Getting to the Future:
The Principal Drivers of the
Global Economy
Marvin Zonis, Professor
Graduate School of Business
The University of Chicago
The Principal Drivers of the Global Economy






Globalization
Withering Away of the State
Technology
Demography – Human Capital
Failed States
Economic Growth
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Globalization
An increasingly interconnected world:
“As a result of very rapid increases in telecommunications and
computer-based technologies and products, a dramatic
expansion in cross-border financial flows and within
countries has emerged. The pace has become truly
remarkable. These technology-based developments have so
expanded the breadth and depth of markets that
governments, even reluctant ones, increasingly have felt
they have had little alternative but to deregulate and free up
internal credit and financial markets.”
Alan Greenspan, keynote address at the Cato Institute's 15th
Annual Monetary Conference, October 14, 1997.
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Globalization
Globalization is not a new story:
“For several major industrialized countries, including the
U.S., foreign trade—exports plus imports—has only
recently surpassed the levels achieved in the 19th
century. Capital flows are even less integrated.
Current capital flows are still only about three-quarters
of the levels achieved in the 1890s.”
Steve H. Hanke, Johns Hopkins University
economist
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Globalization
Foreign Trade as % of GDP:
Source: Forbes, August 24, 1998
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The Withering Away of the State
 March 24th, 1999:
 The UK's highest court
upholds Chilean
ex-President Augusto
Pinochet's arrest
 NATO strikes against
Serbian targets in
Yugoslavia begin
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The Withering Away of the State
 Assault on state sovereignty from above –
supranational organizations:
 NATO
 EU
 WTO
 IMF
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The Withering Away of the State

Assault on state sovereignty from below – regionalism:

Quebec and Canada

The Walloon and Flemish separatists and Belgium

Kurds and Turkey

East Timor and Indonesia

Corsica and France

Basques and Spain
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Global Inequality
 Global inequality is widening – I:
“Some 3 billion people, half of the world's population live
on the margin of subsistence, and the gap between the
average incomes of the richest and poorest countries has
widened to 70:1.”
– Secretary-General Kofi Annan in a message to the
International Conference on Development, June 24, 1999
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Global Inequality
 Global inequality is widening – II:
“If we do not have the capacity to deal with social
emergencies, if we do not have longer-term plans for solid
institutions, if we do not have greater equity and social
justice, there will be no political stability. And without
political stability, no amount of money will put together
packages which will give us financial stability."
- James Wolfensohn, President, The World Bank Group, to
the IMF-World Bank Meeting in Washington, 1997
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Technology and the Digital Economy
 Internet users per 1000 people (1998):
Iceland
320.3
Finland
305.4
Norway
304.1
Sweden
289.8
US
283
Australia
234.1
Canada
211.5
New Zealand
190.1
178.6
Denmark
140
Singapore
Switzerland
138.2
United Kindom
137.3
Netherlands
124.8
Hong Kong
98.7
Israel
95.7
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Technology and the Digital Economy
 Registered hosts on the Internet:
Source: Matrix information and Directory Services
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Human Capital – Changing Demographics
 Median age by major area, 1950, 1998 and 2050 (in
years)
1950
World Total
23.5
More developed regions
28.6
Less developed regions
21.3
Africa
18.7
Asia
21.9
Europe
29.2
Latin America and the Caribbean 20.1
Northern America
29.8
Oceania
27.9
1998
26.1
36.8
23.9
18.3
25.6
37.1
23.9
35.2
30.7
2050
37.8
45.6
36.7
30.7
39.3
47.4
37.8
42.1
39.3
Source: UN Population Division
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Human Capital – Rise in Median Age
 Median Age 1985, 2000 and 2015
50.0
1985
2000
2015
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
United
States
China
Japan
Germany
India
France
United
Kingdom
Italy
Brazil
Mexico
Source: UN Population Division
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Human Capital – Decline in Fertility Rates
 Fertility rates 1985, 2000 and 2015 (births per
woman)
5.0
1985
2000
2015
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
United
States
China
Japan
Germany
India
France
United
Kingdom
Italy
Brazil
Mexico
Source: World Bank and US Census Bureau
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Human Capital – Aging Population
“According to current projections, in 2030 every third
person in the member countries of the Organisation
for Economic Cooperation and Development will be
over age 60.”
– UN, Division for Social Policy and Development
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Human Capital – Aging Population
“Today, the ratio of working taxpayers to nonworking
pensioners in the developed world is around 3 to 1. By
2030, absent reform, this ratio will fall to 1.5 to 1 - and in
some of the fastest aging countries, such as Germany and
Italy, it will drop all the way to 1 to 1 or even lower. The
typical working couple will thus be required to fund the
full cash pension and health-care needs of at least one
anonymous retiree.”
– Former U.S. Commerce Secretary Peter G. Peterson
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Human Capital – Global Aging
 Consequences of Global Aging:
 Change in consumption patterns
 Changes to pension systems
 Huge infrastructure for young and rapidly growing
populations
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What Are the Emerging Markets?
 High Growth –
•
AVERAGE GDP GROWTH ABOVE 4 PERCENT PER YEAR, 19871997:
0
China
Malaysia
Vietnam
Singapore
Chile
Lebanon
Lesotho
Sudan
Indonesia
Thailand
Uganda
Korea, Rep.
Ireland
Lao PDR
Jordan
Myanmar
Syrian Arab Republic
Peru
India
Oman
Israel
Papua New Guinea
El Salvador
Cambodia
Argentina
5
10
15
11.6
8.6
8.6
8.5
8.3
8.3
7.8
7.7
7.5
7.4
7.4
7.2
7
6.7
6.3
6.3
6.3
6.2
6
5.9
5.8
5.7
5.6
5.5
5.4
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Hong Kong, China
Sri Lanka
Eritrea
Dominican
Nepal
Guinea
Mauritius
Mozambique
Panama
Bangladesh
Chad
Benin
Botsw ana
Colombia
Ethiopia
Tunisia
Ghana
Mauritania
Pakistan
Bolivia
Guatemala
Nicaragua
Poland
Turkey
Egypt, Arab Rep.
Iran, Islamic Rep.
Uruguay
5
10
15
5.3
5.3
5.2
5.1
5.1
5
5
4.9
4.8
4.7
4.6
4.5
4.5
4.4
4.3
4.3
4.2
4.2
4.2
4.1
4.1
4.1
4.1
4.1
4
4
4
18
What Are the Emerging Markets?
 Steady Growth –
•
AVERAGE GDP GROWTH BETWEEN 1 AND 4 PERCENT PER YEAR,
1987-1997:
0
1
2
3
4
Costa Rica
3.8
Namibia
3.8
0
3
2
1
Gam bia
2.2
Yemen, Rep.
3.7
Mexico
2.2
Malaw i
3.6
Venezuela
2.2
Zimbabw e
3.6
Kenya
2.1
Brazil
3.4
Guinea-Bissau
3.4
Burkina Faso
3.3
Honduras
3.3
Mali
3.3
Philippines
3.3
Gabon
3.2
Ecuador
3.1
Paraguay
3.1
Cote d'Ivoire
3
Nigeria
2.8
Tanzania
Senegal
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2.7
2.5
Morocco
1.9
Togo
1.9
Albania
Saudi
Arabia
Greece
1.8
1.7
1.6
1.5
Niger
South
Africa
Belgium
Slovenia
Cen.
African
Zam bia
4
1.5
1.4
1.4
1.2
1
19
What Are the Emerging Markets?
 Growth??
•
AVERAGE GDP GROWTH BELOW 1 PERCENT PER YEAR, 19871997:
-5
-4
-3
-2
-1
0
1
-20
2
-15
-10
-5
Madagascar
0.9
Rw anda
-5.7
Algeria
0.8
0.7
Congo, Dem. Rep.
-6
Belarus
-6.1
Congo, Rep.
Slovak Republic
0.6
Jamaica
Cameroon
0.4
-0.1
-0.2
Czech Republic
-0.2
Hungary
Romania
-0.3
-0.6
Mongolia
-0.8
Macedonia, FYR
Croatia
-1
-1.2
Angola
Uzbekistan
Haiti
Bulgaria
Burundi
Russian Federation
-7.7
Kazakhstan
-7.9
Kyrgyz Republic
-9.5
Turkmenistan
-9.6
Armenia
-2.5
Moldova
-3.6
Estonia
-3.8
-4.4
Sierra Leone
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-8.5
Latvia
Ukraine
-3.3
-7.1
Lithuania
-2.4
Azerbaijan
Georgia
0
-10.3
-13.1
-14.1
-15.1
-16.3
Tajikistan -16.4
20
What are the Emerging Markets?
 The losers:
• Countries whose average annual population growth is above
their Average Annual Change in GDP (1987-1997):
(20.00)
(15.00)
(10.00)
(5.00)
0.00
Tajikistan
Georgia
Azerbaijan
Moldova
Ukraine
Turkmenistan
Armenia
Kyrgyz Republic
Congo, Dem. Rep.
Latvia
Russian Federation
Rw anda
Lithuania
Sierra Leone
Belarus
Burundi
Uzbekistan
Haiti
Angola
Estonia
Mongolia
Cameroon
Bulgaria
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(20.00) (15.00) (10.00) (5.00)
0.00
Saudi Arabia
Congo, Rep.
Madagascar
Zambia
Niger
Gambia
Algeria
Togo
Croatia
Central African
Kenya
Macedonia,
South Africa
Jamaica
Tanzania
Yemen, Rep.
Romania
Venezuela
Czech Republic
Senegal
Nigeria
Morocco
21
What Are the Emerging Markets?
 Leading Growth Countries Since 1950:
Rank
1
2
3
4
5
6
7
8
9
10
Country
Oman
Taiwan
Botswana
Macau
Andorra
Hong Kong
South Korea
U. A. E.
Singapore
Saudi Arabia
GDP Growth
1950-90 (%)
3677
3185
3142
3135
2797
2504
2324
2156
1799
1577
Rank
11
12
13
14
15
16
17
18
19
20
Country
Thailand
Japan
Libya
Israel
Jordan
French Polynesia
Maldives
China
Swaziland
Malta
GDP Grow th
1950-90 (%)
1540
1460
1451
1414
1225
1117
1056
978
975
971
Sources: OECD,UN, Euromonitor
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What Are the Emerging Markets?
 Failed States:
• Symptoms of failed states – low GDP per capita and low
economic growth:
Real
Annual GDP
Growth, as
GDP Per
pe rce ntage
Head of
Change on
Popula tion Previous
Country
(US$)
Ye ar
Somalia
100
0
Ethiopia
123
4.5
Congo, Dem. Rep.
161
0
Niger
180
4
Mali
244
5
Madagascar
246
4
Moldova
275
-8
Bangladesh
277
3.4
Tanzania
281
3.3
Kenya
301
1.5
Re al
Annua l GDP
Growth, as
GDP Per percentage
Head of
Change on
Popula tion Previous
Country
(US$)
Year
Guinea-Bissau
325
4
Vietnam
338
3.5
Togo
340
4.5
Liberia
344
2
Pakistan
418
-0.1
Ghana
463
2.5
Zimbabwe
481
1.5
Haiti
493
1.5
Indonesia
544
-3.4
Nicaragua
623
2.5
Re al
Annual GDP
Grow th, as
GDP Per percentage
Head of
Change on
Popula tion Previous
Country (US$)
Year
Ukraine
720
-1
Korea, D.P.R.
745
-7
Angola
766
1
Mongolia
858
3
Honduras
888
0.5
Guyana
904
1.8
Bolivia
948
-1.9
Philippines
963
1.8
Nigeria
1242
1
Kazakstan
1314
1
Source: ICRG
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The Major Financial Crises of Our Times:
Latin American Debt Crisis of 1982
ERM Crisis of 1992
Mexican Peso Devaluation of 1994
East Asian Crisis of 1997
Russian Crisis of August 1998
Brazil Crisis of 1999
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The Major Financial Crises of Our Times:
East Asian Crises, 1997-1998
Japanese Model of Economic Development
• State guides economy and growth
• State allocates resources
• Export led growth
Unregulated Banking Systems
•
•
•
•
•
High Levels of Corruption
Common Industries
Investment Boom
Japanese slowdown
Chinese Devaluation, 1994
• Currencies Pegged to Dollar
• Robert Rubin pushes for strong dollar, March-April, 1995
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Then and Now
Then:
 All emerging markets were treated alike.
 Emerging markets were considered virtually equal
bets.
 Companies tended to ignore country risk, focusing
on the financial and economic aspects of the deal.
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Then and Now
 Now:
 A Beauty Pageant
 Differentiation of
Emerging Markets
countries on the basis of
considerations of political
risk.
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The Major Financial Crises of Our Times:
The countries that will emerge most successfully
from the crises are the ones that will make the
most deep seated structural reforms.
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Factors for Country Success
Stable Institutions
 Democratic Politics
Policies
 Human Capital
 Market Economics
 Globalization
 Technology
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Factors for Success: Institutional Strength
 Long Term Ratings:
Australia
97
Canada
United States
96
India
80
Netherlands
96
Hong Kong
79
France
95
Thailand
75
United Kingdom
94
Philippines
74
China
73
South Africa
72
Peru
72
Brazil
72
New Zealand
92
Germany
92
Italy
89
Taiwan
88
Japan
87
Mexico
86
Czech Republic
86
South Korea
83
Malaysia
68
Vietnam
66
85
Colombia
66
Chile
84
Venezuela
Argentina
84
Russia
Panama
83
Indonesia
0
20
40
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60
80
100
63
54
44
0
20
40
60
80
100
30
Factors for Country Success
Stable Institutions
 Democratic Politics
Policies
 Human Capital
 Market Economics
 Globalization
 Technology
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Factors for Success: Human Capital
 Women's activity rates for the age group 20-54
years in 1950, 1970, 1990 and 2010
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The East Asian Crises, 1997-1998
Prospects for the Future:
• Asia’s Growing Labor Force
55%
25-to-59 age group as %
of population
Malaysia
50%
China
Thailand
45%
US
40%
projected
35%
1990
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Factors for Success: Human Capital
 Adult illiteracy rate – 1995:
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Factors for Success: Human Capital
 Literacy Rates, 1997:
Country
Literacy
Ra te
Russian Federation
Korea, Rep.
Spain
98.00%
98.00%
96.00%
Thailand
Mexico
Indonesia
Brazil
Turkey
China
93.80%
89.60%
83.80%
83.30%
82.30%
81.50%
India
52.00%
Source: ABC-Clio
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States in Decline
Ethnic Distribution
In The Former
Yugoslavia
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Factors for Success: Human Capital
Ethnic Distribution
In Russia
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Factors for Success: Corruption
 1998 Corruption Perception Index
Country
Hong Kong
Chile
Malaysia
Taiwan
South Africa
Czech Republic
South Korea
Brazil
China
Turkey
Corruption
Pe rce ption
Inde x Ra nk
16
20
29
29
32
37
43
46
52
54
Country
Mexico
Philippines
Thailand
Egypt
India
Russia
Colombia
Indonesia
Nigeria
Corruption
Perception
Index Rank
55
55
61
66
66
76
79
80
81
Source: Transparency International
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