| Young readers may barely remember this, but only a | | | | for only 3 per cent of the world's population at the |
| short fifteen years ago or so the world looked much, | | | | time of its emergence as an economic force. What is |
| much differently. The political landscape consisted of | | | | also breathtaking is the speed of China's rise to |
| two powerful, monolithic assemblies of nations: us - | | | | economic prominence. In 1980, the Chinese economy |
| the 'Free World' - and them - the 'Communist Bloc'. | | | | produced less than 3 percent of global output. By |
| The United States and Western Europe formed the | | | | 2003 this share had risen to more than 13 per cent, |
| bulk of the countries of the Free World while Soviet | | | | roughly half that of the United States. In fact, China |
| Russia, Eastern Europe and Maoist China formed the | | | | is now the fourth-largest exporter in the world, |
| bulk of the Communist Bloc. As to the remainder of | | | | having surpassed Canada in 2001 and the United |
| the countries which did not belong either to the Free | | | | Kingdom and France in 2002. As for India, while its |
| World nor to the Communist Bloc, they were | | | | economy is also very large, equivalent to about a |
| collectively referred to as the Third World - which | | | | quarter of that of the United States, it is not yet a |
| included those nations such as Saudi Arabia who | | | | major global exporter. But, with advancements in |
| were aligned with the Free World on Mondays, | | | | communications and with a large number of |
| Wednesdays and Fridays and with the Communist | | | | well-educated workers, India is establishing itself as a |
| Bloc on Tuesdays, Thursdays and Saturdays. And | | | | significant and growing presence in the international |
| then there was the Fourth World - also known as | | | | service industry. |
| the No Brand World - which neither the Free World | | | | Not surprisingly, many perceive the growing |
| nor the Communist Bloc wanted to touch with a | | | | competition from China and India as a significant |
| ten-foot pole. | | | | threat. And some are wondering how anyone can |
| Then somebody in Russia began to whisper the | | | | compete against countries that have such huge pools |
| words glasnost and perestroika (it was Gorbachev | | | | of cheap labor and access to the latest technologies. |
| who started first), then somebody in Germany began | | | | It was a combination of demand for inexpensive |
| to yell Vereinigtes Deutschland and to make a long | | | | products and domestic competition that has spurred |
| story short in the round of five years there was no | | | | companies to open subsidiaries to produce goods and |
| more Iron Curtain and no more Soviet Russia. It was | | | | services in China and India so as to take advantage |
| the remarkable end of an era of political attrition and | | | | of an almost inexhaustible pool of cheap human |
| economic division lasted more than fifty years, and | | | | resources. A process this, that has come to be |
| the onset of a new period in the history of humanity | | | | known as 'outsourcing'. Outsourcing, from a strict |
| now referred to as globalization. Globalization is | | | | economic perspective, is not an entirely negative |
| unquestionably a democratic concept that puts all | | | | phenomenon. Robust economic growth in Asia, which |
| mankind on the same platform. In Economics we | | | | is lifting hundreds of millions of people out of poverty, |
| have a special sentence to describe this process of | | | | is creating more demand for goods and services |
| equalization: we call it 'Democratization of Wealth' . | | | | from the industrialized countries, thus providing a |
| The distribution of wealth throughout all nations | | | | much-needed boost to global economic growth. |
| would be a flawless concept - in a perfect world, | | | | Indeed, preliminary data for 2004 suggest that China |
| that is. But as the younger readers I was referring to | | | | may have vaulted into third place among the world's |
| before may have began to discover already, Planet | | | | most important importers, behind only the United |
| Earth is not a perfect world. There is a hidden cost | | | | States and Germany. |
| to globalization that is beginning to manifest itself | | | | This fact notwithstanding, however, the end result of |
| more and more in our daily lives. Increasing interest | | | | a supply of outputs created in China and India |
| rates which are now beginning to affect, first and | | | | destined to quench the huge demand of the |
| foremost, the real estate market are possibly one of | | | | preeminently American consumerism has generated |
| the best examples of it. Not because real estate is a | | | | large trade imbalances. The flip side of these |
| special market per se, but because real estate | | | | imbalances has been a sharp rise in the net foreign |
| involves the buy and sell of big-ticket items. | | | | liability position of the United States and a massive |
| Here is the problem: there are on the world stage | | | | accumulation of foreign exchange reserves by the |
| new economic players, which by and all in itself is not | | | | Asian countries. China has amassed more than US |
| a new phenomenon. Since the early Nineteenth | | | | $450 billion of reserves. India too has seen a marked |
| century, many countries have, at different times, | | | | rise in international reserves, to roughly US $150 billion. |
| emerged as major forces on the international | | | | Even more striking, as of the end of 2004, all of Asia |
| economic scene. During the 1830s, productivity gains | | | | (including Japan) had accumulated US $2.1 trillion in |
| associated with the Industrial Revolution launched the | | | | foreign exchange reserves. Subtracting this quantity |
| United Kingdom as an economic powerhouse. | | | | of Dollars from the economic monetary cycles forces |
| Germany and the United States followed in the latter | | | | the U.S. Government to borrow more and the |
| part of the Nineteenth century, by adopting the new | | | | Federal Reserve System to print and lend more |
| technology of the time, as did Russia for a while | | | | money with the deleterious effect of diminishing the |
| before the First World War. Through the 1950s and | | | | purchasing power by weakening the strength of the |
| 1960s, Japan emerged from the Second World War | | | | currency. Think of a glass of wine where you keep |
| to become a major economic power. Then Korea | | | | on adding water. Higher international demand for |
| took off in the 1970s, followed by other so-called | | | | American Dollars created by outsourcing, foreign |
| "Asian tigers" during the 1980s and 1990s. Now, it is | | | | savings, fixed exchange rates and a huge trade |
| China's turn. And India is not far behind. | | | | imbalance account for a large proportion of the |
| What differentiates China and India from these other | | | | refueling of domestic inflation and the consequent |
| countries is their sheer size. Together, these two | | | | interest rate increases, the effect of which is now |
| countries represent close to 40 percent of the | | | | patently felt all over real estate markets in North |
| world's population. By comparison, Japan accounted | | | | America. |