The dynamics of world trade are drastically changing and global wealth is shifting from the traditional heavyweights of USA and Europe to emerging countries like Russia, China and India, a top economist said.
Deustche Bank Chief Economist Prof. Norbert Walter said that shifting of trade and services to the East is causing concern among western labour, which could result in their politicians favouring greater protectionism to protect their voters.
`Countries like Sri Lanka stand to suffer from this and we should stand ready to challenge it,` he said.
He made these observations at the 168th AGM of Sri Lanka`s premier business body, the Ceylon Chamber of Commerce. Prof. Walter gave some important global perspectives and insights into the changing international economy.
Speaking on the emergence of these new economic successes which he termed `the new kids on the block` and observing the arrival of what he called `Capitalism 2.0`.
He said the new increased focus on shareholder value and a time in which organised shareholder groups, not the management, are setting the rules of world trade. `Institutions we barely know the names of or the faces behind them are now ruling the world`s wealth. The `new kids on the block` of capitalism have transformed the hitherto traditional, slow-paced economies into economic powerhouses. They have become fast-paced, fast-learning economies which are quickly integrating into the world`s division of labour`, Prof. Walter said.
He added that the secret to preserving a country`s foreign reserves was to invest in liquid foreign assets and create state funds. Noting that many of these governments strategically decided to set aside excess foreign exchange reserves for proper investment programmes yielding long-term benefits he said.
Speaking about the changing patterns of world trade and the challenges to the traditional trade model based on comparative advantage, he said that it is important for countries to adapt in order to survive. He made particular reference to the difficulties faced by the old world European and American economies which are losing thousands of jobs to the likes of India, China and Eastern Europe which are now gaining a human capital advantage.
He spoke on the ever-growing Outsourcing/Offshoring phenomena, particularly in knowledge services like legal, accountancy, and credit-rating as well as IT services like data encryption. In the context of job losses blamed on outsourcing he said. `There is a deep scepticism amongst the middle incomes groups in USA and Europe. Those with older skills and knowledge lose out when markets are opened up. Countries like China are able to out-compete the `old world`. Therefore they fear this globalisation process. Especially nearing election time, like in the US now, politicians are more likely to give to demands for protectionism`.
He observed that the result of such increased western protectionism would only serve to further crumble an already fickle round of world trade negotiations and all parties should be careful yet optimistic.
While exclaiming that `Doha is dead`, he noted that many countries like Sri Lanka are now looking at signing more and more bilateral trade agreements to relieve the frustration of stalled WTO talks.
However Prof. Walter strongly advised against favouring bilateral agreements over more international ones. He quipped, `Bilateral agreements are great for lawyers. They provide wonderful employment for them and good money. But can Sri Lanka ever achieve a balanced treaty with, say, the US? No maybe with Malta or Cyprus but not the US because the weight of their powers is so different. Bilateral treaties are bad for small and unallied nations and we should continually push for broader agreements`. The Chief Economist emphasised that strong business groups like the CCC should work with, and lobby the government and other agencies to `help save the Doha round`.
The CCC committee for 2007/08 appointed Mahen Dayananda as Chairman, Jayampathi Bandaranayke as Vice Chairman, Anura Ekanayake as Deputy Vice Chairman, and Prema Cooray as Sec. General/CEO.
Mr. Dayananda noted the challenges facing the Sri Lankan economy, but observed the many improvements in key economic indicators over the past year. The Chairman highlighted the many areas in which the CCC is catalysing important business relationships as well as working on issues of national importance everything from constitutional change to climate change. He also advocated greater improvements in productivity as the key to `climbing the ladder of competitiveness`.