The End of the Third World?
Modernizing Multilateralism for a Multipolar World

Robert B. Zoellick, President,The World Bank Group

Part One

For decades, students of security and international politics have debated the emergence of a multipolar system. Its time we recognize the new economic parallel.

If 1989 saw the end of the Second World with Communisms demise, then 2009 saw the end of what was known as the Third World: We are now in a new, fast-evolving multipolar world economy in which some developing countries are emerging as economic powers; others are moving towards becoming additional poles of growth; and some are struggling to attain their potential within this new system where North and South, East and West, are now points on a compass, not economic destinies.

Poverty remains and must be addressed. Failed states remain and must be addressed. Global challenges are intensifying and must be addressed. But the manner in which we must address these issues is shifting. The outdated categorizations of First and Third Worlds, donor and supplicant, leader and led, no longer fit.

The implications are profound: For multilateralism, for global cooperative action, for power relationships, for development, and for international institutions.

Multilateralism Matters

The global economic crisis has shown that multilateralism matters. Staring into the abyss, countries pulled together to save the global economy. The modern G-20 was borne out of crisis. It showed its potential by quickly acting to shore up confidence. The question now is whether this was an aberration, a blip?

Will historians look back on 2009 and see it as a singular case of international cooperation or the start of something new? Some now view Woodrow Wilsons attempt to create a new international system after World War One as an opportunity lost that left the world adrift amidst dangers. Will this be a similar moment?

The danger now is that as the fear of the crisis recedes, the willingness to cooperate will too. Already we feel gravitational forces pulling a world of nation-states back to the pursuit of narrower interests.

This would be a mistake. Economic and political tectonic plates are shifting. We can shift with them, or we can continue to see a new world through the prism of the old. We must recognize new realities. And act on them.


What is Different? New Sources of Demand

What is different?

The developing world was not the cause of the crisis, but it could be an important part of the solution. Our world will look very different in 10 years, with demand coming not just from the United States but from around the globe.

Already we see the shifts. Asias share of the global economy in purchasing power parity terms has risen steadily from 7 percent in 1980 to 21 percent in 2008. Asias stock markets now account for 32 percent of global market capitalization, ahead of the United States at 30 percent and Europe at 25 percent. Last year, China overtook Germany to become the worlds biggest exporter. It also overtook the United States to become the worlds largest market for cars.

Import numbers tell a revealing story: the developing world is becoming a driver of the global economy. Much of the recovery in world trade has been due to strong demand for imports among developing countries. Developing country imports are already 2 percent higher than their pre-crisis peak in April 2008. In contrast, the imports of high-income countries are still 19 percent below that earlier high. Even though developing world imports are about half of the imports of high-income countries, they are growing at a much faster rate. As a result, they accounted for more than half of the increase in world import demand since 2000.

New Poles of Growth

The world economy is rebalancing. Some of this is new. Some represents a restoration. According to Angus Maddison, Asia accounted for over half of world output for 18 of the last 20 centuries. We are witnessing a move towards multiple poles of growth as middle classes grow in developing countries, billions of people join the world economy, and new patterns of integration combine regional intensification with global openness.

This change is not just about China or India. The developing worlds share of global GDP in purchasing power parity terms has increased from 33.7 percent in 1980 to 43.4 percent in 2010. Developing countries are likely to show robust growth rates over the next five years and beyond. Sub-Saharan Africa could grow by an average of over 6 percent to 2015 while South Asia, where half the worlds poor live, could grow by as much as 7 percent a year over the same period.

Southeast Asia has become a middle income region of almost 600 million people, with growing ties to India and China, deepening ties with Japan, Korea, and Australia, and continuing links through global sourcing to North America and Europe.

The Middle East region is an important source of capital for the rest of the world, and increasingly a business-service hub between Asia East and South and Euro-Africa. Gross official reserves of the Gulf Cooperation Council countries were over $500 billion at the end of 2008, with estimates of sovereign wealth fund assets of as much as $1 trillion. If the Maghreb can move beyond historical fault lines, it can be part of a Euro-Med integration linked to both the Mideast and Africa.

In the Latin American and Caribbean region, 60 million people were lifted from poverty between 2002-2008 and a growing middle class boosted import volumes at an annual rate of 15 percent.

Africa as a Potential Pole of Growth

Tectonic plates could shift further. Africa missed out on the manufacturing revolution that lifted East Asias economies out of poverty and into prosperity. But Africa no longer needs to be left behind.

Today, in many African countries even small, inexpensive items, such as soap or slippers, or basic tools or consumer goods, are imported. If Africans remove the barriers to producing these goods domestically and to local entrepreneurship, while creating conditions for outside investors to shift production to Africa, then African development could begin to look very different. Unlike past failed efforts to favor import-substitution interests behind protectionism, this approach can capture benefits from regional integration within global markets.

What would it take? As a first step, the 80 percent of Africans earning $2 a day or less need to earn enough income so they will be able to buy basic consum er goods. Agriculture is the main source of jobs and an early opportunity to boost productivity and income. To do so, investment is needed all across the agricultural value chain: property rights; seeds; irrigation; fertilizer; finance; basic technologies; storage and getting product to market. Since about two-thirds of African farmers are women, we need to help them get legal and property rights, and access to services.

With slightly higher incomes and living standards, local manufacturers can target or customize for the local market, and eventually for export.

To grow further, Africans need the things that Europe and Japan needed after World War Two: infrastructure; energy; integrated markets linked to a global economy; and the conditions for a vibrant private sector. These public goods will foster much more than local manufacturing.

Todays shifts open new opportunities. As the global crisis hit, some Chinese recognized that it was time to move beyond toys and footwear; China could move up the value chain, increase wages and consumption, and expand its harmonious society. Chinese companies, in turn, could move lower value-added manufacturing elsewhere, including to Africa, following Chinas resource developers and construction enterprises.

Chinese companies can be encouraged to relocate manufacturing for both domestic production and export. These manufacturers bring know-how, machinery, as well as access to marketing and distribution networks. The World Bank is working with Africans and Chinese to create industrial zones.

Early investors are sensing the promise in Africa and are not dissuaded by the risks after Lehman Brothers and Greece, investors know developed markets can be risky, too.

Changes in government policies can create opportunities for private sector growth, which in turn offers services to other entrepreneurs. In the ten years to 2008, the private sector has invested more than $60 billion in information and communications technology in Africa; 65 percent of Africans are now within reach of wireless voice services, and there are 400 million mobile phones in use in Africa.

IFC, the World Bank Groups private sector arm, is helping catalyze this business revolution. A new IFC equity fund has attracted $800 million from sovereign wealth and pension funds to invest in companies in Africa, Latin America and the Caribbean.

Economic Shifts Mean Potential Power Shifts

Increased income and growth in the developing world means increasing influence. The old world of fireside chats among G-7 leaders is gone. Todays discussion requires a big table to accommodate the key participants, and developing countries must have seats at it.

Last years G-20 Summit at Pittsburgh recognized that change. But it will take more than words on paper. Woodrow Wilsons words on paper did not realize their lofty ideals. Arranging a new sharing of responsibilities among mutual stakeholders in international systems will not be easy. But happen it must. The failure of 1919 led to countries that could not cooperate in 1929 and the start of a new war in Europe in 1939.

 

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