With developing countries growing much faster than industrialized ones, the coming 40 years will see a significant change in the economic world order: emerging markets will dominate the world economy in 2050 and China, the United States, and India will be the three largest economies by a wide margin.

Carnegie has prepared two working papers to explore the consequences of these changes. One focuses on economic growth, carbon emissions, and poverty, and the other focuses on trade, capital flows, and the rise of the global middle and rich (GMR) class—those earning above $4,000 per year. Carnegie’s Uri Dadush presented these projections and Tim Adams, former under secretary for International Affairs at the U.S. Department of the Treasury and managing director of the Lindsey Group; Moisés Naím, editor-in-chief of Foreign Policy magazine; and Carnegie’s Ambassador James Collins considered the implications of the results. Carnegie’s Pieter Bottelier moderated.

A New World Order in 2050: Projections

Four trends are driving the increasing importance of developing countries—technological catch up, demographic transition, high rates of investment, and appreciation of their real exchange rates.

The implications are far-reaching:  

  • Economic Size: The GDP of emerging markets, currently about one third that of advanced economies, will grow to be about 1.3 times the size of advanced economies in 2050. China will be approximately twice the size of the United States in purchasing power parity (PPP) terms.

  • Living Standards: Though developing economies will be among the largest economies, current advanced countries will remain far richer in terms of GDP per capita.

  • Income Distribution: Absolute poverty will decline and become confined to Africa and India, but relative poverty will remain an acute problem. More members of the global middle and rich class (GMR) will reside in developing countries than in the advanced countries.

  • Trade: Developing countries will account for two thirds of world trade in 2050. China will be involved in 4 of the 5 largest bilateral trade relationships.

Risks and Challenges

Several scenarios could lead to growth below the high potential suggested by these projections. According to Dadush, however, the overall conclusion that economic power will continue to shift to developing countries remains valid even in the face of these challenges, though the pace of change may be moderated.

  • Geopolitical Strife: The world has rarely managed large shifts in economic power smoothly. Dadush argued that, as developing countries gain geopolitical power but remain much poorer than advanced nations, cohesion will be difficult. The priorities of the poorer countries may not align with those of the rich countries, especially in areas such as climate change and intellectual property rights.

  • Protectionism: Dadush emphasized that future financial crises and protectionism pose an important risk to the forecast, given that innovation and technology diffusion requires stability and open international markets. With relatively low-wage economies becoming huge, pressures to protect against them will increase.

  • Climate Change: These projections imply a huge increase in carbon emissions. Climate change may hurt global growth through its effects on health, agricultural yields, involuntary migration, and the destruction of infrastructure.

  • Other Constraints: Bottelier argued that management of global resources—both natural and financial—is critical. Panelists agreed that resources may be unable to support such high growth rates, but also noted that technology has been able to outpace resource constraints ever since industrialization occurred. Naim questioned how financial resources will be regulated.

Global Leadership

Panelists noted that international institutions must be reformed to accommodate these changes. The promotion of the G20 represents an important step in the right direction, but much more is needed, including IMF and WTO reform.

Naim and Dadush highlighted the importance of “minilateralism”—the practice of involving the fewest countries necessary for addressing global issues. For example, to deal with climate change, agreement among the 12 largest emitters, rather than a global forum, is needed.

With the world entering this new economic order, panelists also questioned if the great traditional powers are prepared for the transition. The same question could be asked of the rising powers, China and India, but time did not allow.

United States

The rise of developing countries will challenge the authority of the United States, long the world’s foremost economic power. Can the United States adjust, and find ways to lead the transition rather than be forced into it?  Most panelists argued that its prospects are grim, with a number of economic and political challenges ahead.

  • Adams argued that the country’s fiscal outlook is dismal, and may be worsening. Unless major adjustments are made, economic growth in the United States will suffer and so will its ability to lead.

  • Even moderate growth rates will require constant innovation. With an education system in which only 18 percent of current ninth graders will graduate from college, the United States may be unable to remain at the forefront of technological progress. 

  • Given the magnitude of these potential problems and Washington’s current political gridlock, Adams was not optimistic that U.S. leaders will find the will or political fortitude to do what is necessary to maintain the U.S. role in the world.  

Europe

By 2050, the role of Europe will depend largely on whether the European Union (EU)—currently facing a critical test in Greece—is a success.

  • Collins commented that Europe’s role in the world is rapidly changing. Europeans will likely undergo a difficult and turbulent transition as economic interests shift to favor Asia and Latin America.

  • The strain from this transition will be more easily managed if the EU can become more cohesive. When approaching major emerging powers such as China and India, European nations would be stronger together. As a whole, the EU is projected to have a larger economy than India.

  • Naim pointed out, however, that increasing political coordination in Europe will be tremendously difficult. Europeans must first address current problems—sovereign debt chief among them—before they can face upcoming ones.

  • Adams suggested that, as the importance of the United States and Europe decreases over time, current security arrangements like NATO, which exist largely between the traditional powers, will be questioned.

Russia

Russia will enter this new global order in a difficult position. The country faces a choice between two different paths for economic growth, neither of which guarantee success.

  • Collins argued that the Russian economy is currently a hybrid of both developed and developing countries. It has modern technologies, an educated elite, and is a military power; however, its economy is commodity-based and much of its vast territory lacks infrastructure.

  • Therefore, Russia must choose whether to remain an economy based on commodity exports or to pursue modernization and become a source of advanced goods and services. As a commodity exporter, Russia would likely play only a peripheral role in the modern economy.

  • In order to become competitive, however, Russia’s political system—barely twenty years old and still weak—must undergo difficult reforms.

This event was cosponsored by Foreign Policy.