The next sixty years will see a shift in the balance of world power—by 2060 it is very likely that China will be the world's largest economy followed by India. Are we in the developed world prepared for this, asks Hamish McRae

The past 60 years have seen the greatest burst of economic growth that the world has ever known—a world where economic activity became ever more global. If anything, the pace of globalisation has increased in the past few years, with the surge of growth in China and India. But nothing is forever. The last great burst of globalisation, at the end of the 19th century, was ended by the catastrophe of World War I.

Already there are evident strains, most notably tensions over trade between the US and China and tensions about natural resources between the EU and Russia. At some stage within the next 60 years the world economy will cease to become ever more global and will have to somehow move towards some sort of plateau—or else face the threat of falling backwards into protectionism, restrictions on capital movements and maybe much worse, as it did a century ago. Managing this shift—how to achieve a steady state rather than have a big bang—is arguably the greatest challenge the world faces.

So how will we do? The first point, an encouraging one, is that both the costs of resisting globalisation and the benefits derived from it are widely accepted. We still live with the folk memory of the mess of the 1930s Depression and its awful aftermath. And we can see how growth in China and India is bringing millions of people out of poverty and towards a middle-class lifestyle within a generation.

I believe that this awareness will keep globalisation moving forward for another generation. There will of course be tensions. Post-World War II, you can already see how the free trade ethos is under pressure from all parts of the political spectrum in all countries. Clearly the memory of the 1930s is already fading. But while there will be some movement towards trade being managed rather than free, it is hard to see all the ground gained over the past 60 years being easily conceded. We are all right for a bit yet.

However, by the 2060s power—both economic and political—will have shifted. It is very hard not to see China as the world's largest economy. The strong probability is that India will have become the second largest. A world economy no longer dominated by the US, the EU and Japan is hard for us to contemplate. It is a shift of economic might as big as the shift that took place during the 18th and 19th centuries, when, as a result of the Industrial Revolution, power moved away from Asia and towards Europe and North America.

We in the developed world are not prepared for this. We will, I suggest, have to accept that our ideas about the way the world economy should be governed will no longer be the global standard. Take three examples.
At the moment, the corporate governance models of the US, Europe and Japan all adhere to the same broad ideals: the differences are much smaller than the similarities. For the time being China, India and other emerging markets are converging towards a general "western" model. In another 60 years' time the model will inevitably have evolved and that evolution will be driven more by the needs and choices of the emerging economies than of the views of the present developed world.

Tax is another example where Europe and North America will have to adapt to Asian values. The western European tax model is not sustainable, partly for demographic reasons, partly because of global competition for investment and, increasingly, for human talent. Tax competition is already driving down corporate tax rates in Europe. But increasingly that competition will come, not from other developed economies in the same region, but from newly-developing ones on the other side of the world. If Asia is half the world economy in the 2060s, as is quite plausible, it will set global tax rates.

Third, environmental values: at the moment these are being influenced most strongly by the US and EU. What to do about environmental concerns is essentially an internal debate within the present developed world. That already seems odd. After all, China is about to become a larger emitter of carbon than the US. In another generation, let alone two, it will seem absurd. How well the world copes with environmental concerns will be determined by the new developed world, not the old one. Both Europe and North America will have to adapt their behaviour to policies that they may have helped influence but which are fundamentally determined elsewhere. 

Uncomfortable conclusions? Maybe—but maybe also a good thing for the world to have power more evenly balanced than it has been for the past 100 or more years. I think we should welcome that.

Hamish McRae is the author of The World in 2020 (Harper Collins) and a writer for The Independent.