Year 2018 can be considered a historic turning point.

• One, because of poorly managed globalization which led to nationalist “take-back-control” movements and a rising wave of protectionism that has undermined the 70-year-old US-led international order.
• Two, the stage is set for China to develop its own parallel international institutions, which has resulted in a world which is divided between two competing global-governance systems.

2008-2018 decade marked an epochal shift in the balance of economic power.

• During 2008 global financial crisis, North America and Europe comprised around 15% of the world’s population, but accounted for 57% of total economic activity, 61% of investment, around 50% of manufacturing, and 61% of global consumer spending.
• But the world’s economic centre of gravity has shifted since then. Whereas around 40% of production, manufacturing, trade, and investment was located outside the West in 2008, over 60% is today.
• Asia will account for 50% of global economic output by 2050.
• China’s per capita income might still be less than half that of the US in 2050; but the sheer size of the Chinese economy will nonetheless raise new questions about global governance and geopolitics.

For decades after its formation in the 1970s, the Group of Seven (G7)—Canada, France, Germany, Italy, Japan, the UK and the US —essentially presided over the entire world economy.

But by 2008, North American and European leaders were debating whether it was time to create a new premier forum for economic cooperation that would include emerging economies.

There were heated debates – On one side were those who wanted to keep the group small (one early US proposal envisioned a G7+5); on the other side were those who wanted the group to be as inclusive as possible.

Today, Nigeria, Thailand, Iran, and the United Arab Emirates’ economies are each larger than the smallest G20 economy (South Africa), yet none of these countries is a member.

Do you know?

• When the original IMF Articles of Agreement were being negotiated in 1944, there was some disagreement over whether the new body should be headquartered in Europe or the US.
• Eventually, it was decided that it should be based in the capital city of the country with the largest share of voting rights (which tracks a country’s share of the global economy).
• This means that, within a decade or two, China could demand that the IMF be headquartered in Beijing. (However, America may leave the IMF before the IMF leaves America)

Crux/Conclusion:

• World’s economic centre of gravity has shifted since 2008.
• The world is experiencing an epochal rebalancing that is not just economic, but also geopolitical.
• Unless the West can find a way to uphold multilateralism in an increasingly multipolar world, China is expected to develop alternative financial and governance institutions, as it has with the establishment of the Asian Infrastructure Investment Bank (AIIB) and the Shanghai Cooperation Organization.
• Globalization is at a crossroads. One way or another, international organizations and multilateral frameworks will need to accommodate the new “poles” of geopolitical power that are emerging.