Robert J. Shapiro

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Robert J. Shapiro November 4th 2008
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The Forces Changing the Course of Nations

• The New Economics of Globalization
• The New Demographics of Nations Aging
• The New Geopolitics of a Sole Superpower

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The New Landscape of Globalization

• Global exchanges soar
• 1990 2006, share of worldwide GDP traded across
  borders up from 18 to roughly 30.
• 2005 180 national economies trade over 12
  trillion in goods and services (out of 42
  trillion world GDP), the highest levels and the
  largest increases ever.
• U.S. imports top 2.2 trillion (2006), more than
  the GDP that year of all but five other countries.

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Globalization Versus Traditional Trade

• Traditional trade Commodities from developing
  economies, manufacturing in advanced economies,
  and finished goods marketed among advanced
  economies.
• Modern globalization FDI driven networks of
  sophisticated operations around the world, to
  produce, market and sell everyone to the world.

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Impact on Developing Nations

• Rapid modernization and growth, based on
  transfers of modern business organizations (FDI),
  investments in education and infrastructure, and
  reforms to allow more foreign and domestic
  competition.
• East Asia, versus Latin America, versus Africa
  Case studies in the difference that public
  investment, macroeconomic stability, political
  stability, and FDI make.

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Impact on Advanced Economies

• Ideas replace physical assets as main source of
  wealth and growth in developed economies
• US firms invest more in tangible assets than in
  physical assets
• 1980 Market value of the physical assets of top
  150 U.S. public companies 75 of their stock
  value 2004, this book value of the top 150
  companies 36 of the value of their shares.
• Nearly two-thirds of the value of large companies
  now comes from what they know and the ideas and
  relationships they own.
• Impact on US growth, productivity and incomes,
  versus Europe and Japan

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Impact on Advanced Economies 2 The Case Study
of the United States

• Intense global competition holds down inflation
  and interest rates
• When intense competition collides with rising
  fixed costs, the link between growth and job
  creation is weakened
• Same combination weakens the link between
  productivity gains and wage progress
• Result Globalization reduces job opportunities
  and income gains for all but those most adept in
  an ideas based economy

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Ireland A Developed Economy Uses a Developing
Nation Strategy

• Focus on education and infrastructure, like East
  Asia
• 1990s 5 GDP to infrastructure (2 x EU)
• Free university access
• 2005 37 25-34 year olds with post-secondary
  training, versus EU 27
• Policies to draw FDI, like China
• 2004 Irish FDI stock, as share of GDP, 10 x
  Germany, 5 x France, 4 x UK

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Will the Global Crisis Change These Dynamics?

• Is a global recession in the cards?
• The impact of a serious downturn in advanced
  countries on trade and FDI
• The impact on politics Rising demands for
  economic security
• How governments should respond

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The New Demographics

• The historical uniqueness of an unusually large
  generation followed by an unusually small one,
  now happening across the world.
• Why The spread of basic modernization, changing
  roles for women technological advances.
• Result in most places Average age of national
  populations rising quickly
• Signs of aging populations elderly populations
  growing 3/year in most advanced countries.
• Why Ireland is different

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The New Demographics -2

• The problem for Europe and Japan 2005 2020,
  the number of elderly people will increase
  35-50, as the working age, tax-paying cohort
  shrinks.
• Early costs of these changes
• Falling saving, investment, and growth rates
• Fewer sources of revenues as demand for public
  goods rise sharply.
• Longer term challenges The political battles
  over pensions and health care.

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Impact for Different Countries

• Hit very hard Japan, Italy Russia
• The hard time facing France and Germany
• Why China will be less affected, even with the
  worlds fastest aging population

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Demographics and Prospects for Ireland and the US

• How Ireland and US can avoid many of these costs
  for a generation
• Role of immigration
• Role of public pension policy
• Role of globalization-based economic policies

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Demographic Shifts Meet Globalization

• How the combination intensifies inequality
• The crisis of financing health care
• Fastrising numbers of older people, meets,
  concentrations of serious illness in older
  people, and fast-rising costs to treat those
  conditions
• The increasing role of regulation
• Irelands trump The relatively small numbers of
  elderly Irish

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Demographics Meets Globalization - 2

• The effects on economic growth
• Spectre of a generation of slow growth for Japan,
  Germany, France, Italy and others
• Why the outlook is better for the U.S., China and
  Ireland

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The New Geopolitics

• Historical anomaly of a sole military and
  economic superpower with no near peer the
  United States.
• Iraq War The test the superpower passed and then
  failed
• Importance of collaborative arrangements for
  on-going challenges trade, finance, terrorism,
  drugs, climate
• The inescapability of US leadership

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The New Geopolitics Globalization

• The two poles of globalization
• U.S. (Western Pole) where new ideas are born
  and spread first.
• China (Eastern pole) the worlds production and
  assembly platform.
• US- Sino comity and conflicts
• The global challenges
• Energy and Climate Change
• The new petro-politics Russia, China and OPEC
• Terrorism and Islamist fundamentalism

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A World in Financial Crisis

• Its origin in globalization
• The globalization of capital
• Role of global competition in asset bubbles
• The role of America market ideology
• Tensions between national and global solutions
  Whither the EU?
• The outlook How long and how bad?

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Why Ireland Has Succeeded

• Strategy combining public investments (the
  path of the Asian Tigers) and waves of foreign
  investments (see China)
• Public education spending up 150 since 1985
• Tax and other preferences for foreign firms
• Small welfare provisions
• Geography (EU) and the value of low wages
• Direct transfers focused on idea-based sectors
  IT, pharmaceuticals, medical equipment, financial
  services
• Language

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The Future for Ireland

• Can avoid the economic costs of aging population
  and the public pension crisis looming for other
  countries
• High growth rates will likely settle down
• Can Ireland end its dual economy, wean itself
  from dependence on FDI, and promote productivity
  spillovers to domestic firms, especially in
  services
• Implications of recent education, tax and health
  care policies on FDI and long term growth
• Unsettled Competing with the accession countries