The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis
There are two tremendous forces to reshape the global economy: the rapid shift in economic power fr om the declining West to the growing East, and shocks caused by the waves of financial crises that gripped the countries with high incomes. These are deep, long and interrelated changes that have been defining the shape of the world for decades. The shift reflects a complete change in the sesquicentennial trend towards economic divergence that resulted in a situation wh ere the citizens of countries with high incomes almost held a monopoly on the results of the industrialization process.
Yesterday's differences in growth between economies with high incomes and new market economies resulted in a rapid convergence in terms of revenue today. Although this convergence is desirable in itself, it also poses serious challenges to the global economy. Financial shocks significantly increase these challenges. They resulted in the long reduction of credit leverage and slowing the growth in high-income countries and an especially strong crisis in the fragile Eurozone. Moreover, the global economic shift created certain conditions for these shocks, particularly global macroeconomic imbalances and the downward trend in wages.
Martin Wolf, Chief Economics Commentator, The Financial Times