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Monday, September 06, 2004

The Great Reverse -After two centuries of Western domination, China and India are poised to claim their places via Yale Global

After two centuries of Western domination, China and India are poised to claim their places.As the economies of China and India continue their dizzying growth, it seems that history is preparing to repeat itself. Economist Clyde Prestowitz, in the first of a three-part series, coins the term "The Great Reverse" in reference to the projected Asian-leaning shift in the global balance of power. In his exposition of three discreet waves of globalization, Prestowitz details the developments that facilitated the rise, fall, and rise, once again, of the East's global influence. And if history is any indicator, India and China may, in the coming century, compete for the title, "World Economic Superpower."In the 1990s, four developments laid the foundation for the third wave of globalization, which is now leading to the Great Reverse. In the wake of the Tiananmen Square incident, the leaders of China concluded that the only way to hold onto power was to bring China fully onto the "capitalist road." India, seeing the rapid success of China, also decided to abandon its socialist protectionism in favor of getting on the capitalist freeway. At about the same time, the conclusion of the Uruguay Round of trade talks, along with China's inclusion in the World Trade Organization and the opening of most countries to foreign investment, removed most of the classic barriers to the global flow of goods and capital. Finally, the development and deployment of the internet after 1995 largely negated time and distance as significant cost factors for a vast number of products and services.China is now, without question, the location of choice for most manufacturing. Its huge population provides a continuing supply of low-cost labor. By widely opening the doors to foreign investment, emphasizing education of technologists, and providing major incentives for technology transfer, it has combined inexpensive labor with technology to create a huge competitive advantage similar to that enjoyed by the Portuguese and Spanish half a millennium ago.India has not yet become the same magnet for manufacturing as China, but it is clearly the location of choice for software development and many other services. Again, one should be careful of the conventional wisdom that thinks only in terms of call centers and grunt programming. For example, the British National Health Service recently announced that it is shipping all blood samples to India, where they will be analyzed and the results faxed or e-mailed to the appropriate medical facilities in the United Kingdom.
To this must be added the demographic story. Europe is literally dying. Its people are aging rapidly, and birth rates are far below those necessary to maintain current population levels. By 2050, the population of Germany, for example, will shrink from the present 83 million to about 75 million. This will put a severe limit on European growth prospects. The United States, by dint of immigration and high Hispanic birth rates, will maintain small population growth, but it will age substantially over the next 45 years. Because of its one child policy, China will also begin to age rapidly in about 20 years. But half of India's nearly one billion people are presently under the age of 25, and there is no one child policy here. Thus, in the long run, the 21st century could well turn out to be the Indian century. In any case, it will surely be the century in which Asia resumes its historical position of economic power and influence. A very timely and excellent article - lets wait for Part 11 and Part III. Circumstances alone would not provide leadership to countries like India- after Part II and Part III get published, we shall come with an action plan in this blogsite for acheieving this.

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