The end of the Third World
By John Rapley
In 1800, before the age of European imperialism entered its most expansive phase, the world was a relatively equitable place. The average person in what would go on to become the First World earned roughly three times what the average person in an existing or prospective colony earned.
There then followed a century and a half of high imperialism, which effected a historic transfer of resources across the globe. After that, there came a half-century of what was called neo-imperialism, when trade relations enabled the continued net flow of wealth upwards. By 2000, therefore, the average person in a developed country earned some 60 times what a person in a developing country did.
All of us grew up in this age of widening income. It seemed to be something set in stone. Few of us were, therefore, really prepared for the possibility that this process might one day, suddenly, go into reverse. We'd written books and staked careers on the claim that, after all, the rich countries wouldn't allow a reversal.
But it now appears that just this reversal has now begun, and there's not a lot the rich countries can do to stop it. The share of global output of the rich countries peaked in 1992, at just over four-fifths. Around 2000, a decline appeared to start. Since the 2008 financial crisis, it went into free fall. Today, the rich countries' share of global output is down to about three-fifths.
In the interim, the average growth rate of the First World has fallen sharply. That of the Third World has doubled. And because of the consequent declining returns on capital in the developed countries, there has been a huge outflow of investment to what are now called emerging markets.
This does not appear to be a short-term phenomenon. A fundamental problem in the rich countries is that over the last few generations, despite periodic surges, the underlying rate of productivity has been slowing. In the developing countries, the resultant productivity gap means that the biggest gains are yet to come. Investors everywhere know this. Where governments have created receptive environments for business, they have been rushing in to exploit the new opportunities.
Already, workers are starting to follow them. A recent survey in the United States found that half of recent university graduates are currently employed in jobs for which they don't need university degrees. In part, this reflects a mismatch between the skill requirements of the economy and the degrees that students are getting. But, in part, it represents the low returns on human capital currently available in the US.
This mirrors developments in places like Spain and Portugal, where a majority of new workers are unemployed. Not surprisingly, many of them are heading to distant shores for opportunities. One in 10 Portuguese university graduates now migrates. Nor are these migrants merely going to traditional destinations, like Canada and Brazil. In 2006, the Angolan government issued 156 visas in Lisbon; in 2010, it issued nearly 25,000, many to entrepreneurs with university degrees, going to cash in on the oil-rich country's economic boom.
Unlikeliest greener pastures
After generations of emigration, it seems incredible that developing countries might now become recipients of migration. But this trend looks likely to continue. And as disruptive as immigration can be, if properly managed, it can benefit developing countries. A relative shortage of skilled graduates has inhibited technological absorption in most developing countries, meaning they have not yet fully exploited the productive potential of existing technology.
In short, the Third World as we once knew it, a realm of blocked growth and imperialist obstruction, is no more. We need to change our intellectual toolboxes to enter this new age. It will no longer be, primarily, obstacles in the international environment which inhibit our ability to take advantage of these new opportunities. It will be obstacles in our own policy regimes and politics.
But it's a refreshing thought that most of the power to make the needed change lies in our own hands.