Kate Rogers: How do we cope with seismic economic shifts?

The movement of economic power from west to east is causing worldwide problems of poverty and inequality, writes our columnist

Kate Rogers
Kate Rogers

I had the pleasure of listening to a talk by Professor Michael Clarke earlier this year. He is a senior associate fellow of the Royal United Services Institute and was discussing the seismic shifts in geopolitics. As well as giving me enough "charts of the week" to fuel my regular LinkedIn posts until Christmas, I found his perspective on the global economic and social changes hugely insightful.

According to research by the management consultants McKinsey & Company, we are currently undergoing the most rapid shift in the world’s "economic centre of gravity" in history. It took 1,000 years for economic power to move from Asia to the west. The shift back is under way, but it is taking decades, not millennia. This rapid transition is creating political and economic tensions, and populism is fuelling protectionism. President Trump and the Brexit vote are recent symptoms of the discomfort many in the west are feeling with these changes.

We can celebrate that strong growth in the east has fuelled better standards of living for many across the world. However, although globalisation has created great prosperity, it has not done much for equality. The very poorest have been locked out of income growth, the developed middle classes have captured only some of the growth, and the global elite is booming. This inequality is a clear challenge to many policymakers and charities operating around the globe.

Disparities in growth also encourage economic migration and, in a world where information is freely and rapidly available, the flow of people from poor to rich areas is difficult to stem. Societies need to adapt to this labour migration or they stop growing. Given this evidence and global context, it is perhaps easier to understand why the political rhetoric has shifted to protectionism, income protection and migration curbs. However, such introspection is unlikely to halt the march of the Asian superpowers. To quote Professor Clarke: "America goes home, while China goes global. And with nearly half of the world’s six billion people living in China and India, it is easy to see why this train is unlikely to be derailed.

So what does this mean for us? As policymakers and charities, we will continue to be challenged by inequality. In the west, we must adapt to migration or accept a lower level of growth. Trade relationships with China and India are important for the future and our domestic economic health will be influenced by exterior factors, such as imported inflation, that are outside our control or influence. Technological advances will continue at pace, encouraging globalisation and pressing fast forward on our rate of change. As investors, we will need to seek out companies that can adapt to this environment. It will also be important to consider secular shifts such as climate change alongside pure financial factors.

Kate Rogers is head of policy at Cazenove Charities

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