This article appeared originally in Gulf News: link to original article
Dubai: In the “New Economy Drivers and Disruptors 2019 Report”, China’s economy is forecast to be “10 per cent” larger than that of the US by the year 2039. India’s economy is also expected to be ranked third outright, with Vietnam on its way to join the 20 largest economies.
The report includes multiple indices and two main factors – drivers and disruptors – that mainly look at what could drive economic growth in certain countries and what could hinder economic growth in others. Put differently, the factors identified in the report are ones that will shape the global economy of tomorrow, and by that, help identify future economic powerhouses.
The report also sheds light on the issues faced by developed economies, which have negatively affected their growth and prospects. This is even of more importance given the current negative economic outlook and the ease in monetary policy that comes with it.
Enough of free borders
First, free trade seems to be out of fashion. The report points to the recent trade conflict between the US and China and the negative impact of such a conflict. What is more interesting, however, is the long-term direction that the economies around the globe are taking towards protectionism.
Notably, the export-led model is coming under threat as countries become more protective of their domestic industries and their economies. As a result, the same export-led model, which has enabled countries such as Japan and South Korea to realise miraculous economic growth, is becoming redundant.
Countries adopting the same model today, such as Vietnam, may not reap the same economic benefits gained previously.
Secondly, automation can have mixed results for countries, based on how developed their economies are and based on the breakdown of their labour markets. For instance, low- to middle-income may face some serious challenges as a result of both automation and a lack of it thereof.
As for high income and developed economies, automation could create new export industries, such as robotics in Japan, or end up threatening jobs and livelihoods if countries did not prepare for the arrival of automation.
State of preparedness
Third, the report goes into more details as it discusses development and what could stimulate economic growth in different economies. Here, the long-term advantages for any country can be summed up in two main points: productivity of the country’s human capital and the country’s preparedness for the future.
Preparedness for the future is not straight forward, and the main argument in the related section focuses on how ready countries are for disruptors that could alter their economic growth trajectory. Moreover, preparedness for the future can be observed in countries that have well-established investment environment and policies, for example, supported by low corruption and “effective governance”.
Education as growth catalyst
Productivity, meanwhile, is that of the country’s human capital. That includes its ability not only to adapt to future economic disruptions and challenges, but to also be the country’s main driver towards long-term, sustainable economic growth. Future human capital productivity is subject to where the country stands in education attainment, and will be shaped by its efforts, through vocational and other types of training, to further enhance its human capital productivity.
Therefore, countries that consistently rank high on education are already ahead of other countries.
In a nutshell, the report provides a grim outlook for countries that have missed the window to adopt and expand on an export-led model when the time was ripe for it, that being arguably four decades ago. While protectionism and the retreat of free trade is preventing countries from advancing their economies using models that worked in the past, a constantly improving human capital, able to adapt to future disruptors and challenges – including automation – can safeguard a country’s economic future.
The last thought that I want to leave you with: What does it mean for the UAE to be ranked 35th in the “Drivers” rank and 42nd in “Disruptors”?