The only thing that does not change is change itself. Everything else is in a state of flux. We are here to talk about great changes that have taken place in leading economies during the past 100 years or so.
The industrial revolution started in Britain in mid 1770s but by the end of 1980s, Britain’s industrial leadership was being challenged by United States (US) and Germany.
The end of World War I saw the rise of the US to the forefront which seemed invincible until the 1970s when US abandoned the gold standard and devalued the dollar to make its exports competitive in the world markets against Japanese and Germany exports.
From the 1970s, Japanese exports were dominating all markets all over the world until Japan’s economy became the largest after that of the US. There were predictions that in a few decades the Japanese economy would overtake that of the US. Alas, that has yet to happen.
Towards the end of the 20th century, the Japanese economy started to experience recession. During the past 20 years, all attempts to reinvigorate the Japanese economy have proved ineffective and Japan has given way to the People’s Republic of China as the world’s second largest economy.
Economists and policymakers have been saying that within a decade, China’s economy will become the largest; others have been saying it is already the largest. But then see what the world’s leading magazine on economic issues says.
The front cover of the The Economist dated August 29 to September 4 2015 is headed The Great Fall of China, an apparent parody of the The Great Wall of China. Inside on the page headed Leaders we read that rich world markets have regained some of their poise. But three fears remain: that China’s economy is in deep trouble, the world’s second largest economy is heading for the hard landing. Exports have been falling.
We are then informed that China’s troubles have dragged down economies of some emerging economies such as Brazil, Indonesia and Zambia that depend on exports to China of iron ore, coal and copper. We have been reading of late that the Zambian kwacha was wobbling and we have been wondering why. A country’s currency depreciates when its exports dwindle.
Hopefully, the situation in Zambia will not replicate that which followed the end of the Vietnamese civil war. As long as that war lasted, the US was importing substantial quantities of Zambia’s copper. The US ceased doing so as soon as it got fed up supporting the southern Vietnamese.
Why do economies which were once vibrant lose their vitality? Reasons differ from country to country.
Since the main asset of any economy is its human capital, we must look into what has happened to its entrepreneurs, managers as well as scientists. The industrial revolution in Britain owed its origin to its scientists and inventors such as Arkwright, James Watt, George Stephenson, Coke of Norfolk and so on. When a nation’s inventiveness sags its economic growth tends to slow down, especially if the inventiveness of rival economies is on the rise. This was how Britain lost its leadership in the global economy to the US and Germany.
A country’s economy starts to falter when the natural resources on which it was built get exhausted. Some decades back, I used to read in international papers slogans like diamonds are not forever, meaning that when the natural resources are finished a once prosperous nation can become poor.
This is happening right in front of us on the African continent. South Africa’s fabulous wealth was built on the diamonds of Kimberly in Northern Cape and gold in the Transvaal. Now there are other countries in Africa with more of these and oil. South Africa has lost its position as Africa’s largest economy to Nigeria. What is perhaps more worrying is that its gross domestic product (GDP) is growing at a lower rate like the rest of the developed economies.
Japan’s and China’s upsurge depended mostly on catching up with the industrial west by modifying western inventions and exporting them at lower prices. They have not yet attained the inventiveness of North America and Europe. Their manufacturers have lost their competitiveness in price to other countries in the same region.