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  • Writer's pictureBait Al-Amanah

The New World Economy — Not Global, But Interconnected

Updated: Jun 20, 2023

Benedict Weerasena (Research Director of Bait Al Amanah) was recently invited by the Valdai Discussion Club to share his thoughts at a session titled “The New World Economy — Not Global, But Interconnected”. The forum took place as part of the St. Petersburg International Economic Forum 2023 business programme.

The full recording of the session can be viewed here:

Here are the key insights from the discussion:

On June 15, as part of the business programme of the St. Petersburg International Economic Forum 2023, the Valdai Club hosted a session, titled “The New World Economy — Not Global, But Interconnected”, featuring Andrey Belousov, First Deputy Prime Minister of the Russian Federation.

The concept of a “crumbling world” was coined by the Valdai Club’s researchers in 2017-2018. At that time, the concept describing a process whereby the institutions and structures of the post-Cold War world cease to function, caused objectionsof many experts. However, the pandemic began — and it turned out that the deformation and deconstruction of regulatory systems can occur much faster than we had imagined, Fyodor Lukyanov, Research Director of the Club, recalled in his opening speech. Today we see how politics, like an icebreaker, interferes with economic issues, and what seemed impossible yesterday, because it was irrational, is happening right now. At the same time, the crumbling world does not fall apart: it remains extremely interconnected in the economic, informational and cultural sense. Lukyanov invited the participants of the session to comprehend this new interconnectedness and try to determine which principles now define the functioning of the world. Andrey Belousov, Russia’s First Deputy Prime Minister, accepted the challenge, outlining five trends that will qualitatively shape the world over the next five years. The first trend is, according to him, the degradation of the globalisation model that took shape in the 1990s. As a result of the collapse of the USSR, immense resources were dumped on the market, which led to a rapid growth in trade, which, as it seemed, would be endless. Such institutions of globalisation as the WTO and the OECD emerged, while the dollar and the euro became the world’s reserve currencies. However, it was China that turned outto be the main beneficiary of this system, doubling its share in world GDP. In the second half of the 2000s, Americans, dissatisfied with this, began to gradually dismantle the system of globalisation. Protectionist tendencies are on the rise; they most clearly manifested under Trump, but continued, albeit without too much publicity, under the next US president. Parallel to this, inflationary waves are intensifying, entailing a change in price proportions in the world economy, and there is an accumulation of debt, which has become the biggest problem for central banks, especially in Southern Europe.

The second trend is the deformation of the US-China-Europe triangle, which was the backbone of the world economy until the early 2010s. The US consumes more than it produces and invests more than it saves. This process was financed primarily by China, and in return the United States opened its market to Chinese goods. However, by the early 2010s, the rapid growth of China’s gold and foreign exchange reserves, which were formed primarily through the purchase of dollars, has practically ceased.

The third trend is the emergence of new super-economies: countries that have gone from the agrarian stage to the industrial stage, and are beginning to move to the post-industrial one. These are India, Indonesia, Brazil, Mexico, with South Africa and Nigeria catching up. According to Belousov, the emergence of these countries is the second factor, along with US obstructionism, which actually destroyed the WTO. The fourth trend is the response to climate change. While promoting the energy transition, Western states have made no secret of their desire to stop the industrialisation of developing countries and form an alliance that would control access to green technologies. Closely related to this is the fifth trend: towards perpetuating the digital divide. New global platform players, such as Amazon and Alphabet, have emerged.Their potential is comparable to the potential of medium-sized countries, but a regulatory framework for their operation has not been developed. Belousov considers space exploration, which is becoming rapidly commercialised, to be the same factor in reinforcing inequality. Over ten years, the cost of a launch has decreased tenfold, and the task of the United States is to bring it to the level of $200 per kilogram of cargo. This would create completely new technological conditions, allowing the low-orbit constellation of satellites to be brought to levels never seen before, with major implications for the global economy and the way people live.

According to Belousov, these trends determine four scenarios for the world, two of which are more likely, and two less likely. The first likely scenario is an attempt to form a new globalisation, a New Pax Americana based not on liberalism, but on protectionism with the significant role of a power component, alliances against China, the use of the green agenda and attempts to consolidate the digital divide and advantages in space. The second trend is regionalisation, the transformation of existing super-economies into the core of regional systems with the periphery gravitating towards them.

One of the unlikely scenarios, according to the Deputy Prime Minister, is the emergence of a truly multipolar world in the Westphalian sense: tough and constantly on the brink of war. Equally unlikely, in his opinion, is the scenario of “backbone fortresses in a world of controlled chaos.”

At the outset, Andrey Belousovsaid that he intended to “map” the future discussion, and he apparently succeeded: many of his points resonated with the presentations by other speakers. The topic of regionalism was raised by EldorAripov, director of the Institute for Strategic and Interregional Studies (Uzbekistan). The countries of Central Asia are increasingly aware of their unity and jointly strive to respond to new challenges. One such challenge has been the disruption of traditional supply chains as a result of the conflict between the West and Russia. Due to the lack of access to the sea, this gap has become extremely sensitive for Uzbekistan and its neighbours: if earlier a truck with goods from Europe took 15 days to get to the region, today it takes from one and a half to two and a half months. However, these challenges have not undermined Central Asia’s prospects for sustainable growth, Aripov stressed. Central Asian states see growth potential within the region, unlocking new reserves that they have not thought about before. Foreign investments are being attracted, and forms of industrial cooperation are emerging that allow for the creation of new industries within the region. Interest in Central Asia is growing among its partners, both old and new. Central Asia, according to Aripov, is again becoming a crossroads of important economic interests.

The theme of regionalism was also heard in the speech of the representative of another region which enjoys the prospect of becoming a super-economy: ASEAN. Benedict Weerasena, research director of Malaysia’s Bait al-Amanah think tank, touched upon the declining importance of global institutions. As a result of the Asian crisis of 1997-98, many in the region expressed dissatisfaction with the IMF, due to its harsh conditions and demands for political adjustments. It was then that the idea of an Asian Monetary Fund that would be capable of providing liquidity to the countries of Southeast Asia without additional conditions was first floated. Recently, this idea was again voiced by Malaysian Prime Minister Anwar Ibrahim, and this time this project has the chance to be fulfilled, Weerasena believes. Today, this can be facilitated by the unfolding process of de-dollarization, in which, according to him, more than eighty countries are participating.

The growing role of ASEAN is recognized by China, for which the countries of the association have become the largest foreign trade partner. According to professor Gong Jiong, Vice President for Research and Strategic Studies at the University of International Business and Economics (UIBE), trade orbits are emerging around such regional centres as China and ASEAN, which confirms the idea of regionalisation of the world. De-dollarization is a key element: according to Gong, we are entering a “multipolar currency world.” Curiously, this has been facilitated by the United States, which, with its policy of sanctions and confiscation of assets, undermines confidence in the dollar as the main reserve currency. The US has long accused China of “non-market distortions and practices”, but it is now doing just that.

The global economy is undergoing a major reorientation, Gong said. Strong trade and economic ties remain between China and the United States; in parallel, however, competition between the two countries has been developing for a long time. Indeed, China, as Andrey Belousov emphasized earlier, took advantage of the fruits of globalisation too successfully, which caused the US to respond.

Arvind Gupta, head and co-founder of the Digital India Foundation, addressed the topic of the digital divide in his presentation. According to him, we made a mistake by allowing a few powerful corporations outside of our regions to gain enormous power and weaponisetechnology. But this mistake can be corrected by directing technology not to make a profit and establish control over citizens, but to improve people’s lives. According to Gupta, the entry of the Global South into the tech market is helping to keep tech platforms accountable to society.

The speakers’s presentations showed that we are beginning to realize the main directions in which the world is moving, Fyodor Lukyanov noted, summing up the session. Given that there was no such understanding just a year ago, we can say that we have made some progress, and this allows us to look to the future with cautious optimism.

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