marvin zonis, professor graduate school of business the university of chicago getting to the future:...
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Marvin Zonis, ProfessorGraduate School of BusinessThe University of Chicago
Getting to the Future:
The Principal Drivers of the Global Economy
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Globalization Withering Away of the State Technology Demography – Human Capital Failed States Economic Growth
The Principal Drivers of the Global Economy
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Globalization
“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.
An increasingly interconnected world:
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Globalization
“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
Globalization is not a new story:
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GlobalizationForeign Trade as % of GDP:
Source: Forbes, August 24, 1998
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March 24th, 1999:
The UK's highest court upholds Chileanex-President Augusto Pinochet's arrest
NATO strikes against Serbian targets in Yugoslavia begin
The Withering Away of the State
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Assault on state sovereignty from above – supranational organizations:
NATO
EU
WTO
IMF
The Withering Away of the State
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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
The Withering Away of the State
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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
Global Inequality
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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
Global Inequality
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320.3
305.4
304.1
289.8
283
234.1
211.5
190.1
178.6
140
138.2
137.3
124.8
98.7
95.7
Iceland
Finland
Norway
Sweden
US
Australia
Canada
New Zealand
Denmark
Singapore
Switzerland
United Kindom
Netherlands
Hong Kong
Israel
Internet users per 1000 people (1998):
Technology and the Digital Economy
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Registered hosts on the Internet:
Source: Matrix information and Directory Services
Technology and the Digital Economy
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1950 1998 2050World Total 23.5 26.1 37.8More developed regions 28.6 36.8 45.6Less developed regions 21.3 23.9 36.7Africa 18.7 18.3 30.7Asia 21.9 25.6 39.3Europe 29.2 37.1 47.4Latin America and the Caribbean 20.1 23.9 37.8Northern America 29.8 35.2 42.1Oceania 27.9 30.7 39.3
Median age by major area, 1950, 1998 and 2050 (in years)
Source: UN Population Division
Human Capital – Changing Demographics
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0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
UnitedStates
China Japan Germany India France UnitedKingdom
Italy Brazil Mexico
1985 2000 2015
Median Age 1985, 2000 and 2015
Source: UN Population Division
Human Capital – Rise in Median Age
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
UnitedStates
China Japan Germany India France UnitedKingdom
Italy Brazil Mexico
1985 2000 2015
Fertility rates 1985, 2000 and 2015 (births per woman)
Source: World Bank and US Census Bureau
Human Capital – Decline in Fertility Rates
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“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
Human Capital – Aging Population
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“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
Human Capital – Aging Population
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Consequences of Global Aging:
Change in consumption patterns
Changes to pension systems
Huge infrastructure for young and rapidly growing populations
Human Capital – Global Aging
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What Are the Emerging Markets?
11.68.68.68.58.38.3
7.87.77.57.47.47.27
6.76.36.36.36.265.95.85.75.65.55.4
0 5 10 15
ChinaMalaysiaVietnam
SingaporeChile
LebanonLesotho
SudanIndonesiaThailandUganda
Korea, Rep.Ireland
Lao PDRJordan
MyanmarSyrian Arab Republic
PeruIndia
OmanIsrael
Papua New GuineaEl Salvador
CambodiaArgentina
5.35.35.25.15.1554.94.84.74.64.54.54.44.34.34.24.24.24.14.14.14.14.1444
0 5 10 15
Hong Kong, ChinaSri Lanka
EritreaDominican
NepalGuinea
MauritiusMozambique
PanamaBangladesh
ChadBenin
Botsw anaColombiaEthiopiaTunisiaGhana
MauritaniaPakistan
BoliviaGuatemalaNicaragua
PolandTurkey
Egypt, Arab Rep.Iran, Islamic Rep.
Uruguay
High Growth –• AVERAGE GDP GROWTH ABOVE 4 PERCENT PER YEAR, 1987-
1997:
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What Are the Emerging Markets?
3.8
3.8
3.7
3.6
3.6
3.4
3.4
3.3
3.3
3.3
3.3
3.2
3.1
3.1
3
2.8
2.7
2.5
0 1 2 3 4
Costa Rica
Namibia
Yemen, Rep.
Malaw i
Zimbabw e
Brazil
Guinea-Bissau
Burkina Faso
Honduras
Mali
Philippines
Gabon
Ecuador
Paraguay
Cote d'Ivoire
Nigeria
Tanzania
Senegal
2.2
2.2
2.2
2.1
1.9
1.9
1.8
1.7
1.6
1.5
1.5
1.4
1.4
1.2
1
0 1 2 3 4
Gambia
Mexico
Venezuela
Kenya
Morocco
Togo
AlbaniaSaudiArabia
Greece
NigerSouthAfrica
Belgium
SloveniaCen.
AfricanZambia
Steady Growth –• AVERAGE GDP GROWTH BETWEEN 1 AND 4 PERCENT PER
YEAR, 1987-1997:
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What Are the Emerging Markets?
0.9
0.8
0.7
0.6
0.4
-0.1
-0.2
-0.2
-0.3
-0.6
-0.8
-1
-1.2
-2.4
-2.5
-3.3
-3.6
-3.8
-4.4
-5 -4 -3 -2 -1 0 1 2
Madagascar
Algeria
Congo, Rep.
Slovak Republic
Jamaica
Cameroon
Czech Republic
Hungary
Romania
Mongolia
Macedonia, FYR
Croatia
Angola
Uzbekistan
Haiti
Bulgaria
Burundi
Estonia
Sierra Leone
-5.7
-6
-6.1
-7.1
-7.7
-7.9
-8.5
-9.5
-9.6
-10.3
-13.1
-14.1
-15.1
-16.3
-16.4
-20 -15 -10 -5 0
Rw anda
Congo, Dem. Rep.
Belarus
Lithuania
Russian Federation
Kazakhstan
Latvia
Kyrgyz Republic
Turkmenistan
Armenia
Ukraine
Moldova
Azerbaijan
Georgia
Tajikistan
Growth??• AVERAGE GDP GROWTH BELOW 1 PERCENT PER YEAR, 1987-
1997:
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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
TajikistanGeorgiaAzerbaijanMoldovaUkraineTurkmenistanArmeniaKyrgyz RepublicCongo, Dem. Rep.LatviaRussian FederationRw andaLithuaniaSierra LeoneBelarusBurundiUzbekistanHaitiAngolaEstoniaMongoliaCameroonBulgaria
(20.00) (15.00) (10.00) (5.00) 0.00
Saudi ArabiaCongo, Rep.MadagascarZambiaNigerGambiaAlgeriaTogoCroatiaCentral AfricanKenyaMacedonia,South AfricaJamaicaTanzaniaYemen, Rep.RomaniaVenezuelaCzech RepublicSenegalNigeriaMorocco
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What Are the Emerging Markets?
Sources: OECD,UN, Euromonitor
Leading Growth Countries Since 1950:
Rank CountryGDP Growth 1950-90 (%) Rank Country
GDP Growth 1950-90 (%)
1 Oman 3677 11 Thailand 15402 Taiwan 3185 12 Japan 14603 Botswana 3142 13 Libya 14514 Macau 3135 14 Israel 14145 Andorra 2797 15 Jordan 12256 Hong Kong 2504 16 French Polynesia 11177 South Korea 2324 17 Maldives 10568 U. A. E. 2156 18 China 9789 Singapore 1799 19 Swaziland 975
10 Saudi Arabia 1577 20 Malta 971
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What Are the Emerging Markets? Failed States:
• Symptoms of failed states – low GDP per capita and low economic growth:
Country
GDP Per Head of Population (US$)
Real Annual GDP Growth, as percentage Change on Previous Year Country
GDP Per Head of Population (US$)
Real Annual GDP Growth, as percentage Change on Previous Year Country
GDP Per Head of Population (US$)
Real Annual GDP Growth, as percentage Change on Previous Year
Somalia 100 0 Guinea-Bissau 325 4 Ukraine 720 -1Ethiopia 123 4.5 Vietnam 338 3.5 Korea, D.P.R. 745 -7Congo, Dem. Rep. 161 0 Togo 340 4.5 Angola 766 1Niger 180 4 Liberia 344 2 Mongolia 858 3Mali 244 5 Pakistan 418 -0.1 Honduras 888 0.5Madagascar 246 4 Ghana 463 2.5 Guyana 904 1.8Moldova 275 -8 Zimbabwe 481 1.5 Bolivia 948 -1.9Bangladesh 277 3.4 Haiti 493 1.5 Philippines 963 1.8Tanzania 281 3.3 Indonesia 544 -3.4 Nigeria 1242 1Kenya 301 1.5 Nicaragua 623 2.5 Kazakstan 1314 1
Source: ICRG
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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
The Major Financial Crises of Our Times:
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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:
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.
Then and Now
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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:
83
84
84
85
86
86
87
88
89
92
92
94
95
96
96
97
0 20 40 60 80 100
Panama
Argentina
Chile
South Korea
Czech Republic
Mexico
J apan
Taiwan
Italy
Germany
New Zealand
United Kingdom
France
Netherlands
United States
Australia
44
54
63
66
66
68
72
72
72
73
74
75
79
80
83
0 20 40 60 80 100
Indonesia
Russia
Venezuela
Colombia
Vietnam
Malaysia
Brazil
Peru
South Africa
China
Philippines
Thailand
Hong Kong
India
Canada
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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: 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
35%
40%
45%
50%
55%
1990 2025
Malaysia
China
Thailand
US
25-to-59 age group as % of population
projected
Prospects for the Future:• Asia’s Growing Labor Force
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Factors for Success: Human Capital
Adult illiteracy rate – 1995:
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Factors for Success: Human Capital
Country Literacy Rate
Russian Federation 98.00%
Korea, Rep. 98.00%
Spain 96.00%
Thailand 93.80%
Mexico 89.60%
Indonesia 83.80%
Brazil 83.30%
Turkey 82.30%
China 81.50%
India 52.00%
Literacy Rates, 1997:
Source: ABC-Clio
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Ethnic DistributionIn The Former Yugoslavia
States in Decline
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Factors for Success: Human CapitalEthnic DistributionIn Russia
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Factors for Success: Corruption
Source: Transparency International
1998 Corruption Perception Index
CountryCorruption Perception Index Rank
CountryCorruption Perception Index Rank
Hong Kong 16 Mexico 55Chile 20 Philippines 55Malaysia 29 Thailand 61Taiwan 29 Egypt 66South Africa 32 India 66Czech Republic 37 Russia 76South Korea 43 Colombia 79Brazil 46 Indonesia 80China 52 Nigeria 81Turkey 54