Why are Emerging Markets important?
It is often supposed that most of the countries we now call emerging markets were globally unimportant until the late 20th century. Yet China, Egypt, India, Mexico and Peru (among others) were regional powers before 1600. In the light of history, many emerging markets are re-emerging markets. Their astonishing growth in the last quarter century reflects past success; and their collective challenge to the rest of the world winds the clock back half a millennium.
The world knows the largest emerging markets are global economic and (increasingly) geopolitical powers. But it has yet to come to terms with the facts that: the North-South paradigm is history; shifting wealth patterns have generated new global dynamics; centrifugal forces unleashed by the success of the development enterprise have made it harder to achieve an international consensus on new policy directions; the global poverty landscape has been transformed since 1980; the post-World War II architecture of international aid has been shattered; the lessons of development success should begin to flow towards rich countries; global policies and institutions need urgent adjustment; and the future of emerging markets and the future of the rest of the world are joined at the hip.
People in rich countries who (in some cases wishfully) believe the world order of the 19th and 20th centuries can be revived ignore two realities. First, notwithstanding blips, the fortunes of emerging markets will continue to affect the rest of the world. Second, their relationships with the rest of the world and with each other could be rough or smooth. To avoid a rough ride, emerging markets must answer generic questions that, in greater or lesser degree and with variable urgency, affect them all. The world as a whole has a vested interest in their success and is (willingly or grudgingly) obliged to help them find practical solutions to their common, complex, unprecedented and urgent challenges.
What are their characteristic challenges and opportunities?
The challenges are complex, unprecedented and urgent. None can be met without international collaboration. All, at different times in different places, but mostly in the 19th and 20th centuries, have been addressed if not successfully, at least partially, by today’s high income countries whose developed if imperfect economic, social and political systems have raised productivity, and incomes, improved health, education and social care and created relatively advanced civilizations.
With 50% of the world’s people and nearly half its economy, emerging markets expect to be increasingly powerful actors on the world stage. But in varying degrees, their prospects for sustained growth, social cohesion and political stability are menaced by: eroding competitive advantages; environmental degradation, depletion and destruction; corruption and other weaknesses in national, local and corporate governance; and unresolved issues of human welfare associated with urbanization, population ageing, nutrition, health, housing, employment, social care and the coordination of action within governments and between governments, businesses and civil societies.
Challenges to emerging markets range from creating and sustaining economic environments that promote and enable growth, to contending with their physical environments, to managing the determinants of human welfare. Many of these challenges were addressed by today’s rich countries as they developed economic, social and political systems that improved productivity, incomes, health, education and social care in the 19th and 20th centuries. Those countries have not finished the job. Their economic systems remain vulnerable, their social systems remain fragile and their political systems remain skittish. As emerging markets grapple with demographic, economic, geopolitical, cultural and technological change, they must address similar issues but must do so on vastly larger scales on highly compressed schedules and with relatively fewer human, fiscal and financial resources, poorer infrastructure and weaker institutions.
Emerging markets are distinguished from rich countries less by the nature of the challenges they face than by the magnitude, dynamism, complexity and urgency of those challenges and the relative scarcity of resources to deal with them.
2015 yielded a flood of nervous stories about deteriorating short term prospects for emerging markets, most of which focused on declining foreign investment, falling commodity prices and depressed consumer confidence. There were few stories (there are never many) about the potential impact of slower growth on human well-being. And there were even fewer about the facts: that improved welfare is both the ultimate rationale for and a fundamental condition of economic growth, social cohesion and political stability; that if emerging market economies do not grow, the welfare of their people cannot improve; that if welfare does not improve, growth, cohesion and stability cannot be sustained; and that this nexus is the soft underbelly of emerging markets.
