Five “economic tectonic forces” reshaping the global economy
2024-08-11
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Image caption: Stephen Poloz
Our reporter Bai Yunyi and Xie Wenting
Today, with challenges and opportunities coexisting, the global economy is undergoing an unprecedented transformation. How to deal with these changes and uncertainties has become a common issue for governments, enterprises and individuals. Recently, a reporter from the Global Times interviewed Stephen Poloz, a famous economist and former governor of the Bank of Canada, on this topic. In Poloz's view, the five "economic tectonic forces" of population aging, debt accumulation, income inequality, technological progress and climate change are like geological tectonic forces, constantly changing and accumulating, and are forming a far-reaching "economic earthquake" on the world.
“Economic Tectonic Force”
Global Times: In your recently published book, The Next Uncertain Era, you mentioned that five "economic tectonic forces" - namely, population aging, debt accumulation, income inequality, technological progress and climate change - are reshaping the global economy. Could you briefly introduce your conclusions to our readers, how these forces will reshape our economy? And how should we respond to the changes?
Poloz: I call these forces “economic tectonic forces” in the book because they are always changing and moving, and there is virtually no way to stop them—just like tectonic forces, when they come together and collide, earthquakes occur. In fact, these “economic tectonic forces” played an important role in the global Great Depression of the 19th century, the Great Depression of the 1930s, and the financial crisis.
Today, these five "economic tectonic forces" are all increasing: the global population is aging rapidly, the fourth industrial revolution has just started, income inequality has reached a historical high and is likely to further increase, debt is unsustainable, and the impact of climate change is manifesting every day. I think that as these forces collide with each other, there may be more "economic and financial earthquakes" in the future. Therefore, individuals need to make more preparations, such as we as individuals can be more conservative financially than before, and continue to learn new professional skills to cope with changes. We need to make more "investments" in our flexible and adaptable abilities.
Global Times: In your book, you believe that technological progress may bring instability to the job market. We are particularly interested in this issue. How do you think we should deal with the employment problems brought about by new technologies?
Poloz: We have experienced three industrial revolutions in history: steam engines, electricity, and computer chips. Each time new technologies destroyed many jobs, but at the same time, the number of jobs they created eventually exceeded the number of jobs that disappeared. Many of the new jobs that emerged were difficult for people to imagine before. The problem is that the birth of new jobs takes time, which may be five years, ten years or even longer. In this process, people will feel a lot of pressure.
Also, don’t forget that new technologies will create huge new wealth. While some people lose their jobs, other “big winners” will gain huge gains. These “big winners” may be companies that develop new technologies. The wealth they create and gain will be widely consumed in society, which means that new jobs will appear not only in the field of new technologies, but also in other fields such as construction, maintenance, and service industries.
Today, the fourth industrial revolution, represented by digitalization and the application of artificial intelligence (AI), has just begun, which will certainly bring a very tense period and may affect more than 20% of the world's workers. This means that society needs to have a good "safety net" to protect people in this transition period and provide individuals with cross-industry retraining opportunities to make the transition less painful and reap the benefits of technological progress more quickly. Although we cannot stop change from happening, we can make the process smoother.
Global Times: Some economists and entrepreneurs believe that the new round of technological revolution represented by AI today may be different from the first and second industrial revolutions. It cannot generate more job demands like the socialized mass production brought about by the steam engine and the electric revolution. What do you think of this view?
Poloz: I disagree. Take AI cars as an example. If all freight trucks become self-driving cars, then we will need new manpower to maintain these complex vehicles. In addition, we will need new traffic control systems, similar to air traffic control for airplanes (all of which will create new jobs). These are just some simple examples. In fact, there will definitely be more jobs that we have never thought of in the new environment. More importantly, when AI is put into many applications as expected, it will create a lot of value. This value will flow into the economy and will drive growth in various fields. I am optimistic about this.
Each technological revolution has brought tremendous growth to society. However, some people may be left behind, and this lag may be long-term or even permanent, which may lead to political turmoil, populism and political polarization. We should learn from past mistakes and work harder to address income inequality and prevent further social division.
"The closer the goose is to the front, the stronger the wind it encounters."
Global Times: We would also like to talk to you about China's economic situation. How do you evaluate the current performance of China's economy? Some people believe that "China has reached its peak". What do you think of this statement?
Poloz: I don't think "China has peaked." China can achieve greater development. Maybe China's economic growth rate will not be as fast as before, but I think this is reasonable because any economy will naturally slow down its growth rate as it matures, as productivity increases and scales up. And just like geese flying in a flock, the more you fly in front, the stronger the wind you encounter. The same is true for countries. The more developed and advanced a country is, the more challenges it will face. But this does not mean that it has "peaked." It is entirely possible that it will reach new heights.
Of course, maintaining the momentum of economic development (for China) is still an important task and should not be taken lightly. Deep investment, education development, enhanced collaboration, interdisciplinary research and development, etc. are all important efforts to maintain the momentum of growth, and China has abundant resources and means. In addition, the government should also remove obstacles that may hinder growth and innovation. As long as these obstacles are not there, I believe that economic development will continue.
Global Times: In recent years, China has been vigorously developing new energy industries and promoting green transformation. How do you view this process? Will it be successful? There are some doubts and criticisms about China's new energy industry development policies from the outside world. What do you think of their views?
Poloz: I think the new energy industry is an area where the government should intervene. We live in a world with too much carbon emissions, and in this regard, the market has failed and the market has not taken us to the right place. People drive cars and buy industrial products that directly or indirectly cause pollution, causing air pollution, but no one pays for it, while everyone is paying the price for pollution and climate change.
As human beings develop, the world needs more and more energy, and energy security is vital to human beings. The development of green industries can extend the time window for energy transformation and slow down the occurrence of climate change in the next few decades. However, the market itself has no motivation to reduce pollution or carbon emissions, so we need government intervention to correct this market failure, which is a public product issue. Of course, there are many ways to correct this failure, but I believe that the government must play a leading role to promote adjustments in the entire economic system, such as taking measures such as pricing carbon emissions, setting rules for carbon emissions, requiring companies to reduce emissions, and promoting the development of electric and hybrid vehicles.
Globalization is not black and white
Global Times: The economic relationship between China and the United States has attracted much attention. How do you view the roles of the two countries in global economic governance? What will be the trend of Sino-US economic cooperation and competition in the future? What impact will this have on the global economy?
Poloz: I believe that the future of China, the United States, and all other countries is closely linked. Just like the metaphor of the geese I just mentioned. Obviously, geese fly together, and so do countries. This is the best way to govern the global economy. We have many forums, organizations, or mechanisms designed to promote cooperation among countries. They have played a good role in crises, but in many other times, their effect is not so obvious.
The economic and trade relationship between China and the United States is not actually between two countries, but between Chinese businessmen and American businessmen. I think that years of business exchanges have made these people understand each other and have a good impression of each other. This kind of relationship is actually stronger than political relations. They are driven by common interests, not political reasons. I hope that these connections will continue to bring us benefits, overcome some political interference, and become the foundation for future success.
What I'm most concerned about today is actually uncertainty. As we discussed at the beginning of this interview, these uncertain economic forces are making our future more unstable. I think today's politics are also facing greater uncertainty, which is slowing down business investment and slowing down the speed of the entire flock of geese. This is not good for us personally. We should work to reduce this political uncertainty.
Global Times: How do you view the prospects of globalization? After the COVID-19 pandemic, "nearshore outsourcing" has emerged. For example, many companies have moved their supply chains from China and Southeast Asia to Mexico. Do you think the era of globalization is coming to an end and the era of regionalization is emerging?
Poloz: Globalization will never end. It is a natural trend. British economist Adam Smith taught us a long time ago that the division of labor into smaller and smaller parts can increase the degree of production specialization, thereby improving labor productivity and people's living standards.
Just like in today's economy, we no longer do our own laundry, we no longer grow our own vegetables, we go to the dry cleaners and grocery stores to do these things, and there are other people who do these things full-time. This also allows us to do things better.
Globalization is taking small things like this and expanding them to a global level. Two hundred years ago, it was difficult to achieve globalization because of the lack of transportation capacity of livestock and ships, but today these are no longer a problem, and international trade has greatly improved our living standards.
Indeed, many supply chains were interrupted during the COVID-19 pandemic, because the pandemic has shown us that there are risks when supply chains are too fragmented, and globalization is not perfect. However, we must see that the supply chain restructuring happening today is actually driven more by the "chief risk officer" rather than the chief financial officer, who focuses on risk management and preventing major problems rather than reducing costs and improving efficiency.
I think this shift in focus is actually a rebalancing of globalization. The new balance may be slightly different from the previous one, but globalization will continue to exist. Globalization is not black and white, it is a constant rebalancing. ▲#Deep Good Articles Project#
