EMERGING MARKETS

Will the Relative Decline of the United States and the Rise of Emerging Markets lead to an era of Greater Global Economic Instability?

Will the Relative Decline of the United States and the Rise of 'Emerging Markets' lead to an era of Greater Global Economic Instability?

The United States, which typically ranks in the top five of the World Bank Doing Business Indicators and the World Economic Forums Global Competitiveness Index, remains not only the largest economy in the world by a factor of three in current dollar terms, but also among its most open, innovative, and flexible. The United States high per capita income reflects high productivity, the broadest and single best measure of competitiveness. Despite being home to less than five percent of the world's population, the United States accounted for 28 percent of global patent applications in 2008 and is home to nearly 40 percent of the world's best universities. Furthermore, US demographic trends are favourable compared to those in other advanced countries (Pryke, 2000, pp 187). Over the next 20 years, the UN expects the United States population to grow by 17 percent, while projecting that of the rest of the developed world to grow by only 1 percent. Part of the United States strength comes from high immigrant inflows and the country's unusual ability to integrate migrants. For these reasons, the United States is potentially among the best placed economies to benefit from the twin modern day trends of globalization and technology.

Nevertheless, the United States is also plagued by serious and growing weaknesses. Health care is expensive and inefficient: public and private health spending is 50 percent higher per capita than that of the next highest OECD country, but the US infant mortality rate, at 6.7 deaths per 1,000 births, is higher than in all OECD countries except Turkey and Mexico. Moreover, as the population ages, health care costs, which already account for about 17% of US GDP, are expected to rise rapidly. Secondary education is weak, with 15 year old American students ranking only 31st of 65 countries in mathematics tests and 22nd in science tests in a survey that includes many developing countries. This could mean that while future US workers will lay claim to the world's highest wages, many will bring only mediocre skills. Some also believe that the United States has a large infrastructure deficit relative to other countries, though hard evidence on this is difficult to come by (Miller, 2008, pp 325). The US income distribution is considerably more unequal than other advanced countries, and it is growing more unequal. While incomes of the top 1 % of Americans have soared, median household incomes have declined since 1999. Moreover, the American Dream has become a myth for many people: social mobility is lower and relative poverty rates are higher in the United States than in most other advanced countries. Despite its high productivity and competitiveness, the US cumulative current account deficit over the last 30 years is ...