Suddenly, with the turn of the decade and the latest World Economic Forum opening, we’re awash with projections of how the world economy might look in 2050, produced by economists, and each as implausible as the other. Two, from HSBC and PwC (both open in PDF) offer similar (and improbable) views of a hugely expanded global economy to 2050. But they also seem to assume that the future will be a lot like the past.
The headlines for the news coverage of the HSBC and PwC reports focused more on the country rankings and how they might change. If you didn’t see them, and have not read anything about the shifting world economy in the last decade, these projections basically involve a long slide for the European economies, and a steady climb for most of the Asian ones, with – inevitably – China emerging as the largest economy sooner or later.
And of course, as a story about the shifting patterns of the world economy, this much seems likely to be true. We are slowly rewinding towards the shape of the global economy in – say – 1800, before Europe and the United States reaped the benefits of the industrial revolution and expanded rapidly (and ensured that China and India didn’t). But what is much less plausible is the scale of growth of the overall economy that these two reports project; pretty much a world which is about three times as rich as it is today.
Models simplify the world – not always helpfully
I should pause here, because these rates of growth are no more dramatic than we’ve seen over the past forty years. Economic growth of 3% per year would get you to that sort of figure over the next 40. But, I’d suggest, those were very different times. The economic model being used to generate the numbers in these reports (it’s broadly the same model in both) was not built to handle the constraints of the energy and resources shortages we’re likely to see between now and 2050.
Models are representations of the world, built through simplification. They’re not the world itself. Both the PwC and HSBC models are based on the work of the macro-economist Robert Barro, although HSBC is more open about this, more open about its modelling processes, and more willing to justify the assumptions it’s made. (In fact the HSBC report is a much better piece of work, since it also addresses uncertainties, of which more later.) Barro’s work, based on data from 1960 to 1985, uses the starting level of GDP per capita (since it is easier for poorer countries to grow faster than it is for richer ones) and assumptions about demographic trends, the quality of human capital and economic governance, to project a country’s likely rates of economic growth over time. (There’s an academic paper to be found here, in pdf). For its paper, HSBC re-tested the model against data from 2000-2010, and found it a ‘satisfactory’ fit.
Following the trends all the way to a single point prediction
But there are two howling great issues with this. The first is that, at heart, this is a rather simple form of trends analysis, in which past trends are projected forwards. To borrow Ged Davis’ phrase, ‘a trend is a trend is a trend, until it bends’. And from a futures perspective, the future doesn’t get credible until you start to see the bends.
In an interesting post on the HSBC projections for Poland, by way of example, World Bank economist Marcin Piatkowski effectively makes this point. He takes exception to Poland’s relatively poor projected performance, based on its low birthrate and historically low immigration levels. Both, he argues, are likely to change (the birthrate is already increasing, and public policy is changing to encourage this); actual outcomes are more complex and more uncertain than the Barro-based model suggests. In fact, we have a classic forecasting problem here: both PwC and HSBC have produced a set of single point predictions for national economies over a time period when uncertainty will be far larger.
The second problem is more serious. In treating each country’s long-term growth as if it is the product of its own internal variables, you lose sight of the whole system. And given the prognosis for energy, water, resources, and food out to 2050, without even starting on climate change, it seems unlikely that the planet will have the carrying capacity to support a global economy which is three times larger than the present, at least without the kind of transformational change in technology, systems and infrastructure which would take a lot longer than forty years to achieve. In other words, the second thing that is missing is the feedback loops. The future is always more crinkly than it looks.
‘Our projections are based on a rosy backdrop’
The HSBC acknowledges this, weakly. The sustainability team gets a say (although seems to be under instructions not to tweak the tail of the economists too vigorously), and manage to point to the current level of ecological deficit – even before the resource demands implied by the global growth projections are factored in. Another short section admits that, “In a nutshell, our projections are based on a rather rosy backdrop – everything is going right, governments and policymakers are doing the right thing.” And then some. It’s not so much ‘base case’ as ‘best case’ (my words, not theirs).
So what to make of these economists’ projections of the future? In an article in The Scotsman, re-published by Open Democracy, Gerry Hassan argued that – while claiming to portray radical shifts in the world economy – they were infused by a sense of stasis. Like many futures exercises (look at the videos of any World’s Fair), this is a projection of the present.
The problem though with ‘The World in 2050’ … [is] the underlying philosophy behind the whole exercise. This can be seen as a progressive panglossian view of the world, of enlightenment globalisation, whereby the world becomes freer, wealthier and healthier. The world’s many poor, in China, India and the Far East, and eventually Africa, are slowly pulled out of hardship. Globalisation poses itself as a liberation movement spreading freedom, hope and opportunity. This version of the future is of course a story of today.
As I’ve observed elsewhere (in a paper written with Hardin Tibbs) “the dominant feature of modernity is that it is always expanding”. These are, in essence, modernist stories, being told in complex times. Gerry Hassan is being too kind. These are stories of yesterday.
The image of the 1939 World’s Fair is one of many fine photos on the website Before Pearl Harbour, and it is used with thanks.