The notion of the North-South divide separating the rich North from the poor and still developing South, is obsolete. Our world is more interconnected than ever before, yet it is also splintering into four tiers of growth and prosperity. This Four Speed World is posing new challenges and opportunities.
In the world I grew up in, geography mattered. The mid-20th century world was divided into two regions with distinct levels of wealth and prosperity. In that Two Speed World, the North, comprising mainly the United States and Europe, accounted for almost 90% of global GDP but only 22% of its population, in total some 720m people. The world’s remaining 2.6bn people were part of the developing nations located in the South, and they accounted for just 10% of global wealth.
This North-South division was partly a legacy of European colonialism, which was initiated as early as the 15th century (some say with Portugal's conquest of Ceuta in North Africa in 1415) and which first began to be dismantled towards the end of the 18th century. The political and economic implications of colonial rule reinforced this divide in both public perceptions and economic outcomes. In many cases, the economic practices of the colonisers − extracting wealth and shipping it home −undermined all kinds of local institutional arrangements, thus reinforcing the creation of elites, poor democracies and inefficient economic models with no sustainable prospects for growth. This resulted in poorer economies, ethnic divides, and uncertain borders that, as evidence shows, hampered economic development in the long-term and contributed to poverty and deprivation among former southern colonies.
When, more than a century ago, independence and self governance spread in the southern hemisphere through south Asia to Africa and Latin America, the choices of inward-looking and economically oppressive regimes, combined with erratic growth strategies that increased vulnerabilities, prevented most southern countries from graduating to higher levels of economic growth and living standards.
Europe reinforced the North-South divide, but ironically it became divided itself. Despite being part of the developed North, Europe was subject to its own wealth and ideological divisions. These divisions were evidenced by the contrasts in living conditions between the more affluent countries such as France and England, and less fortunate economies such as Greece, Spain, Portugal and Ireland.
This scenario began gradually to change after World War II, as Europe embarked on a process of integration to build shared prosperity and lasting peace. Beginning with the Treaty of Paris in 1951, and six years later the Treaty of Rome, Europeans pioneered the development of supranational institutions that in most cases remain unique in the world. Jean Monnet stated: "Nothing is possible without people, nothing is durable without institutions," and in Belgium the youthful Etienne Davignon emerged among the visionaries of European integration and architects of the institutions on which Europe today rests.
By 1989, the fall of the Berlin wall provided European integration with fresh impetus, and for the first time an opportunity to expand the European Union’s frontiers eastwards to include former Warsaw Pact countries like Poland and Hungary.
But just as Europe was opting for greater economic and political cooperation, culminating in the January 1999 introduction of the euro as its single currency, the wider world grew more inequitable. The dynamic process of globalisation, which has accelerated in the last two decades, was resulting in unprecedented levels of growth and interdependence. But while this has blurred old divisions, new ones have emerged, breaking the world into four tiers.
Over the past four decades, global GDP has increased from $1,300bn in 1960 (in current US dollars) to nearly $51,500bn today, and growth rates are at a 30-year high. Total world exports have grown from $158bn in 1960 (in current US dollars) to $13,000bn in 2005. International Foreign Direct Investment (FDI) has increased from $1.7bnin 1970 (in 2000 constant US dollars) to $1,000bn in 2005. These changes have linked countries economically, yet other events, including transnational threats like climate change, terrorism, and the spread of disease, have at the same time inexorably bound the world closer together.
Despite deepening these linkages, the forces of growth and globalisation have also splintered the world into new segments. In other words, we are leaving the old North-South divide behind and moving from a Two Speed World to a Four Speed World which separates its members into four tiers of different levels of growth and prosperity.
The first tier is comprised of the most affluent countries notably the United States, Europe, Australia and Japan whose combined populations of 979m have per capita gross national incomes (GNI) greater than $14,600. These traditional powers exhibit the highest living standards, but as their share of global income decreases (from 90% in the mid-20th century to 80% in 2005), their dominance is contested by the emerging economies.
These emerging economies, comprising a second tier of about 30 poor and middle income nations with per capita GDP growth rates of over 3-5% and a total population of 3.2bn, are rapidly learning how to leverage the global economy. With sustained economic growth of 7% or more per year and at 3.22bn in 2006 around 50% of the world’s population, countries like India and China will soon become de facto global leaders.
A third tier − a much larger number of national economies, more than 60 in all, with a combined population of 1.1bn − have experienced growth spurts, but also periods of decline or stagnation, especially once they hit middle income country status. From Latin America to the Middle East, these economies are neither poor enough to warrant special aid, nor sufficiently large and fast-growing to be major players in the global economy. Yet, close to a fifth of the people in the world live in them.
The fourth tier, comprising more than a billion people, represents the poorest countries per capita GNI less than $875 and GDP per capita growth rates of less than 3.5%, which continue to stagnate or decline. Mostly in sub-Saharan Africa, these countries gain little from globalisation but are among the most vulnerable to its adverse effects. The daily human suffering experienced by individuals in this vast group is a grave concern and represent probably the most important political, economic, and moral challenge for the rest of us.
This emerging world is a world of deep imbalances. While tier 1 nations continue to increase their wealth and living standards and tier 2 one are catching up, the majority of people in tiers 3 and 4 are either stagnating or falling behind. The ratio between tier 1 and tier 4 nations’ per capita incomes has increased from 45 in 1965 to 78 in 2005. At the same time, the trend for tier 2 nations has been the reverse, as they have significantly reduced the per capita income gap with tier 1 nations during those years.
The world our children will live in will differ significantly from the one we know. By 2050, the world’s GDP will have increased by more than four times to $216,000bn, and the global population will have risen from 6.5bn to 9.2bn. Most of this increase will have an impact on the third and fourth tiers, whose countries will add almost 2bn people to their ranks.
At the same time, the first tier will see its share of global income reduced to around 40%, and will be home to only 12% of the world’s population. Europe’s relative wealth will also shrink from its current 26% to 12% of global GDP, while the UK and France will each account for only 2% of the world’s wealth. Second tier nations, on the other hand, will, by 2050, account for almost 50% of global income, led by China and India whose combined shares will have soared to 39%.
While these demographic and economic changes will create new opportunities, they will also bring about geopolitical and development challenges. The dynamics of our Four Speed World unequivocally point us in a new direction that leads to a complete transformation of the world as we know it. This new global physiognomy, however, and our own politics, need to catch up with these changing economics if we are to prepare to meet the challenges of the four speed world. Global leaders must address four main challenges.
First, the ascendance of Asian countries − particularly China and India − as the drivers of the global economy will likely bring about a political transformation in the international order. The traditional tier 1 drivers of the global economy will continue to be major players, and will still have the highest per capita incomes, but their economic power will have been significantly reduced. History shows that with economic power comes political prestige, So as Asia’s relative economic wealth rises it will demand a greater role in existing international institutions. This is a reality that the developed nations will need to anticipate and accommodate.
Second, a critical driver of global stability—both economic and political—will be access to energy resources and their prudent use. In today’s Four Speed World we are already seeing a scramble for access to these resources between first and second tier nations, but since most of the oil (52% of all oil proven reserves) is located in third tier nations – North Africa, Latin America and especially the Middle East − ensuring that these oil rich countries have predictable and stable environments will be in the developed world’s own best interest.
Projected growth in world output will also translate into a proportional increase in the demand for energy. There is conclusive evidence that unless we can find cleaner and more energy-efficient mechanisms, global warming will become irreversible. A new global agreement going beyond the Kyoto Protocol in both membership and its action terms is vital.
Third, ensuring equitable development across all four tiers, especially No. 4, is among the Four Speed World’s main challenges. Although development aid increased in 2005 to $107bn, most of this increase was geared towards “special circumstances” such as debt and disaster relief and assistance for Iraq and Afghanistan. A large share of the money that should have flowed to poor countries is anyway swallowed by administrative and technical costs, so total development aid has been estimated by the Brookings Institution’s Wolfensohn Center to have shrunk from $49 per person in 1980 to $38 per person in 2005. The developed world clearly needs to devise more efficient mechanisms to distribute its aid.
Aid donors should also recognise unambiguously that the struggle against poverty is not just a moral duty but a matter of our own security. Weak states lacking the basic resources to ensure secure borders and minimum living standards for their citizens pose a threat to the rest of the world in terms of environmental degradation, the spread of diseases and their ability to deal with crime and terrorism. It is impossible to confine these threats to countries or regions, so an equitable and more promising environment for nations in the third and fourth tiers is essential to global stability.
Fourth and last, widespread scepticism about global economic integration, especially in the developed world, has become a serious concern. Fears of economic loss, job insecurity and worker dislocation are tainting people’s appreciation of the significant benefits that spring from a more open and integrated world. If these fears materialise into more protectionist policies we will be jeopardising the entire enterprise of globalisation, and putting at risk the great economic, technological and social gains it promises.
Tackling these global transformations means that we must bury old divisions and embrace a new and constantly changing world. As one of the traditional global powers, Europe will have to address these new challenges and be a leader in creating efficient solutions to them.
That means it is imperative that Europeans should avoid becoming an inward-looking continent that clings to its subsidies, is fearful of globalisation and closes its institutions to outside participation. An inward-looking Europe would doom the world to further splintering into yet more economic tiers, and would reduce the likelihood of progress in poorer countries.
Given this scenario, the EU will first have to acknowledge the emergence of the new global powers that increasingly are demanding to be a part of the global decision-making process. In practice, this means the EU will have to evaluate and lead reforms of institutions such as the World Bank to increase their representation of emerging powers. It will have to back expanding the G-7 to give the emerging powers a permanent voice, while also expanding the membership of the UN Security Council. European leaders must realise that their ability to accommodate the rising powers, and above all China, on the global stage will be crucial to a peaceful and stable world.
As one of the main drivers against global warming through its leadership on environmental issues, the EU’s role in promoting more efficient energy practices globally will be crucial. Here the EU’s strategy should be threefold. It should promote international cooperation on cleaner and more cost-effective energy choices. It should also promote more stable and predictable environments, especially in the Middle East and African to make access to energy resources more predictable. And it should exploit its unique ability to broker a global environmental agreement to delay the effects of global warming.
In terms of aid, Europe can and should lead efforts to scale-up development assistance. Helping the less fortunate is a vital step towards a more stable and prosperous world. Finally, Europe’s policymakers will have to address the issue of income losses faced by their own middle class citizens in the short-run to ensure continued support for free trade and other liberal economic policies. This will allow these countries to handle more politically delicate issues such as the elimination of agricultural subsidies, which constitute a necessary step towards a fairer trading international system.
These challenges require different policies and solutions, but they all demand that we acknowledge our own global interdependence. The European experience provides EU member countries with a unique perspective and understanding of these issues, making their leadership crucial to tackling the risks of a Four Speed World. Achieving a more egalitarian world may seem like a monumental task, but 50 years ago the same was being said about the EU.