THE MIDEAST IN THE NEWS

2012: The Decline of the West? Well...Maybe Not

India ranks second only to China as the world’s most important destination for FDI, according to a UN report. FDI to India started at $1 billion in 1990 and now runs into the tens of billions of dollars, with primary sources of funds being the US and UK. The question to Prof. Nathan is, where would India be today without these billions of dollars of Western investment? Isn’t it fair to say that a continuing crisis in the US and Europe can only eventually trickle down to these investees? Foreign-direct investment, which ties nations together and allows for investment around the world, is only one indicator of the nature of the global economy we live in today. It reasons that with nations so closely linked, a financial crisis on one side of the globe will ultimately affect the rest of the world. No one is immune. This puts Nathan’s argument of a Western decline against a rising Eastern market in doubt.

Moreover, Nathan makes no mention of the fact that the US remains the world’s largest economy by some distance (around $15 trillion), as China (around $5 trillion) only managed to overtake Japan into second place earlier this year. It could still be a decade, despite the financial crisis, until China overtakes the US as the world’s largest economy. Nathan also makes no mention of the fact that six of the biggest ten economies are Western economies, one is Latin American (Brazil), one is Japan, and only two of the top 10 and five of top 20 are Eastern hemisphere emerging markets. Most economists expect emerging markets to play a greater role in the global economy in coming decades, but this doesn’t lead to the de facto decline of the West; and the statistics certainly don’t tell that story.

For all of Prof. Nathan’s heralding of India as a wonderful nation, he makes no mention of the tens of millions there who still live in abject poverty. Nathan ignores recent Indian data released regarding growth in September which showed the Indian economy growing at the slowest pace since mid-2009. So much for India not being a global financial crisis.

Government advisors have suggested a surge in FDI as a means to help boost the economy, an idea that certainly runs counter to Nathan’s argument that hedge-fund managers deserve no praise for India’s advances. Prof. Nathan tries to use Chinese economic strength to try and make India look stronger. But China too is feeling the effects of the “US-Europe crisis” and recently lowered its reserve-ratio-requirement (RRR) rate to try stimulate the economy.

Most China watchers suggest there is a very real possibility the Chinese economy is being built on government funds and has no real legs. There are gloomier reports still that suggest the growth is a bubble and, like all bubbles, it will pop, leading to what economists bleakly refer to as the “crash-and-burn” scenario. Therefore, while China is certainly an economic power to be reckoned with at the moment, its future is far from certain. This uncertainty is why one does not see the yuan being used as a reserve currency. That role still belongs to the US Dollar because investors know that the US economy is built upon solid fundamentals and a complex financial system that will still be here tomorrow. The same cannot be said for a rapidly expanding China, which has tried to walk the line between free market economics and its Communist tenants.

The real force to watch in coming decades is not the East but rather Africa, of which Prof. Nathan makes no mention. According to IMF data, in the last decade 6 of the world’s 10 fastest-growing economies were African and in 8 of the last 10 years Africa has grown faster than the countries of East Asia, including Japan. The IMF, which sees the financial crisis as global, suggested that in spite of the slowdown the northern hemisphere is currently experiencing, Africa is still expected to grow at 6% this year and 6% in 2012, about the same as Asia. Thus, if anyone is going to truly threaten the dominance of the West in the political and economic spheres in the future it will be Africa.

In truth, no nation on Earth has escaped the effects of the global financial crisis. With banks now acting like global entities, the meltdown of the financial system is a global crisis, not a localised US-European one, even if those regions are suffering the most. Yet to suggest that the West is in absolute decline economically is, I believe, not convincing.

Whether we will see a shift of power from West to East remains to be seen, but more likely 2012 will augur the emergence of a new world order that rests on power-sharing between East and West, based on mutually beneficial economic growth.

Jonathan Granby is a master’s candidate in Middle Eastern History at Tel Aviv University. He has formerly held positions in financial services and public policy. Prior to these positions he was the Freedom Fellow at the Jerusalem Institute for Market Studies.

*Photo Credit: Long Island Rose