"Can Emerging Markets Save the World Economy?"

Michael Spence and Mohamed El-Erian argue that we can be fairly certain that emerging economies will do their part to keep the world economy growing, the problem is the developed economies:

Can Emerging Markets Save the World Economy?, by Mohamed A. El-Erian and Michael Spence, Commentary, Project Syndicate: Over the past two years, industrial countries have experienced bouts of severe financial instability. Currently, they are wrestling with widening sovereign-debt problems and high unemployment. Yet emerging economies, once considered much more vulnerable, have been remarkably resilient. With growth returning to pre-2008 breakout levels, the performance of China, India, and Brazil is an important engine of expansion for today’s global economy. ...

So it is important to know whether this breakout growth phase is sustainable. The answer comes in two parts. One depends on emerging economies’ ability to manage their own success; the other relates to the extent to which the global economy can accommodate this success. The answer to the first question is reassuring; the answer to the second is not.

While still able to exploit the scope for catch-up growth, emerging economies must undertake continuous, rapid, and at times difficult structural change, along with a parallel process of reform and institution building. In recent years, the systemically important countries have established an impressive track record of adapting pragmatically and flexibly. This is likely to continue. ...

Overall, emerging economies are well placed to continue to navigate successfully a world rendered unstable by crises in industrial countries. Yet, again, the decoupling is not complete. A favorable outcome also requires industrial countries’ ... to accommodate the growing size and prominence of emerging economies. The risks here are significant...

[When] advanced countries have stubbornly high unemployment and bouts of financial volatility..., growth in the global economy comes to be seen as a zero-sum game, leading to suboptimal reactions. As a result, the continued openness of industrial-country markets cannot be taken for granted. ...

And then there is the issue of global institutions and governance. Managing a growing and increasingly complex set of transnational connections is an even bigger challenge in a multi-speed world that is being turned upside down. Such a world requires better global governance, as well as overdue institutional reforms that give emerging economies proper voice and representation in international institutions.

In the absence of such changes, the global economy may bounce from one crisis to another without a firm hand on the rudder to establish an overall sense of direction. ...

Where does all this leave us? Emerging economies will be called on to play an even larger role in a multi-speed global economy characterized by protracted rehabilitation of over-extended balance sheets in industrial countries. Left to their own devices, they are up to the task. But they do not operate in a vacuum. Emerging economies’ ability to provide the growth lubrication that facilitates adjustment in industrial countries is also a function of the latter countries’ willingness to accommodate tectonic shifts in the operation and governance of the global economy. Let us hope that these global issues receive the attention they require.

The political problem will, I think, take care of itself. As the developing countries grow and gain economic power, and they will whether developed economies like it or not, the political and institutional power will follow. The old institutions will either change with the shifting global economy, or be replaced by new ones. I don't think developed economies will have any choice except to "accommodate tectonic shifts in the operation and governance of the global economy." For one, corporations of today do not have traditional national boundaries, and the globalization of production cannot be easily reversed. We can make it hard, or we can accept the inevitable. Other countries are starting to grow up, and we will have to begin treating them like adults. That means, among other things, giving them a seat at the big table.