SIEMENS

If I were young today, I would go to China,” says 94-year old British historian Prof. Eric Hobsbawm, who was born in Austria. The world’s most populous country has indeed shown incredible dynamism for more than three decades, and it is on its way to becoming the world’s greatest economic power. In his book The Age of Extremes, Hobsbawm coined the expression “the short twentieth century,” which, according to him, began with the political upheavals starting in 1914 and concluded in 1991 with the collapse of the Soviet Union.

Since then, the world has been undergoing changes whose speed surpasses even that of the “long nineteenth century,” when nations became more economically integrated than ever before, thanks to new technologies ranging from steam engines to telegraphs. The nineteenth century was the world’s first age of globalization — an era in which raw materials, food, textiles, capital, and manufactured goods were shipped all over the world, thanks to free trade and harmonized standards. Between 1870 and 1913, exports skyrocketed. In 1913, the last year of peace, exports accounted for one fifth of all the goods produced worldwide. Globalization then came to a standstill due to the tremendous upheaval caused by two World Wars. As a result, right after the end of World War II, exports accounted for only five percent of manufactured goods. The focus was instead on reconstruction and the creation of regional markets such as the European Economic Community.

A new surge of globalization began in the late 1970s, driven by the expansion of free trade, the international division of work, and the liberalization of financial markets, and supported by computers, cell phones, and the Internet. In real terms, goods worth $317 billion were exported worldwide in 1970. According to the World Trade Organization, this figure rose to more than $15.2 trillion in 2010 — an almost 50-fold increase. As a result, trade accounted for one fourth of the world gross domestic product. For decades, the world’s leading trading countries were the U.S., Germany, and Japan. The flow of goods is now shifting, however, and the International Monetary Fund states that 40 percent of the world’s trade is now conducted in developing countries and emerging markets. In 2000 that figure amounted to only 25 percent.

Only ten years ago, half of Africa’s exports went to Europe. That figure has now declined to one third, while exports to China have risen from four percent to 15 percent. Globalization is entering a new phase. And it’s not just about China any more, despite the fact that it increased its share of the global economy from four percent in 1992 to 13 percent today, while also becoming the world’s leading exporter in 2010. The G7 nations, which are the world’s leading economies (Germany, France, the UK, Italy, Japan, Canada, and the U.S.), will face competition in the middle and long terms from the Emerging 7 (E7) economies: Brazil, Russia, India, China, Indonesia, Mexico, and Turkey. Business consulting firm PricewaterhouseCoopers estimates that the E7 nations have about 72 percent of the economic output of the G7 countries when calculated on the basis of purchasing power parity. By 2050, the E7 countries are expected to generate $140 trillion in terms of their purchasing power, or twice as much as the G7 nations.

India is estimated to have the biggest growth potential, which means it could become the world’s second- largest economy after China by 2050. India’s economic output would then be eight times larger than Germany’s. There are several major reasons for this, including the fact that India is a democracy with a highly developed educational system and a private sector that has been systematically expanded over the past 20 years. But India also faces great challenges, especially when it comes to expanding infrastructure and combating poverty. Four out of ten people in India live below the poverty line, while only one out of five Chinese is still considered poor. This ratio was the very opposite just 25 years ago. Although progress in these countries has been impressive, the United Nations’ Human Development Index, which primarily measures the quality of life, has developed less well. China currently ranks 101st in the Index, while India is 134th, Brazil 84th, Turkey 92nd, and South Africa 124th. What’s more, all of these countries have dropped in the latest ranking since the previous year.

Will the world be a more just place by 2050 than it is now? According to the OECD, income inequality has increased in the great majority of its member countries since the mid-1980s. In addition to occurring in the West, this has also occurred in emerging markets such as China and India. The authors of the World Economic Forum’s Global Risks Report 2012 consider income inequality the biggest danger in the world at the moment, deeming it to be an even greater risk than the sovereign debt crisis and the steady increase in greenhouse gas emissions. They state that however encouraging the growth figures of many emerging markets and developing countries may be, economic development is often limited to booming core zones, such as China’s coastal regions with their centers in Shanghai and Shenzhen, or cities like Bangalore, Dubai, Singapore, and São Paulo.

According to PricewaterhouseCoopers, São Paulo is the world’s tenth most prosperous city. Although it accounts for six percent of Brazil’s population, it generates 12 percent of the country’s economic output. By 2025 São Paulo may have become the sixth-wealthiest city in the world and doubled its population to more than 22 million. Over the next 15 years, the biggest annual growth potential will be found in cities such as Hanoi in Vietnam, Changchun and Guangzhou in China, Kanpur in India, Lagos in Nigeria, and Chittagong in Bangladesh. At the same time, many rural areas are falling further behind, especially since poor people are suffering from rising food prices worldwide. According to the Food and Agriculture Organization, the number of people suffering from hunger rose by 150 million over the past 20 years to almost one billion. As a result, the United Nations’ Millennium Development Goal of halving the number of people who suffer from hunger between 1990 and 2015 will not be attained, even though the share has declined. Improvements have not been sufficient to offset rapid population growth.

PricewaterhouseCoopers’ forecasts for 2050 are nevertheless cause for some optimism. China’s per capita income on the basis of purchasing power parity will then be about half that of the United States, while income in Indonesia will be about one fifth that of the U.S. But what will it mean for planet Earth if billions of formerly poor people live like the inhabitants of industrialized nations? That’s precisely the problem, since there aren’t any global solutions in sight for global challenges such as poverty, resource scarcity, climate change, migration, and world trade. A new, globally valid business model is needed to ensure sustainability. It would not only have to fulfill people’s wishes for a higher standard of living without further damaging the environment, but would also reduce social inequalities.