From the archive, originally posted by: [ mmm ]

http://www.iht.com/articles/2006/10/02/news/sludge.php

Globalization’s toxic side

By Lydia Polgreen and Marlise Simons  /  October 2, 2006
ABIDJAN, Ivory Coast It was his infant son’s cries, gasping and
insistent, that first woke Salif Oudrawogol one night last month. The
smell hit him moments later, wafting into the family’s hut, a noxious
melange reminiscent of rotten eggs, garlic and petroleum.

Oudrawogol went outside to investigate. Beside the family’s compound,
near his manioc and corn fields, he saw a stinking slick of black
sludge.

“The smell was so bad we were afraid,” Oudrawogol said. “It burned our
noses and eyes.”

Over the next few days, his 6- month-old son’s skin bloomed with
blisters, which burst into weeping sores. The whole family suffered
headaches, nosebleeds and stomachaches.

How that slick – a highly toxic cocktail of petrochemical waste and
caustic soda – reached Oudrawogol’s backyard in a suburb north of
Abidjan is a dark tale of globalization. It came from a Greek-owned
tanker flying a Panamanian flag and leased by the London branch of a
Swiss trading corporation whose fiscal headquarters are in the
Netherlands. Safe disposal in Europe would have cost €250,000, or
about $300,000, or perhaps twice that, counting the cost of delays.
But because of decisions and actions made not only here but in Europe,
it was dumped on the doorstep of some of the world’s poorest people.

So far eight people have died, dozens have been hospitalized and
85,000 have sought medical attention, paralyzing the health care
system in a country divided and impoverished by civil war, and the
crisis has forced a government shakeup.

“In 30 years of doing this kind of work I have never seen anything
like this,” said Jean-Loup Queru, an engineer with a French cleanup
company brought in by the Ivoirian government. “This kind of
industrial waste, dumped in this urban setting, in the middle of the
city – never.”

The journey of the sludge can be traced to July 2, when a
rust-streaked tanker, the Probo Koala, arrived in Amsterdam after a
lengthy stay in the Mediterranean. Leased by Trafigura, a global oil
and metals trading company, it was pausing on its way to Estonia to
unload what the company said was 250 tons of “marslops” or “regular
slops.” That is the wash water from cleaning a ship’s holds, which
would normally be laced with oil, gasoline, caustic soda or other
chemicals.

Amsterdam Port Services, a waste- processing company, took the job for
€12,000. But workers soon found problems, the company said. For one,
the volume was much higher than specified – more like 400 tons. For
another, the fumes of the waste sickened some of the Dutch workers.

“It was pitch black and had a heavy stench,” said Luut Planting, a
spokesman for Amsterdam Port Services. “No one had ever seen similar
waste.”

The company stopped unloading the sludge, ordered analyses, and then
informed the Amsterdam authorities of the presence of hazardous waste,
Planting said. The material and test results are currently under seal
in the office of the Dutch public prosecutor, which has opened a
criminal investigation.

A statement posted on Trafigura’s Web site says that tests performed
by a laboratory in Rotterdam on material discharged by the Probo Koala
in Abidjan showed that the material was not dangerous: “Contrary to
speculation in the media and the activist communities about residue
washings in a recent shipment to Côte d’Ivoire, tests conducted by the
company and others show the washings themselves to have little or no
toxicity.”

As to the deaths and illness in Abidjan, the statement says, “It is
still unclear exactly what caused the tragedy.”

But the Rotterdam laboratory, Saybolt, has told Dutch news media it
was asked for only a limited analysis and the samples were not sealed,
not properly marked and not wholly reliable.

Lucas Reijnders, a chemist and professor of environmental science at
the University of Amsterdam, said he had seen the results of an
analysis done in Ivory Coast by a lab there, Ciapol, on samples taken
from the Probo Koala before the dumping. The analysis showed extremely
high levels of caustic soda; mercaptans, a class of sulfur compounds;
and hydrogen sulfide, he said. The last, he said, is a volatile
compound that “smells of rotten eggs, but at high concentrations you
can no longer smell it because it paralyzes your nervous system.”

After analyzing the waste, Amsterdam Port Services told Trafigura’s
London office that treating and disposing of it would now be much more
expensive – €250,000. Trafigura, which in 2005 had revenue of $28
billion, balked.

A brief standoff ensued, but the Probo Koala was finally able to leave
Amsterdam two days later, after taking back all of its chemical waste
load with the permission of the Dutch authorities.

From Amsterdam, the Probo Koala sailed to Estonia and loaded up with
Russian oil products. After delivering the load to Nigeria, it
continued to Abidjan, where it pulled in on Aug. 19.

Maat said Trafigura’s London office had advised the Ivory Coast
authorities that it was delivering chemical waste requiring special
treatment and close supervision, and hired a local company, Tommy. “We
were informed that four companies there could handle it,” said Maat.
“One of them was Tommy. Clearly this has not been a fortunate choice.”

He also said, “We do not acknowledge responsibility for the dumping of
the waste without treating it.” European toxic-waste experts and oil
traders said Ivory Coast has no facilities capable of handling
high-level toxic waste.

Tommy hired more than a dozen tanker trucks, into which it pumped the
sludge. The trucks fanned out, at night, to at least 18 sites across
the city, according to the French cleanup crew and witnesses in
several neighborhoods where the material was dumped.

Several trucks went to the Abidjan landfill, in a community called
Akuedo. Residents there are accustomed to foul odors, but they knew
something was particularly bad about the new material. They chased and
surrounded one of the trucks, forcing the driver to flee on foot,
witnesses said. In other places, trucks were simply abandoned by
drivers fearful of being attacked.

Efforts to reach Tommy by telephone were unsuccessful, and those
identified as its executives have been jailed.

At first, the government did not acknowledge that something was amiss,
even though the rank smell was spreading through the streets of
Abidjan. Officials in Ivory Coast said they suspect they will find
more dump sites than the 18 so far identified.

The spreading illnesses led to violent demonstrations by a population
convinced that government corruption was to blame for the dumping, and
ultimately the furor forced the prime minister and his government to
resign in early September, though much of the government was
reinstated later, including the prime minister. Six Ivoirians, as well
as two European officials from Trafigura, have been jailed so far in
Ivory Coast.

The risk of sickness from the waste has abated with evaporation,
experts said. But there may be long-term effects of exposure. In
September, the Probo Koala, back in Estonia, was blocked in its wharf
by Greenpeace vessels, and has been detained there by the government
at the request of Ivory Coast.

Greenpeace has filed criminal complaints in Amsterdam against
Trafigura, Amsterdam Port Services and the Dutch environmental
authorities. The Dutch government said it could not comment while
criminal investigations were under way.

The city of Amsterdam and the Dutch Parliament have launched their own
inquiries. By allowing the toxic load to leave, the Dutch government
may have violated the Basel Convention on the Transboundary Movements
of Hazardous Wastes and Their Disposal.

Eco Matser, a chemist and expert in toxic waste at Greenpeace, said
that if this proved to be high-level toxic waste then, “the whole
procedure was illegal, first allowing the waste in, then pumping it
back on board and letting the ship leave without any licenses.”

“This is the underbelly of globalization,” said Jim Puckett, an
activist at the Basel Action Network, an environmental group that
fights toxic waste dumping. “Environmental regulations in the north
have made disposing of waste expensive, so corporations look south.”

Lydia Polgreen reported from Abidjan and Marlise Simons from Paris.

Lydia Polgreen reported from Abidjan, and Marlise Simons from Paris.

ABIDJAN, Ivory Coast It was his infant son’s cries, gasping and
insistent, that first woke Salif Oudrawogol one night last month. The
smell hit him moments later, wafting into the family’s hut, a noxious
melange reminiscent of rotten eggs, garlic and petroleum.

Oudrawogol went outside to investigate. Beside the family’s compound,
near his manioc and corn fields, he saw a stinking slick of black
sludge.

“The smell was so bad we were afraid,” Oudrawogol said. “It burned our
noses and eyes.”

Over the next few days, his 6- month-old son’s skin bloomed with
blisters, which burst into weeping sores. The whole family suffered
headaches, nosebleeds and stomachaches.

How that slick – a highly toxic cocktail of petrochemical waste and
caustic soda – reached Oudrawogol’s backyard in a suburb north of
Abidjan is a dark tale of globalization. It came from a Greek-owned
tanker flying a Panamanian flag and leased by the London branch of a
Swiss trading corporation whose fiscal headquarters are in the
Netherlands. Safe disposal in Europe would have cost €250,000, or
about $300,000, or perhaps twice that, counting the cost of delays.
But because of decisions and actions made not only here but in Europe,
it was dumped on the doorstep of some of the world’s poorest people.

So far eight people have died, dozens have been hospitalized and
85,000 have sought medical attention, paralyzing the health care
system in a country divided and impoverished by civil war, and the
crisis has forced a government shakeup.

“In 30 years of doing this kind of work I have never seen anything
like this,” said Jean-Loup Queru, an engineer with a French cleanup
company brought in by the Ivoirian government. “This kind of
industrial waste, dumped in this urban setting, in the middle of the
city – never.”

The journey of the sludge can be traced to July 2, when a
rust-streaked tanker, the Probo Koala, arrived in Amsterdam after a
lengthy stay in the Mediterranean. Leased by Trafigura, a global oil
and metals trading company, it was pausing on its way to Estonia to
unload what the company said was 250 tons of “marslops” or “regular
slops.” That is the wash water from cleaning a ship’s holds, which
would normally be laced with oil, gasoline, caustic soda or other
chemicals.

Amsterdam Port Services, a waste- processing company, took the job for
€12,000. But workers soon found problems, the company said. For one,
the volume was much higher than specified – more like 400 tons. For
another, the fumes of the waste sickened some of the Dutch workers.

“It was pitch black and had a heavy stench,” said Luut Planting, a
spokesman for Amsterdam Port Services. “No one had ever seen similar
waste.”

The company stopped unloading the sludge, ordered analyses, and then
informed the Amsterdam authorities of the presence of hazardous waste,
Planting said. The material and test results are currently under seal
in the office of the Dutch public prosecutor, which has opened a
criminal investigation.

A statement posted on Trafigura’s Web site says that tests performed
by a laboratory in Rotterdam on material discharged by the Probo Koala
in Abidjan showed that the material was not dangerous: “Contrary to
speculation in the media and the activist communities about residue
washings in a recent shipment to Côte d’Ivoire, tests conducted by the
company and others show the washings themselves to have little or no
toxicity.”

As to the deaths and illness in Abidjan, the statement says, “It is
still unclear exactly what caused the tragedy.”

But the Rotterdam laboratory, Saybolt, has told Dutch news media it
was asked for only a limited analysis and the samples were not sealed,
not properly marked and not wholly reliable.

Lucas Reijnders, a chemist and professor of environmental science at
the University of Amsterdam, said he had seen the results of an
analysis done in Ivory Coast by a lab there, Ciapol, on samples taken
from the Probo Koala before the dumping. The analysis showed extremely
high levels of caustic soda; mercaptans, a class of sulfur compounds;
and hydrogen sulfide, he said. The last, he said, is a volatile
compound that “smells of rotten eggs, but at high concentrations you
can no longer smell it because it paralyzes your nervous system.”

After analyzing the waste, Amsterdam Port Services told Trafigura’s
London office that treating and disposing of it would now be much more
expensive – €250,000. Trafigura, which in 2005 had revenue of $28
billion, balked.

A brief standoff ensued, but the Probo Koala was finally able to leave
Amsterdam two days later, after taking back all of its chemical waste
load with the permission of the Dutch authorities.

From Amsterdam, the Probo Koala sailed to Estonia and loaded up with
Russian oil products. After delivering the load to Nigeria, it
continued to Abidjan, where it pulled in on Aug. 19.

Maat said Trafigura’s London office had advised the Ivory Coast
authorities that it was delivering chemical waste requiring special
treatment and close supervision, and hired a local company, Tommy. “We
were informed that four companies there could handle it,” said Maat.
“One of them was Tommy. Clearly this has not been a fortunate choice.”

He also said, “We do not acknowledge responsibility for the dumping of
the waste without treating it.” European toxic-waste experts and oil
traders said Ivory Coast has no facilities capable of handling
high-level toxic waste.

Tommy hired more than a dozen tanker trucks, into which it pumped the
sludge. The trucks fanned out, at night, to at least 18 sites across
the city, according to the French cleanup crew and witnesses in
several neighborhoods where the material was dumped.

Several trucks went to the Abidjan landfill, in a community called
Akuedo. Residents there are accustomed to foul odors, but they knew
something was particularly bad about the new material. They chased and
surrounded one of the trucks, forcing the driver to flee on foot,
witnesses said. In other places, trucks were simply abandoned by
drivers fearful of being attacked.

Efforts to reach Tommy by telephone were unsuccessful, and those
identified as its executives have been jailed.

At first, the government did not acknowledge that something was amiss,
even though the rank smell was spreading through the streets of
Abidjan. Officials in Ivory Coast said they suspect they will find
more dump sites than the 18 so far identified.

The spreading illnesses led to violent demonstrations by a population
convinced that government corruption was to blame for the dumping, and
ultimately the furor forced the prime minister and his government to
resign in early September, though much of the government was
reinstated later, including the prime minister. Six Ivoirians, as well
as two European officials from Trafigura, have been jailed so far in
Ivory Coast.

The risk of sickness from the waste has abated with evaporation,
experts said. But there may be long-term effects of exposure. In
September, the Probo Koala, back in Estonia, was blocked in its wharf
by Greenpeace vessels, and has been detained there by the government
at the request of Ivory Coast.

Greenpeace has filed criminal complaints in Amsterdam against
Trafigura, Amsterdam Port Services and the Dutch environmental
authorities. The Dutch government said it could not comment while
criminal investigations were under way.

The city of Amsterdam and the Dutch Parliament have launched their own
inquiries. By allowing the toxic load to leave, the Dutch government
may have violated the Basel Convention on the Transboundary Movements
of Hazardous Wastes and Their Disposal.

Eco Matser, a chemist and expert in toxic waste at Greenpeace, said
that if this proved to be high-level toxic waste then, “the whole
procedure was illegal, first allowing the waste in, then pumping it
back on board and letting the ship leave without any licenses.”

“This is the underbelly of globalization,” said Jim Puckett, an
activist at the Basel Action Network, an environmental group that
fights toxic waste dumping. “Environmental regulations in the north
have made disposing of waste expensive, so corporations look south.”

{Lydia Polgreen reported from Abidjan and Marlise Simons from Paris.}

RE: posted by [ kimen.klever ]

Please understand its just general fury with feeble media. The Economist published this three weeks ago – a little late NYT!!! (though rage does not become me, or anyone: I HATE THE NEW YORK TIMES)

I’m failing to see the connection between irresponsible business behavior and ‘globalization’ – they do not necessarily go together.

If anything – it is globalization – and the involvement of global NGOs like green peace – that have potential to help nations with less political input/power gain visibility around these irresponsible acts.

People have been dumping crap overseas since they had ships – but now it is globalization’s toxic side? Idiots! It’s human’s toxic side! For Fuck’s sake.

Check out http://www.klever.org/wrdz/world/globalFinal.html

http://web.archive.org/web/20061001003914/http://www.klever.org/wrdz/world/globalFinal.html

Above is some early ideas I’ve had about the misuse of the term/concept – far from perfect, but I’m ok with sharing it. Largely influenced by jan aart scholte – check him out.

I really hate dogma – and this article, though true enough – has such an ill-informed title it pisses me off. And it is the titles people remember. Globalization smells bad. Globalization makes stinky toxic waste and hurts poor families with sludge. Etc. You get my point. The world failing to act responsibly with Africa hurts poor families – Europe and The United States in particular – and if anything it’s lack of global awareness that allows such tragedy.

Respect,
./s

UPDATE:

Like a good citizen I take some of my fury back. Somehow I missed a crucial paragraph while reading this. I apologize. I still hate the new york times. :) And just because it involves several countries does not mean the problem is globalization. The problem is bureaucracy. Even so, I’m slightly tempered.
./s

RE: posted by [ spectre ]

speaking of the Economist…

ANTICIPATING THE GLOBAL MIDDLE-CLASS

http://www.economist.com/surveys/displaystory.cfm?story_id=7877959


http://www.economist.com/images/20060916/CSU118.gif

http://www.economist.com/images/20060916/CSU117.gif

http://www.economist.com/images/20060916/CSU119.gif

SURVEY: WORLD ECONOMY
The new titans / Sep 14th 2006
From The Economist print edition

China, India and other developing countries are set to give the world
economy its biggest boost in the whole of history, says Pam Woodall
(interviewed here). What will that mean for today’s rich countries?

LAST year the combined output of emerging economies reached an
important milestone: it accounted for more than half of total world GDP
(measured at purchasing-power parity). This means that the rich
countries no longer dominate the global economy. The developing
countries also have a far greater influence on the performance of the
rich economies than is generally realised. Emerging economies are
driving global growth and having a big impact on developed countries’
inflation, interest rates, wages and profits. As these newcomers become
more integrated into the global economy and their incomes catch up with
the rich countries, they will provide the biggest boost to the world
economy since the industrial revolution.

Indeed, it is likely to be the biggest stimulus in history, because the
industrial revolution fully involved only one-third of the world’s
population. By contrast, this new revolution covers most of the globe,
so the economic gains-as well as the adjustment pains-will be far
bigger. As developing countries and the former Soviet block have
embraced market-friendly economic reforms and opened their borders to
trade and investment, more countries are industrialising and
participating in the global economy than ever before. This survey will
map out the many ways in which these economic newcomers are affecting
the developed world. As it happens, their influence helps to explain a
whole host of puzzling economic developments, such as the record share
of profits in national income, sluggish growth in real wages, high oil
prices alongside low inflation, low global interest rates and America’s
vast current-account deficit.

Emerging countries are looming larger in the world economy by a wide
range of measures (see chart 1). Their share of world exports has
jumped to 43%, from 20% in 1970. They consume over half of the world’s
energy and have accounted for four-fifths of the growth in oil demand
in the past five years. They also hold 70% of the world’s
foreign-exchange reserves.

Of course there is more than one respectable way of doing the sums. So
although measured at purchasing-power parity (which takes account of
lower prices in poorer countries) the emerging economies now make up
over half of world GDP, at market exchange rates their share is still
less than 30%. But even at market exchange rates, they accounted for
well over half of the increase in global output last year. And this is
not just about China and India: those two together made up less than
one-quarter of the total increase in emerging economies’GDP last year.

There is also more than one definition of emerging countries, depending
on who does the defining (see article). Perhaps some of these countries
should be called re-emerging economies, because they are regaining
their former eminence. Until the late 19th century, China and India
were the world’s two biggest economies. Before the steam engine and the
power loom gave Britain its industrial lead, today’s emerging economies
dominated world output. Estimates by Angus Maddison, an economic
historian, suggest that in the 18 centuries up to 1820 these economies
produced, on average, 80% of world GDP (see chart 2). But they were
left behind by Europe’s technological revolution and the first wave of
globalisation. By 1950 their share had fallen to 40%.

Now they are on the rebound. In the past five years, their annual
growth has averaged almost 7%, its fastest pace in recorded history and
well above the 2.3% growth in rich economies. The International
Monetary Fund forecasts that in the next five years emerging economies
will grow at an average of 6.8% a year, whereas the developed economies
will notch up only 2.7%. If both groups continued in this way, in 20
years’ time emerging economies would account for two-thirds of global
output (at purchasing-power parity). Extrapolation is always risky, but
there seems every chance that the relative weight of the new pretenders
will rise.

Faster growth spreading more widely across the globe makes a huge
difference to global growth rates. Since 2000, world GDP per head has
grown by an average of 3.2% a year, thanks to the acceleration in
emerging economies. That would beat the 2.9% annual growth during the
golden age of 1950-73, when Europe and Japan were rebuilding their
economies after the war; and it would certainly exceed growth during
the industrial revolution. That growth, too, was driven by
technological change and by an explosion in trade and capital flows,
but by today’s standards it was a glacial affair. Between 1870 and 1913
world GDP per head increased by an average of only 1.3% a year. This
means that the first decade of the 21st century could see the fastest
growth in average world income in the whole of history.

Financial wobbles this summer acted as a reminder that emerging
economies are more volatile than rich-country ones; yet their long-run
prospects look excellent, so long as they continue to move towards free
and open markets, sound fiscal and monetary policies and better
education. Because they start with much less capital per worker than
developed economies, they have huge scope for boosting productivity by
importing Western machinery and know-how. Catching up is easier than
being a leader. When America and Britain were industrialising in the
19th century, they took 50 years to double their real incomes per head;
today China is achieving the same feat in nine years.

What’s new

Emerging economies as a group have been growing faster than developed
economies for several decades. So why are they now making so much more
of a difference to the old rich world? The first reason is that the gap
in growth rates between the old and the new world has widened (see
chart 3). But more important, emerging economies have become more
integrated into the global system of production, with trade and capital
flows accelerating relative to GDP in the past ten years.

China joined the World Trade Organisation only in 2001. It is having a
bigger global impact than other emerging economies because of its vast
size and its unusual openness to trade and investment with the rest of
the world. The sum of China’s total exports and imports amounts to
around 70% of its GDP, against only 25-30% in India or America. By next
year, China is likely to account for 10% of world trade, up from 4% in
2000.

What is also new is that the internet has made it possible radically to
reorganise production across borders. Thanks to information technology,
many once non-tradable services, such as accounting, can be provided
from afar, exposing more sectors in the developed world to competition
from India and elsewhere.

Faster growth that lifts the living standards of hundreds of millions
of people in poor countries should be a cause for celebration. Instead,
many bosses, workers and politicians in the rich world are quaking in
their boots as output and jobs shift to low-wage economies in Asia or
eastern Europe. Yet on balance, rich countries should gain from poorer
ones getting richer. The success of the emerging economies will boost
both global demand and supply.

Rising exports give developing countries more money to spend on imports
from richer ones. And although their average incomes are still low,
their middle classes are expanding fast, creating a vast new market.
Over the next decade, almost a billion new consumers will enter the
global marketplace as household incomes rise above the threshold at
which people generally begin to spend on non-essential goods. Emerging
economies have already become important markets for rich-world firms:
over half of the combined exports of America, the euro area and Japan
go to these poorer economies. The rich economies’ trade with developing
countries is growing twice as fast as their trade with one another.

The future boost to demand will be large. But more important in the
long term will be the stimulus to the world economy from what
economists call a “positive supply shock”. As China, India and the
former Soviet Union have embraced market capitalism, the global labour
force has, in effect, doubled. The world’s potential output is also
being lifted by rapid productivity gains in developing countries as
they try to catch up with the West.

This increased vitality in emerging economies is raising global growth,
not substituting for output elsewhere. The newcomers boost real incomes
in the rich world by supplying cheaper goods, such as microwave ovens
and computers, by allowing multinational firms to reap bigger economies
of scale, and by spurring productivity growth through increased
competition. They will thus help to lift growth in world GDP just when
the rich world’s greying populations would otherwise cause it to slow.
Developed countries will do better from being part of this fast-growing
world than from trying to cling on to a bigger share of a slow-growing
one.

Stronger growth in emerging economies will make developed countries as
a whole better off, but not everybody will be a winner. The integration
of China and other developing countries into the world trading system
is causing the biggest shift in relative prices and incomes (of labour,
capital, commodities, goods and assets) for at least a century, and
this, in turn, is leading to a big redistribution of income. For
example, whereas prices of the labour-intensive goods that China and
others export are falling, prices of the goods they import, notably
oil, are rising.

In particular, the new ascendancy of the emerging economies has changed
the relative returns to labour and capital. Because these economies’
global integration has made labour more abundant, workers in developed
countries have lost some of their bargaining power, which has put
downward pressure on real wages. Workers’ share of national income in
those countries has fallen to its lowest level for decades, whereas the
share of profits has surged. It seems that Western workers are not
getting their full share of the fruits of globalisation. This is true
not just for the lowest-skilled ones but increasingly also for more
highly qualified ones in, say, accountancy and computer programming.

If wages continue to disappoint, there could be a backlash from workers
and demands for protection from low-cost competition. But countries
that try to protect jobs and wages through import barriers or
restrictions on offshoring will only hasten their relative decline. The
challenge for governments in advanced economies is to find ways to
spread the benefits of globalisation more fairly without reducing the
size of those gains.

The high share of profits and low share of wages in national income are
not the only numbers that have strayed a long way from their historical
average. An alarming number of economic variables are currently way out
of line with what conventional economic models would predict. America’s
current-account deficit is at a record high, yet the dollar has
remained relatively strong. Global interest rates are still
historically low, despite strong growth and heavy government borrowing.
Oil prices have tripled since 2002, yet global growth remains robust
and inflation, though rising, is still relatively low. House prices,
however, have been soaring in many countries.

Puzzling it out

This survey will argue that all of these puzzles can be explained by
the growing impact of emerging economies. For instance, low bond yields
and the dollar’s refusal to plunge are partly due to the way these
countries have been piling up foreign reserves. Likewise, higher oil
prices have mostly been caused by strong demand from developing
countries rather than by an interruption of supply, so they have done
less harm to global growth than in the past. And their impact on
inflation has been offset by falling prices of goods exported by
emerging economies. This has also made it easier for central banks to
achieve their inflation goals with much lower interest rates than in
the past.

All this will require some radical new thinking about economic policy.
Governments may need to harness the tax and benefit system to
compensate some workers who lose from globalisation.

Monetary policy also needs to be revamped. Central bankers like to take
the credit for the defeat of inflation, but emerging economies have
given them a big helping hand, both by pushing down the prices of many
goods and by restraining wages in developed countries. This has allowed
central banks to hold interest rates at historically low levels. But
they have misunderstood the monetary-policy implications of a positive
supply shock. By keeping interest rates too low, they have allowed a
build-up of excess liquidity which has flowed into the prices of assets
such as homes, rather than into traditional inflation. They have
encouraged too much borrowing and too little saving. In America the
overall result has been to widen the current-account deficit.

The central banks’ mistake has been compounded by the emerging
economies’ refusal to allow their exchange rates to rise, piling up
foreign-exchange reserves instead. Bizarrely, by financing America’s
deficit, poor countries are subsidising the world’s richest consumers.
The opening up of emerging economies has thus not only provided a
supply of cheap labour to the world, it has also offered an increased
supply of cheap capital. But this survey will argue that the developing
countries will not be prepared to go on financing America’s massive
current-account deficit for much longer.

At some point, therefore, America’s cost of capital could rise sharply.
There is a risk that the American economy will face a sharp financial
shock and a recession, or an extended period of sluggish growth. This
will slow growth in the rest of the world economy. But America is less
important as a locomotive for global growth than it used to be, thanks
to the greater vigour of emerging economies. America’s total imports
from the rest of the world last year amounted to only 4% of world GDP.
The greater risk to the world economy is that a recession and falling
house prices would add to Americans’ existing concerns about stagnant
real wages, creating more support for protectionism. That would be bad
both for the old rich countries and the new emerging stars.

But regardless of how the developed world responds to the emerging
giants, their economic power will go on growing. The rich world has yet
to feel the full heat from this new revolution.

http://www.economist.com/opinion/displaystory.cfm?story_id=7903598