Rise of New Economies

Asian and African countries will see their population increase by another 2.8 billion people by 2050. This growth is similar to what was experienced in the last 50 years. This demographic transition yields an economic transition, with China in the last 20 years being one of the best examples.

The economic system of new economies is based on massive populations living in rural areas and dependent on primary production (agriculture, fishing, etc.) as their means of subsistence. Such a survival economy is highly dependent upon climatic conditions and external factors. Local industry tends to be of poor quality and essentially serves underdeveloped internal markets. Everything valuable is imported and only accessible to a minority of people. Infrastructure is generally of poor quality, which increases even more the relative isolation in which rural populations survive not just geographically but also culturally, as they remain remote from decision and business centers. The life of these millions of isolated people is highly dependent on external factors that they cannot control. Their world is deterministic.

Access to health services and improved sanitary conditions is the actual change of paradigm. Together with the development of the global economy and increased exchanges between populations, it helps break the isolation of rural populations. Mortality rate decreases, in particular infant mortality. The share of young people in the overall population then increases significantly. However, such a rise is unbearable by the local economy. Consequently, part of the population progressively moves out of these regions towards the cities. This change can be slowed down or accelerated, depending on the particularities of the country’s geography or politics. In India, local leaders sometimes forced rural populations out of their village (Das 2000). In Africa, the complete absence of some infrastructure isolates some people for decades and therefore delays this change. Finally, family culture, which encourages (or not) support between generations can accelerate or slow down this movement (Todd and Le Bras 2013). Nevertheless, the change is ineluctable. Large amounts of people press on in the cities to look for jobs. This massive amount of workers is an opportunity for economic growth as their productivity in cities is far higher than in the countryside. The main issue is how to absorb this volume of people in the modern economy at the same speed at which they reach the cities. In China, 8 % of GDP growth is required to allow this integration to happen. The belt of slums that surrounds Indian cities’ downtown areas shows that the economic development of the country is not fast enough to absorb displaced populations, despite GDP growth topping 5 % for more than two decades. Then again, the movement cannot be stopped. Growth creates slow absorption so the speed of integration is a major challenge for new economies. It took more than a century for Europe to accomplish it. According to Moshe Lewin (1985), the rise of communism and the terrible events that marked it (like the famines in Ukraine) are simply the consequence of the economic transition that Stalin forced upon the Soviet Union while building a strong industrial economy within a short period of

20 years. Asian and African countries need to realize a similar transition—without the upheaval—within a generation.

Economic development may however take different directions. In China, it led to the creation of gigantic export-oriented industrial powerhouses. In India, it is founded on entrepreneurship and directed towards the domestic market. Cultures vary in essence and the pathways that nations use to fuel their economic development are therefore different. Nevertheless, the result is the same—the economy develops, growth continues, and living standards improve. Increasing state incomes may then be used to improve infrastructure, to break the isolation of remote areas, and to develop the healthcare system as well as education services. Social spending improves the living standards of citizens and the rise of education favors the emergence of the middle class, which drives internal consumption and thus production and economic growth. Growth contributes to pull population even faster out of rural areas, which then needs to be integrated into urban areas, boosting the construction market.

There are of course a number of obstacles to this economic transition. Distribution of revenues can be truncated and accumulated by a minority. Administrative inefficiency can slow down the process, as it did in India in the 1970s and 1980s (Das 2000). Bureaucratic rigidity, endemic corruption and ethnic conflicts can slow down the transition as well, and in some instances give the impression that it has stopped. The complex relationship between rich and poor countries can also hamper the development of new economies because of their dependence on high-value added imports. However, despite these obstacles, be they cultural, economic or political in nature, new economies are bound to succeed simply because it cannot happen differently. A massive middle class will emerge and witness a considerable increase in its living standards. Economic catch-up by new economies is simply a historical determinism. It is inevitable.

Historical trends can only be understood by examining a timeline stretching centuries. Global population movements and exchanges invariably diffuse the benefits from industrial revolutions to the entire world population. Population clusters which remained separated from it will progressively join the world community and eventually benefit from its innovations. Some claim that this transition is harmful to millions of people as they bring about displacements, famines and poverty. This flawed perspective could have come about because such a transition occurs over a long period of time and is difficult to comprehend.

The increase of populations in cities increases urbanization. The urbanization rate worldwide will reach 61 % in 2035 (© OECD/IEA, WEO 2012) and 70 % in 2050 (Le Monde diplomatique 2010). Unsurprisingly, energy consumption in cities is much higher than in the countryside. In addition, the rise of the middle class yields as well a sharp increase in energy consumption. This emerging class can afford to buy personal equipment such as refrigerators, TV sets, cars, etc. which all consume significant amounts of energy. Individual energy consumption has doubled in the last 30 years in Asia, to reach a third of European consumption and a fifth of the American level (EIA 2015) (Figs. 2.3 and 2.4). On the other side of the energy spectrum, almost a fifth of the world population does not have access today

Total primary energy consumed (© OECD/IEA, WEO 2012)

Fig. 2.3 Total primary energy consumed (© OECD/IEA, WEO 2012)

Total primary energy consumed per individual (EIA 2015)

Fig. 2.4 Total primary energy consumed per individual (EIA 2015)

to electricity (# OECD/IEA, WEO 2012), particularly in India, South East Asia and Africa. By 2030, the International Energy Agency plans to reduce this percentage to 12 %, which corresponds, taking into account the concurrent increase in world population, to two additional billion people connected to the electrical network.

If the world population did indeed increase by over 3.5 billion people in the last 50 years [including 800 million for China only (Global Warming 2014)], the individual energy consumption remained stable until the last years of the twentieth century. World population will continue to increase at the same rate in the next 50 years but, on top of that, the energy spent by each individual will rise sharply with rising living standards. Then, energy consumption will skyrocket. This is the main turnaround of the twenty-first century.

Going further, electricity consumption, a subset of overall energy consumption, is the real indicator of economic development. It indeed reflects the consumption of goods and equipment by the middle class. Electricity is the core energy source required to produce equipment and final goods, as well as the energy source for powering these equipment and goods within the new homes of the middle class. According to the International Energy Agency (2012), electricity consumption will grow by more than 70 % in the next 20 years. Electricity consumption today already corresponds to six times the consumption 50 years ago (World Nuclear Association 2014), which means that electricity consumption will have multiplied by more than 10 in a century. This corresponds to an annual average demand growth of 1 % for Europe and 1.3 % for North America, 4.5 % in Asia and 3.7 % in Africa. For Asia and Africa, this growth is considerable.

In a nutshell, economic transition is an ongoing process in most geographies, even though it happens at different speeds and in different conditions. With a massive share of the world population emerging as the middle class, the economic transition yields a sharp increase in energy needs, particularly electricity. Besides being required for producing goods and equipment demanded by the middle class, electricity is also required to power the new houses and fully equipped homes of billions of people. Finally, the greater interlinking of economies, as well as the development of infrastructure, contributes to raise sharply the mobility of people and therefore the consumption that is associated with their transportation needs.

 
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