Reinventing the global economy.

• Author: Ferling, Rhona L.
• Position: From FEI

"The post-war economy has died," proclaimed Lester Thurow, an economist and former dean of the Massachusetts Institute of Technology's Sloan School of Management who spoke at FEI's annual conference in Toronto. The United States now shares its former solo role as economic powerhouse with Japan and Europe, a trio comprising 50 percent of the world gross national product, Thurow explains. This redistribution of power mandates a new world economy and thus a revision of old economic philosophies.

Unfortunately, most nations haven't yet developed policies that reflect new economic realities, and this inertia has contributed to prolonged stagnation. The world growth rate has gradually declined from 4.9 percent in the 1960s to the current rate of 1.5 percent, according to Thurow. Moreover, with fiscal resources scattered over more nations, no single country can provide the fiscal stimulus to jolt the global economy out of its stupor. If Germany, Japan and the United States coordinated their fiscal policies, "we could blow the world out of its current recession," he speculates. But that's unlikely, because each country would have to make painful sacrifices for the global good, he adds.

To turn things around, Japan, "which is sucking three million jobs from the world economy" through its trade surplus, would have to run a trade deficit instead, and Germany would have to choose economics over politics in its efforts to integrate East Germany, Thurow points out. And to become the world's biggest lender instead of the largest debtor, the United States would have to make a difficult, politically unpalatable transition from a consumption to an investment economy.

The social welfare system is another roadblock to fiscal stimulus. In every industrialized nation, entitlements are reeling out of control, he says. "Given that you have a structural budget deficit arising from entitlements and that you have no capacity politically to cut spending or raise taxes," it's hardly surprising that the result is a worldwide economic stalemate, he notes.

Thurow disputes the notion that American political leadership is solely to blame for the nation's slow economic recovery. "The problem is not with leadership; the problem is getting followership," he points out. "Nobody's willing to assume their share of the burden." Unless all nations rethink that attitude, the global economy is unlikely to rebound quickly.

Which nations are up-and-coming in this unfamiliar "economic...