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In 1996 a friend of mine called Jim Rohwer published a book called Asia Rising. A few months later, Asia crashed. The financial crisis of 1997 made my colleague’s book look foolish. I thought of Jim Rohwer (who died prematurely in 2001) last week as a I listened to another Jim – Jim O’Neill, formerly of Goldman Sachs – defending his bullish views on emerging markets in a radio interview.

Mr O’Neill coined the term Brics for Brazil, Russia, India and China, just before the emerging market boom of the past decade really got going. He was rewarded for his prescience, and his ability to coin a good acronym, with guru status. Now Mr O’Neill is back, talking up the delicious-sounding Mints (Mexico, Indonesia, Nigeria, Turkey) as the next group of rising economic powers. But this year his timing is a bit off. Investors are panicking about emerging markets and Turkey – the pay-off in the Mint – is at the forefront of the crisis

One moral of these stories is that in punditry, as in investment, timing is everything. It is possible to be right at the wrong time – and that is what happened to Rohwer. His bullishness about Asia was fully vindicated in the 17 years after the appearance of his book. It just looked badly wrong in the crucial months after publication, as the International Monetary Fund was forced to bail out South Korea, Thailand and Indonesia.

The speed of the recovery in Asia was just as startling as the speed of the collapse. South Korea is once again regarded as a model economy, and its per capita gross domestic product has almost tripled since the near disaster of 1997. Thailand and Indonesia also bounced back.

Those stories are worth remembering amid the current panic. The next year could make boosters of emerging markets, such as Mr O’Neill, look like false prophets. But over the course of the next decade, they will be proved right – again.

The reason for this is that the factors that have propelled the rise of non-western economies in the past 40 years still apply. These include lower labour costs, rising productivity, huge improvements in the communications and transport that connect them to global markets, a rising middle class, a boom in world trade as tariffs have fallen and the spread of best practice in everything from management techniques to macroeconomic policy. Added to this is the drive of people all over the world – from factory hands to entrepreneurs – who have realised that they are not condemned to poverty, and that a better life is there for the taking.
The rise of non-western economies is a deeply rooted historic shift that can survive any number of shocks

In the past half century, these powerful forces have allowed emerging markets (or developing nations or rising powers, if you prefer) to grow much faster than the developed world. In their recent book, Emerging Markets, Ayhan Kose and Eswar Prasad show that the economies of a group of the most prominent emerging markets (including China, India and Brazil) have grown by about 600 per cent since 1960 – compared with 300 per cent for the richer, industrialised nations. Even over the past 20 years, they write, “emerging markets’ share of world GDP, private consumption, investment and trade nearly doubled”.

The effect has been to transform the global economy. Michael Spence, a Nobel Prize-winning economist, writes that in 1950 only about 15 per cent of the world’s population lived in developed economies. In the intervening 65 years, the benefits of industrialisation, trade and rapid economic growth have spread to large parts of Asia, Latin America – and now Africa.

The story is far from over. Professor Spence argues that we are in the midst of a “century-long journey in the global economy. The end point is likely to be a world in which perhaps 75 per cent or more of the world’s people live in advanced countries.” If anything, the pace is likely to increase as the implications of the communications revolution become clearer and more entrenched.

The rise of the emerging markets will, however, be punctuated by crises such as the one we are experiencing today. These, too, have been part of the story all along. The Asian financial crisis of 1997 was not an isolated event. There was the tequila crisis in Mexico in 1994 and the Indian financial crisis of 1991. If you enter the words “Latin American financial crisis” into Google, it helpfully offers to complete the phrase with the dates – 1980, 1990s, 1998 and 2002. Yet despite all this, most of the leading economies of Latin America – Brazil, Mexico, Chile and others – have experienced real improvements in living standards and reductions in poverty.

The emerging markets have also sometimes been rocked by political crises that led investors to panic. Most dramatically of all, there were the protests in Beijing’s Tiananmen Square and subsequent massacre in 1989. Who at the time would have predicted that – in spite of all this political turmoil – the Chinese economy would more than double in size over the next decade, and then do the same again in the decade after that?

The moral of the story is that the rise of non-western economies is a deeply rooted historic shift that can survive any number of economic and political shocks. It would be a big mistake to confuse a temporary crisis with a change to this powerful trend. The bursting of the dotcom bubble in 2001 did not mean that the internet was massively overhyped, even though some people jumped to that conclusion at the time. In the same way, today’s turmoil will not change the fact that emerging markets will grow faster than the developed world for decades to come.


Gideon Rachman


FT

Of all the economic dangers to flare up over the past week, the most unsettling was at first glance also the most esoteric: the near default of a high-yield loan product held by a few hundred small-time Chinese investors.

Set against the turmoil in other emerging markets – steep currency falls in Turkey and South Africa that prompted their central banks to raise interest rates, stubbornly high inflation in India and a collapsing currency in Argentina – China appears to be a bastion of economic strength. Even analysts with a bearish bent still expect its growth to come in at about 7 per cent this year. The renminbi is steady against the dollar and inflation is under control. And unlike developing countries faced with cash outflows as the US Federal Reserve winds down its monetary stimulus, China is protected by robust capital controls.

Why then has the saga of Credit Equals Gold No. 1, the Chinese investment product that was rescued from the brink of failure, so captivated global attention? There are both direct and indirect reasons; the latter are especially worrying.

First, the direct risks. Credit Equals Gold No. 1 is just one of a wave of Chinese shadow banking products that will fail to live up to their outlandishly confident names when they mature this year. The drama over repayment will be played out again and again.

Over the past decade, China’s economy has grown ever more reliant on financing outside the formal banking system. Bank loans, which used to account for more than 90 per cent of total credit, fell to little more than half of new financing last year. Lending by shadow banks now totals Rmb47tn, or 84 per cent of gross domestic product, according to JPMorgan.

Reducing the dominance of banks is part of the plan for unleashing more market forces in China – a positive development. But some of the loosely regulated institutions that have plugged the lending gap are simply reckless. It is the most buccaneering of these that are now sowing doubts about China’s financial stability.
Investors who lend to indebted miners are not crazy – they are betting that government-owned banks will bail them out

This week’s story began in 2011 when China Credit Trust loaned Rmb3bn to Wang Pingyan, a coal mine operator in the northern province of Shanxi. Mr Wang made the ill-fated decision to scale up investment dramatically just as coal prices peaked. His company collapsed soon after receiving the loan.

If the pain had been confined to China Credit it would have been bad enough. But making matters worse, the case has shown that there is only a thin dividing wall between shadow banks and the better-regulated parts of the financial sector. China Credit had pitched the loan as an investment product, promising an annual return of 10 per cent. Rather than sell it directly, the product was marketed by Industrial and Commercial Bank of China, the country’s largest lender, to wealthy private banking clients.

The controversy in recent weeks about which party, if any, is responsible for the dud loan has drawn in all involved: the local government in Shanxi, which gave its blessing to Mr Wang’s plan; China Credit, which structured the investment product; and ICBC, which distributed it. In the end an unidentified entity bailed out investors by covering their principal, though not the full interest.

Those wondering where the next big troubled shadow bank loan might lurk need only look down the road from Mr Wang’s failed mine to another in Liulin, the same county in Shanxi province. Xing Libin, a coal tycoon who threw a Rmb70m wedding party for his daughter in 2012, is restructuring his mining company because it could not repay its loans. Among those debts is an Rmb1bn ($164m) investment product – structured by Jilin Trust and distributed by China Construction Bank – that falls due in a few weeks.

In all, there are about $660bn of trust products up for repayment or refinancing this year, according to Bank of America Merrill Lynch. Chinese shadow banks, by definition, have been focused on customers – miners, property developers and local governments – that regulators have deemed too risky for banks, so more problem loans are a certainty.

Shadow banks have not all been pedalling junk. Many trust companies are well run and have demanded ample collateral from borrowers. And where they have been poorly managed, China’s state-owned banks have enough assets to cover much of the damage. Most investors in trust products will walk away unscathed. It is the indirect consequences of this week’s bailout that are more worrying. As rating agency Fitch put it, the rescue of the trust product was a “missed opportunity” to create more risk awareness in the financial sector. This could cast a shadow over Chinese markets for years to come.

Chinese investors who lend money to heavily indebted miners or property developers are not crazy. They are making a calculated gamble – one that has proved mostly correct until now – that the government or state-owned banks will bail them out if they get into trouble. Yet an accumulation of bad investment decisions explains the excess capacity that plagues manufacturers from sportswear companies to steel mills. The perception of ironclad, if implicit, government guarantees is also why overall Chinese debt levels have soared from 130 per cent of GDP in 2008 to more than 200 per cent today. Similarly fast increases have been precursors to financial crises in countries from South Korea to the US.

Hence China’s uncomfortable predicament. Because the government was unwilling to see Credit Equals Gold No. 1 collapse, fears of an imminent economic meltdown are overblown. But for precisely the same reason China’s debt powder keg is only getting more tightly packed.


Simon Rabinovitch


FT

Henry Ford’s low-cost car and Steve Jobs’ iPhone have enriched millions of lives in ways that no one envisioned. Yet neither sprung from groundbreaking scientific advances. Their genius was to use old technology in creative ways. Societies will be richly rewarded if they can find a way to quicken the pace of innovation. Yet misconceptions of the way forward are putting this goal farther out of reach.

A century ago, historians and economists linked innovation to the discoveries of scientists and navigators. As long as scientists were outside the economy – locked in ivory towers or embarking on distant expeditions – productivity gains were seen as beyond the influence of economic policy. The economist and political scientist, Joseph Schumpeter, supposed so for decades.


In Schumpeter’s time, however, scientists were coming inside the economy to engage in projects and innovate at companies from Bayer to DuPont. Economic theorists increasingly thought of the nation’s innovation as governed by a simple mechanism. How much research is conducted, and at what price, is determined by consumers’ demand for innovations and the supply of researchers to make them. If society cuts taxes on profit or boosts the supply of researchers, faster innovation is supposed to follow.

But this mechanist theory has done badly at explaining actual events. America’s slow technical progress since 1970 can now be understood as an effect of slowing innovation. In the mechanist view, this must mean one of two things. Either the profitability of innovations must have fallen, deflating demand; or the availability of researchers has fallen, choking supply. Neither explanation withstands scrutiny. Gross business profit relative to business output is near all-time highs; research spending relative to business output is not so low as to suggest a dearth of researchers. The theory also flunked the great test of history. The birth in about 1815, in Britain and America, of the first modern economies – economies rife with innovation – was not augured by any surge of scientists or of profits as a share of output.

The mechanical view of innovation means new practice, not invention or discovery. Most of it derives from having original ideas about what would be useful or enjoyable – thus using existing technology in new ways. Such leaps of imagination are more likely to come from business people of a practical bent than cloistered scientists.

A true innovation is rarely the result of noticing an opportunity. It depends on a vision of a new product or method, and an insight into how the economy will react to it. These often come from an idiosyncratic blend of experience and knowledge that is hard to convey to a chief executive or a government official.

Trying to innovate is not like planting cotton. It is a leap into the void, with unforeseeable costs and an unknown market reception. Success requires an entrepreneur with the right stuff – and a canny financier to spot him or her.

Most importantly, a high volume of homegrown innovation requires widespread dynamism, across the economy and down to the grassroots – so new ideas can come from anyone and anywhere.

Finally, innovation within a company requires employees, managers and owners who are in it not only for the small chance of a large material reward but also for the non-material rewards of mental stimulation, exploration and personal growth that innovative work usually presents – even if the project fails.

Yet we now see trained economists turning to the mechanist manual for switches to throw to regain lost dynamism. Proposed cuts in profit tax would not obviously coax innovative talent from established companies to start-ups, from which no profit flow is expected soon. It is cuts in capital gains taxes – paid as soon as a founder sells shares – that might give start-ups new blood.

Proponents of expanding government institutes for the advancement of science seem unaware that the explosion of productivity from 1820 to 1940 was driven by grassroots innovation, not big science; forgetful that true discoveries, like innovations, are a shot in the dark; and innocent of the institutional politicking that determines which ideas get funding.

Some mechanists say that if the financial sector will not lend to innovators, let the state supply more finance. Such suggestions are unhistorical: the colossal projects that have won state support have rarely matched the innovation brought by grassroots dynamism. They are also unworldly. Officials lack the insight and experience to know what partners to take on.

The state is no better suited to take a big role in technical innovation than in artistic creation. Nations with once-dynamic economies will be helpless to recover their prosperity as long as they misunderstand what causes economic progress.


Edmund Phelps


FT

The decision late on Tuesday night by the Central Bank of Turkey to increase interest rates substantially has taken many observers by surprise. Yet there was no other way to stem the decline in the currency and alleviate the threat of a damaging exodus of foreign capital. Even so, it may not have been enough. The monetary squeeze buys some time before elections but also intensifies the political and economic crisis. Turkey is not alone in facing these problems. In many ways the country is a dark star in a volatile emerging market firmament.

Turkish economic growth was spectacular in 2010-11. It is pedestrian now. The official forecast that the economy will grow by 4 per cent in 2014, hardly ambitious to begin with, cannot now be met. This matters a lot to investor confidence, and also to a country that needs its economy to grow if it is to supply jobs for young people entering the labour force.

Turkey’s underlying problems are weak savings, rapid credit creation, rising import dependency and an external deficit of 7 per cent of gross domestic product, three-quarters of which is financed by volatile short-term capital flows. Turkey’s currency reserves can satisfy no more than one-fifth of its external financing needs this year. Raising interest rates cannot solve these problems without bringing the economy to its knees. This week’s rate decisiondoes little to address the serious problems that beset the country’s economy.

Turkey has its own script. But it is not alone in being caught between the tightening in US monetary policy and the Chinese economic slowdown. As interest rates rise in the world’s two biggest economies, capital that previously flowed into emerging markets is now leaving. To manage the instability of capital flows and currencies, Brazil and India have also been raising rates; their most recent increases came just before Turkey’s announcement. One day later, South Africa did the same. Other emerging countries will doubtless follow suit.

It is important to consider the broader context. Many emerging markets have arrived at a hiatus after a long period of growth that enabled some to climb up (or into) the middle-income league. But it has become harder to achieve growth while maintaining stability. Building robust and inclusive institutions is essential. Elections this year in Thailand, Turkey, India and Brazil will be scrutinised closely for clues about future policy. So, too, will the reforms promised by the Chinese leadership.

It is true that many emerging markets look stronger today than in the 1990s – they have larger currency reserves and better financial governance. At the same time they are also more vulnerable to shocks. They have lifted their share of global GDP from 40 per cent in 1997 to almost 55 per cent (on a purchasing power parity basis); now more than ever, the impact of a slowdown will be felt around the world. Most emerging economies are sustained by western export markets rather than local demand. This is a strategy that has passed its sell-by date.

Dependency on capital inflows, especially to finance rising local currency borrowing, makes these economies vulnerable to changing conditions in overseas markets. Credit cycles in China, Brazil and other countries are peaking. Commodity prices are falling from record highs. China’s success in exploiting its demographic dividend, or the absorption of a vast pool of former agricultural workers into the industrial workforce, may not be repeated so well elsewhere.

Just as China’s ascendancy had dramatic positive consequences for emerging markets, so its slowdown can be expected to have opposite effects. The challenge of pursuing important economic reforms without eroding the power of the Communist party, and of trying to slow down fast and often weakly regulated credit creation, are China’s principal concerns now. Rising bond yields, illiquidity and instability in financial markets are the early signs.

Dear Bill Gates,

We have never met, but your annual letter (coinciding with your Davos speech) seemed to be addressed directly to me. Your aim is to critique books with titles such as “how rich countries got rich and why poor countries stay poor”, and I did write a book with almost exactly that subtitle. You go on to say “thankfully these are not bestsellers because the basic premise is false”. I am afraid you are right to say my book is not a bestseller, but wrong to say its premise is false.


Taking the year 2001, I used two different measures of whether a country was rich: the market value of per capita output (a measure of productivity) and the average consumption of the inhabitants (a measure of material standard of living). The two rankings differ, though not by much; Switzerland had the highest productivity and the US the highest consumption.

Using either measure to order the countries of the world, the distribution was U-shaped. There were about 20 rich countries (with about a billion people in total), many much poorer countries and few states in between. These intermediate states – such as South Korea and the Czech Republic – tended to be on a trajectory to join the rich list, a transition experienced in Japan and Italy a generation earlier. Rich countries operate at, or close to, the frontier of what is achievable with current technology and advanced commercial and political organisation. And when countries reach that frontier they tend to stay there, with Argentina the most significant exception.

You suggest that this claim might have been true 50 years ago but not now. It is 10 years since my book was published and time to update the calculations. So I did, and established that the hypothesis remains true.

There are some significant changes. The dispersion of productivity among already rich countries has increased. Norway and Switzerland have surged ahead – one due to its oil wealth, the other by the growing and seemingly price insensitive demand for its chemical and engineering exports. But laggards such as Italy – and indeed Britain – have struggled to keep up with the pack. More encouragingly, some additional countries, mostly in eastern Europe and Asia, seem on course to join the rich club.

So what about China and India? Their recent growth performance has been exceptional, but both are still desperately poor countries by the standards set by Switzerland and Norway. The gap will take many generations to eradicate.

One effect of globalisation is that the centres of major cities everywhere now appear similar – the offices of KPMG and the branches of HSBC look much the same across the world. But you do not have to venture far from the centre of Nairobi or Shanghai, and only round the corner in Mumbai, to see sights unimaginable in Norway or Switzerland.
Even if incomes are very unequal, every king needs courtiers, every computer billionaire creates a slew of computer millionaires

I was surprised and disappointed that the data you chose to support your case referred not to the distribution of average incomes across states – the subject of your letter – but to the distribution of household incomes across the world. These are very different things.

The information we have on global household income distribution is poor, but there seem to be plenty of middle income people. Even if incomes are very unequal, every king needs courtiers, every computer billionaire creates a slew of computer millionaires. This might change if, as some people argue, the middle of the skill distribution is hollowed out by robots and computers. But no such change is yet evident.

The major part of my book, Bill, (if I may) was devoted to descriptions of the economic and social institutions that enable some countries to operate near the technological frontier. The failure to establish such institutions, or to operate them effectively, condemns most of the world to levels of productivity and living standards far below what is possible with existing knowledge and techniques. That subject should interest you, and I’ll be happy to send you a copy of the book (though I know you can afford the extremely modest price).

Best wishes




John


The writer’s book, ‘The Truth about Markets’, was published in 2003 – and in the US in 2004 as ‘Culture and Prosperity’




FT

Faced with a dangerous political threat, governments the world over tend to place their faith in the same magic medicine – economic growth. When world leaders try to address the roots of terrorism, for example, they instinctively assume that prosperity and jobs must be the long-term answer. And when a regional conflict threatens to get out of control – in east Asia or the Middle East – the standard political response is to call for greater economic integration. From Europe to China, governments place their faith in economic growth as the key to political and social stability.

But just as doctors fear the emergence of superbugs that will not respond to existing drugs, so world leaders are beginning to witness the emergence of new forms of political conflict that are resistant to their traditional prescriptions – more trade and more investment, washed down with a good dose of structural reform.

Three political superbugs are causing special concern. The first is the spread of conflict in the Middle East. The second is the growing rivalry between China and Japan. The third is rising inequality in the western world – and the threat of social conflict that goes with it.

Delegates at the World Economic Forum in Davos, which ended last week, are the classic believers that capitalism and globalisation are the best antidotes to conflict. This belief is so deeply ingrained that it no longer even needs to be articulated. You can just see it in the way in which a Davos audience responds to political leaders.

This year it was President Hassan Rouhani of Iran who was received with great enthusiasm, largely because he seemed more interested in trade and investment than in nuclear weapons. Mr Rouhani did not shift Iran’s position on the difficult political issues – such as Syria, Israel or nuclear weapons – in any important way. But he sent a significant signal by beginning his speech with a statement of his ambition for Iran to become one of the 10 largest economies in the world. The Iranian leader also stressed the need to improve his nation’s relations with the rest of the world in order to achieve that goal. This emphasis on economics suggested to those in the audience that President Rouhani is literally a man you could do business with.

As a result, Mr Rouhani is in the novel position, for an Iranian leader, of being regarded as a voice of reason in the Middle East. But the president’s elevated status in the eyes of the Davos crowd is also a sign of how bleak things look elsewhere in the region.

No appeal to economic rationality is likely to end the war in Syria – where both sides are fighting for survival. It is also clear that the jihadists who are flourishing in Syria, Iraq and elsewhere are unmoved by the fruits of globalisation. Unless something goes seriously wrong, they will not be showing up in Davos any time soon.

Many still hope that an improvement in the economic situation of the Middle East will assuage the economic despair on which militant Islam is assumed to flourish. Yet not all jihadists hail from poor countries or impoverished backgrounds. Some of the militants showing up in Syria have travelled from Europe. Others have come from Saudi Arabia or the Gulf states. Jihadism is a disease that does not respond well to the traditional economic drugs.

The rise in tensions between China and Japan is an even more graphic illustration of the fact that economic self-interest is not a cure-all for political problems. China is now Japan’s largest trading partner and the biggest recipient of Japanese foreign investment – facts that many analysts still hope will make conflict between the two nations significantly less likely. Yet in some respects, China’s growing prosperity is actually driving the increase in international tensions in Asia. That is because the rise of China has altered the balance of power between Beijing and Tokyo and – combined with the bitter history between the two countries – that explains why relations are getting worse.

In Europe and North America it is the threat of political and social tensions within nations, rather than international rivalries, that are worrying the global plutocracy. A central element of the Davos creed is the faith that globalisation is good for both the western world and for emerging powers.

However, it is now almost conventional wisdom that the globalisation medicine has had an unpleasant side-effect. Even if it raises overall growth levels it has also powerfully contributed to wage stagnation and increasing inequality in the west. As a result, European politicians are worrying about a possible resurgence of the nationalist right and the radical left. And the Americans are increasingly worried about the gap between the richest 1 per cent and the rest – and the political consequences should the gulf keep widening.

It is easy to mock the global plutocracy – fretting about war and inequality – as they sip fine wines, behind a security perimeter high in the Swiss mountains. Yet global bankers and business people are, at least, largely immune to the viruses of xenophobia and nationalism. Their unofficial slogan is “make money, not war”. And they treat foreigners as potential customers rather than potential enemies.

In that sense, the idea that capitalism and globalisation are the best antidotes to political conflict – for all its flaws – retains a lot of attraction. Even if the old economic treatments for political conflict are losing some of their potency, they are still the best we have.

Gideon Rachman


FT

What will the world look like in 100 years?” wondered Ignacio Palacios-Huerta. Being an economist at the London School of Economics, he put this question to other economists. Admittedly, the profession didn’t foresee the financial crisis but, still, he writes in the introduction to his new book, economists “know more about the laws of human interactions and have reflected more deeply and with better methods than any other human beings”. (Declaration of interest: I once tried to market Palacios-Huerta’s insights into penalty-kicks to football clubs. Nobody ever paid us.)

Economists liked his question. “Hi Ignacio:” emailed Alvin Roth, Nobel laureate of 2012. “To my surprise, I do find your invitation tempting. It’s a sign of old age, I’m afraid.” The economists who volunteered to write chapters included two other Nobel-winners. The resulting book, In 100 Years, suggests some probable contours of our great-grandchildren’s world, among them:

Greater longevity will push us to reshape our lives. Over the past century, life expectancy in the west has risen by about 30 years. In another century the average person could be living to 100 – perhaps even in currently poor countries, which are already making quick gains by saving infants from simple illnesses such as diarrhoea.

Future advances against cancer could match the “cardiovascular revolution” that has reduced deaths from heart disease since the 1970s, says Angus Deaton of Princeton. Health should keep improving, simply “because people want it to improve and are prepared to pay for” innovations.

Roth foresees parents manipulating their children’s genes. Some such methods, he writes, “may come to be seen as part of careful child rearing”. He also thinks people will become more efficient thanks to performance-enhancing drugs that improve “concentration, memory, or intelligence”.

Once humans have more years in good health, they will probably reorder their lives. Roth says that if child rearing takes up less of the lifespan, people may want different spouses for different phases of life. “New forms of polygamy-over-lifetime relationships” could arise, he writes.

Greater longevity will alter careers too. “A typical career” may mean working intensely for 30 years “followed by many years of low-intensity work”, writes Andreu Mas-Colell of the Universitat Pompeu Fabra in Barcelona.

Robots will change far more than just work. Already today, anyone thinking of studying accountancy should consider the chances of the profession lasting her lifetime. Within mere decades, self-driving cars will have replaced taxis and a robot will write my column. In 100 years, writes Robert M Solow, the 1987 Nobel laureate, we could live “the bad dream of an economy in which robots do all the production, including the production of robots”. The remaining jobs will be more interesting, notes Mas-Colell, because everything else will have been automated.

Another consequence of robots: humanity will become more educated. Demand has already plummeted for uneducated workers in rich countries. In 100 years, robots will make that true in poor countries too. Our great-grandchildren will think of us as ignorant, sick, tiny peasants. They will also be better trained in emotional skills than we are, because that’s one realm where they might outcompete robots. As Edward Glaeser of Harvard writes: “I cannot imagine a world where wealthy people are unwilling to pay for pleasant interactions with a capable service provider.”

Based on past trends, an educated population is more likely to demand democracy and live in peace. But terrorists will also have awesome technology.

Face-to-face interaction may continue to lose relevance, writes Roth. I’ll continue his thought: in 100 years, instead of Skyping someone, you might invite their hologram into your living room. By then, actual physical proximity may matter (perhaps) only for sex.

As physical proximity loses importance, last century’s trend to urbanisation could reverse. In 100 years, people may be spread out more efficiently across the earth. They may marvel that greater Tokyo once had more inhabitants than Siberia.

Climate change could cause Siberia or northern Canada to fill with people. The economists in this book expect no significant attempts to prevent climate change. People will try to deal with it only after it starts affecting them, suspects Harvard’s Martin Weitzman.

He says we cannot predict the scale of the change. The uncertainty is enormous. But he worries that eventually a desperate country will choose an “unbelievably cheap”, unilateral solution: shooting a “sunshade” of reflective particles into the stratosphere to block some of the sun’s rays. That would cool the planet. It may also have horrendous unintended consequences.

Incomes will probably be much higher worldwide, driven by higher productivity, most of the writers agree. In 100 years, the world’s poorest people may live like today’s middle-class Americans, says Roth. That matters. However, writes Avinash Dixit of Princeton, rising incomes in developed nations matter much less. Theorists of happiness such as Richard Layard argue that once people have about $15,000 a year, more money doesn’t make them happier. Most economists in this book worry less about income levels than about inequality,


‘In 100 Years: Leading Economists Predict the Future’, by Ignacio Palacios-Huerta (ed), MIT Press, $24.95/£17.95


Simon Kuper


FT