The future of the world economy will depend largely on the interaction between the rise of many large emerging and developing economies, the increasing interdependence across countries, and the widening gap between the top and bottom tails of the distribution of income, both within countries and for the world population as a whole. These trends have political, social, and geostrategic implications that will shape future policy debate.
For one, the increasing importance of emerging and developing economies must be reflected in the governance of international institutions, whose legitimacy and effectiveness depend on it. Global interdependence calls for stronger cooperation within an institutional setup that reflects the growing weight of emerging and developing economies. Second, the worldwide business cycle described above and the spillover effects, documented recently by the IMF, call for coordinated macroeconomic policy. Finally, the potentially destabilizing trends in income distribution require similar international policy coordination, without which single-country redistributive policies will be difficult to implement. To some degree at least, tax bases and tax rates must be harmonized, opportunities for tax avoidance minimized, and migration policies managed with both host and source countries’ interests in mind. Finally, assistance to the poorest countries remains an ethical as well as political necessity.The world of the future will be ever more multipolar and
interdependent, with global markets offering the potential for rapid economic progress. Whether this potential can be realized may depend largely on how well international cooperation improves both the effectiveness of national macroeconomic policies, by taking into account their spillover effects, and how much it encourages greater balance and equity in the distribution of the fruits of growth."
Another piece by Kishore Madhubani highlights similar trends. "The Global Village has arrived" points to the increasing reality of interconnectedness and a shrinking of boundaries due to a variety of factors, including technology.
"Yet technology is only one of the forces driving this deep interconnectivity. Over time, we have also created a single global economy. Hence, when the tiny Greek economy threatens to fail, the whole world trembles—this Greek domino can now bring down dominoes as large as the U.S. and Chinese economies. Stock markets around the world rise and fall in unison when a major global event erupts. And global supply chains mean that when one country is hit by a natural disaster, factories across the ocean suffer consequences too. We live in one economic world."
While the realities of interconnectedness, increasing convergence are there for all to see, the dangers of growing inequality and concentration of incomes in a few hands should not be ignored. What are the stakes for a large section outside the global markets' fold? How does trade and the global village look like to them? Is it relevant at all? While globalization shrinks the world, are there islands of "local" villages untouched by this reality? More than just being markets for increasing production of goods and services, how can the vast majority "participate" in the converged world? What set of national and international policies can address this issue. Can they be addressed at all? What role do international institutions like the WTO have in this regard? Trade and development do go hand in hand. However, the "development" must be equitable and widespread. The challenge would be to sustain the high level of interconnectedness with the increasing participation of hitherto unconnected people benefitting from it.