Martin Wolf’s Talk: The World is Asian

The chief economic commentator for the Financial Times opened the CIO/06 conference in Phoenix today with a disturbing assessment of where the forces of change are taking the global economy and geopolitics over the next decades. Martin Wolf, also an associate editor for the British equivalent of The Wall Street Journal, summed up his prediction with the soundbite: “The World is Asian.” In sum, China and other Asian countries are on the ascendance and Europe and the U.S. are on the path of declining economic and political power.

While this new world order presents tremendous opportunities for multinational companies who know how to exploit the “extremely open” trade markets in China and other Asian countries, the rise of Asia and its fast-growing labor pool means that the United States may soon no longer hold claim to being the driver of technological change and innovation. And the U.S. may also soon lose its geopolitical position as “top dog” to China in the next few years, Wolf said.

In a fast-moving talk replete with charts and numbers, Wolf predicted that the massive turmoil and social unrest created by these shifts in economic and geopolitical power could lead to war, much like the opening of the globe and technological advances (think transatlantic telephone cables, steam ships etc) in the late 19^th century and early 20^th led to World War I.

“The world is at an exciting and very dangerous juncture,” Wolf told the almost 300 people assembled at the CIO/06 conference. Among the looming threats Wolf cited were:

• Fears of globalization that could give rise to protectionism and isolation
• Macroeconomic instability caused by the United States’ fast-growing trade imbalance and deficit
• The insufficient supply of energy resources and the fact that most of today’s oil resources are in a region (the Middle East) that remains a political powerkeg
• Geopolitical tensions caused by the shift in economic power to Asia.
• The “bads” that globalization brings in its wake: terrorism, nuclear weapons being smuggled into rogue countries, spread of disease and the immigration of unskilled labor from the have-not countries to the haves.

   Wolf said he was “moderately optimist” about the ability of multinational companies to manage and resist efforts to promote protectionism. He was far more concerned about the planet’s depleted energy resources and the United States’ growing trade imbalance. “The U.S.’s net liability [its debt to other countries like China] will soon equal its total exports,” Wolf said. “How will the U.S. ever repay this?” He said the U.S. government’s current fiscal policies pose real risks to the dollar and are on a “dangerous path” that must be corrected.

Wolf said he was also concerned that the world oil market will increasingly be dominated by Asia and that the rising demand for oil and gas to power the global technological revolution is going to lead to energy shortages in the near future. “Where the hell is this stuff going to come from?” he asked. He noted that one byproduct of China’s growing thirst for oil was its support of “regimes the U.S. is opposed to” such as Iran.

Finally, Wolf raised the specter of geopolitical conflict as Asia supplants the U.S as the world’s dominant political force. “China’s growth is making the Pentagon nervous,” he said. “Human beings have an almost infinite capacity to screw up and wars are one of the ways we screw up.”

Wolf said he hoped that Asian, U.S. and European governments will be able to keep the lid on all these of tensions and if they do, he promised a world of great opportunity for everyone,  essentially the same scenario painted by Thomas Friedman in his best-selling book, The World is Flat.

“All we need are wise sensitive political leaders…and the tooth fairy,” Wolf concluded, to a gust of laughter from the audience.

–Alison Bass