The alternative to trying to figure out what is going to happen in the very vexed month of June 2012 is to look past and through the current crisis and try and see where the world is heading over the next several decades. This is not an exercise in escapism, nor is it avoiding the unpleasant but essential task of facing up to the immediate and ongoing mess. It is an equally essential, but far pleasanter, complementary analytical exercise.

“The World in 2050” is the title of just such an analysis, undertaken by Karen Ward, a rising star in the field of global economics and published by HSBC, for whom she is senior global economist. Because the Israeli branch of HSBC held its annual investors’ conference this week in Tel Aviv and invited Ward to be one of the lecturers, local analysts and the bank’s clients had the opportunity to hear the forecast firsthand and, more importantly, the thinking behind it.

Many people scoff at forecasts, especially long-term ones, so that an analysis looking decades into the future tends to be dismissed by nonprofessionals. However, it is they rather than the analysts who are missing the point. The object of the exercise in any forecast is not to say how things WILL turn out, but to show how they MIGHT turn out. That is true both for something as specific as whether Greece will exit the euro zone next month, or how the world economy will look in 40 years’ time.

The starting point of the analysis is the here and now.

That already assumes that we have definite knowledge of the current situation, or at least of the recent past. But that itself can be a dangerous assumption. Do we know what’s going on in China right now? Can we believe the official Chinese data? Most people would not be definite about the first question and would tend to be quite negative about the second. But if we don’t know what will happen next week in a minnow country like Greece, and we don’t know what the situation is in leviathan countries like China, then what do we know? That’s where an analysis like Ward’s is so useful. It looks at the big picture and the long-term trends. We know about the process China is going through: the move from an agricultural to an industrialized economy. All the currently developed economies underwent that process, beginning with Britain and then other European countries, via America and more recently Japan and then South Korea. So we have a road map of what the process entails and how it develops.

True, China is racing down this road much faster than any of its predecessors, but it is still in the early stages and has far to go. That allows Ward to make a key assumption: namely, that although Chinese growth will slow from its recent breakneck pace, the country will still climb inexorably past the US and be the biggest economy – with the critical corollary that its currency will become the, or at least another, global reserve currency.

None of that is carved in stone. But the likelihood that China will end up in a prolonged period of stagnation and decline, as Japan has suffered since 1990, is very small in Ward’s opinion. No less important, and more novel, is her take on which other currently emerging economies will make it into the top rank over the next several decades – and how far and how fast will the small, developed and mostly European economies that currently populate the global top 20 (think Switzerland, Netherlands, Sweden, etc.) drop down the ranks.

There is much to argue about, and there seem to be some major flaws in the methodology. Israel does especially badly, on a relative basis, but so do a bunch of small economies, because the model she uses gives too much weight to sheer size of population.

To my mind, if you are bullish about China, you must be bullish about Singapore... but there you go.

She is also very optimistic about the prospects of educational development and economic and political reform in many countries. Above all, she assumes there will be no major wars, anywhere. That is not merely optimistic, it flies in the face of all human history, up to and including the present. On the other hand, you can’t start guessing where there will and won’t be wars, how long and severe they will turn out to be, etc.

The object of the exercise is not to be “right,” and certainly there is no chance of being accurate with regard to all the countries covered. The true goal is to highlight the factors that will be important in facilitating growth and economic development and seeing what the prospects of each country are today with regard to those factors. In other words, you have to make people think more rigorously about who might succeed and who looks likely to fail. Ultimately, businessmen and investors must make actual decisions on the basis of these assessments: which countries and regions to avoid and which to look at closely and seek to exploit the opportunities that are developing.

Because it’s entirely based on numbers – demographic, sociological, economic and financial – and avoids the human element, “The World in 2050” is the ideal counterbalance to Ian Bremmer’s leaderless “G-Zero World” discussed here two weeks ago. Yes, the world is a complicated place and it is likely to get more so – but at least some people are thinking intelligently about it and trying to make sense of it.

landaup@netvision.net.il

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