and these changes have affected a hundred times more people than did the Industrial Revolution. In 1950, China, India and Brazil represented only 10% of the global economy, while the share held by the traditional industrial leaders of the North was more than half. Now the situation is changing before our very eyes.

Professor Mikael Davtyan, Director of the World Economics and International Finance Department at the Peoples’ Friendship University of Russia, stated that today, the South itself produces about half of world economic output (vs. about one-third in 1990). The total GDP of the eight largest developing countries – Argentina, Brazil, India, Indonesia, China, Mexico, Turkey, and South Africa – is currently equivalent to the GDP of the USA, which continues to be the largest economy in the world. However, back in 2005, the combined weight of the economies of these eight countries was barely half that of the United States. “The South’s ascent,” stressed Professor Davtyan, “should be considered as a history involving dramatic expansion and steady progress of the human potential in those countries, where the vast majority of the world’s population resides. The advancement of dozens of countries and billions of people up the development ladder, which is occurring today, is having a direct impact on mankind’s well-being and progress in all countries and regions of the world.”

It would be wrong to think that the growing power of the South is merely the result of the economic success of the locomotive countries. We are also observing dramatic growth in almost all major indicators in small states such as Mauritius, Rwanda, and Tunisia. This trend is evident in countries having very different natural conditions, social structures, geography, and history: Algeria and Argentina, Bangladesh and China, Chile, Ghana and Guyana, Malaysia and Mozambique. Against the backdrop of the South’s ascent, new trade routes have blossomed: Countries with quite divergent export structure, such as Vietnam, Morocco, and Thailand, have established major export-import relations with over 100 countries in the past five years. Even the 49 least developed countries, which are landlocked and therefore remote from world markets, have begun to enjoy the benefits of South-South trade, and the transfer of investment, finance, and technology. For example, the positive externalities of growth have spread from China to other countries, especially the country’s close trading partners.

In addition, many countries have taken advantage of the overflowing externalities in important sectors of human development, particularly health care. Thus, Indian firms and companies from Brazil and South Africa now deliver affordable medicines and medical equipment, as well as products and informational and communication technology services in Africa. New technologies, adapted to local conditions, have increased labor productivity and enabled the cross-border distribution of products. All of this is happening today because people and continents are interconnected on a scale that was previously inconceivable.

Towards a Multi-Polar World
It is important to understand that the South’s transformation requires a change in the rules underlying international relations. The landscape that emerged after the Second World War and was affixed in the structure of leading global organizations no longer corresponds to the realities of the 21st century. Indeed, the global demographic situation, as well as the balance of wealth and geopolitical influence, has changed in highly significant ways.

The South’s growing influence in shaping global policy notably manifested itself during the international response to the financial crisis in 2008. Previously, financial decisions were only being taken by major industrial powers, as in the case of the Plaza Accord in 1985. But this time, the key role was played by a much broader group, the Group of 20, which includes not only the traditionally strongest powers in the world, but also the major emerging economies. Representatives of the South have also come to occupy more senior positions in long-established international organizations. Specifically in interaction with the previously established centers of power, the South is changing the rules of the game, creating a new world order, and changing the system of global governance so that it meets the interests of both the developed North and the emerging powers.

Yuri Moseykin, Director of the Institute of World Economy and Business, spoke about the need for a more representative system of international governance, which embodies the principles of democracy and equality of opportunity. In his view, "Globalization and the interpenetration of countries have led to the fact that a unipolar world system has become ineffective. Now the world needs a new multipolar system. And I believe that the South’s ascent will not change the balance of power through conflict and war, but rather through evolution. No other way is possible, because now the economic interdependence of developed and developing countries is too high. Countries and people have never before been so heavily dependent on each other. Although to the casual observer of the current situation it may seem like `a tale of two cities’--a revitalized South (best exemplified by countries such as China and India), where there is significant progress in terms of human development, growth remains stable, and prospects for reducing poverty are encouraging; and the crisis-ridden North, where austerity policies and the lack of economic growth have placed a heavy burden on the shoulders of millions of unemployed people. But in fact, such a rigid division of the world into two separate `camps’ does not exist.”

The countries of the world have become more interconnected rather than less. For example, today the South accounts for half of global trade volume flows (30 years ago, it was only a quarter). Nevertheless, a significant share of South-South trade continues to be driven by demand on the part of developed countries. The reverse also trend exists: Developing countries are major importers of products from the North. For example, after 2007, U.S. exports to traditional partners in the Organization for Economic Cooperation and Development (OECD) grew by 20%, while U.S. exports to Latin America, the Caribbean, and China increased by more than 50%. The South needs the North, but the North also increasingly needs the South.

Many experts share this view. Georgy Toloraya, Executive Director of the National Committee for Research of BRICS Countries, notes that "the growth and development of the economies of Latin America, Africa, the East, and the Asia-Pacific region are based on infusions, on a huge influx of Western capital and Western technology. These countries’ economies are working mainly for the Western market. And with no interaction with the established centers of power, it would generally be impossible to boost the economies of developing countries. After all, countries of the South are not an isolated coalition or formation that is pitted against the North. The philosophy of `the South’s ascent’ is quite different, and lies in partnership and cooperation with developed countries.”

The task of the emerging powers, especially giants such as China, India, and Brazil, lies precisely in the fact that, by joining forces, they influence all of the processes taking place in the global economy. But this means that the main objective for southern countries entering the international arena is not "power for power’s sake,” but rather the opportunity to accelerate overall global progress. This will raise standards and extend the choices available to people in all countries and communities, in all major areas of human development (starting with health, education, and livelihoods, and ending with personal freedom to shape and improve their lives).

However, despite the promising prospects that are opening up before the developing countries, some analysts are highly skeptical about "the South’s ascent.” For example, many experts believe that the rapid growth of macroeconomic indicators in developing countries is due entirely to a low baseline effect, while consumer and investment demand in these countries continue to stagnate. According to several influential analysts, the growth of the South will not continue forever, since these countries’ economies are export oriented and too heavily dependent on demand for a particular resource that is to be delivered to developed countries.

Text: Olga Sokolnikova

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