Last October 7th, the second session of SABF’s serie of talks was held. On this opportunity we’ve invited Tomás Bulat, economist and author of “Economía Descubierta” [Uncovered Economy] and “La Economía de tu Vida” [The Economy of Your Life]. On his talk, Tomás spoke mainly about two topics: how can economy affect our lives, and how will the world develop over the next 40 years and what would this development imply
La Economía de tu Vida [The Economy of Your Life]
Life is made up of decisions. Some are big decisions, like where to study, or who to marry with. However, most of them are small, like deciding to borrow money, or to go to the movies. Many of these decisions are economic decisions. But, many people often say “I know nothing about economics”. Not knowing how an engine works doesn’t prevent people from driving. The same happens with the economy; not knowing how it works doesn’t prevent us from doing economics, since taking economic decisions implies practicing economics.
Tomás argues that in order to make better economic decisions we must understand better the economy. Inflation, exchange control, convertibility; these are examples of economic terms we have heard many times. However, do we really know what they mean? Or, more importantly, do we understand what they involve? Understanding the economy, according to Tomás, enables people to keep their savings safe, to defend what is theirs. In his books, he gives the readers tools and advice… but no solutions because, even though we all go through the same, we are all different, and the best decision to be taken depends on the situation in which each person is in.**** ****
Trends of World Development
In the second part of his talk, Tomás described the trends of world development, along with the challenges that will arise, and the possible changes we will need to make.
Currently the world population is about 7000 million. In 2050 we will be around 9000 million. The middle class will grow from 2000 million people to 5000 million people. This means that there will be people that will stop being poor, making their consumption more complex, generating changes in the capacity of production required from the world.** We will be more, we will need more, but the Earth will always be the same.**
However, the changes in population will be uneven. While China and India will represent a third of the world population, the population of current developed countries, such as Germany, Japan, France or South Korea, will decrease. Furthermore, it is calculated that the average age in Germany will be 52, and life expectancy will be 94 years. Overall, Europe will have 50 million less people. How will economy work on these ‘old countries’?
Looking at the PPP (purchasing power parity) projected for 2050, it shows that the E7’s PPP will be twice as much as the G7’s. The economic weight in the future will be in current developing countries, including China and India. China’s GDP is currently 60% to the US, and its GDP per capita is nine times less than Germany. India is in a similar situation. Therefore, these countries have a great growth capacity. Along with Indonesia (E7 member), these countries will make Asia, after 130 years, the most important continent in the world again.
These trends bring along great challenges. On the one hand, how are we going to produce all these 9000 million people will need? Currently, all the available resources are not enough for China and India have half the US’ GDP. How to produce more with much less? Cities usually settle near water sources, which are the best lands for agricultural production. Paradoxically, the fastest the cities grow, less productive lands become available.** Technology** will be responsible for solving this problem, increasing productivity. Until 2050, productivity must increase 2% annually. On the last decade, it has increase 1.7%. This is one of the challenges of the future, a new challenge.
On the other hand, it is important to understand how will the new power schemes be, and how the dominance of different cultures will affect the world. China will be the center of the world, but it will act using a different logic than the British or the Americans did. China doesn’t need to conquer markets; it has enough territory and population, but **it needs resources: energy, food and minerals. **Which were the last major foreign investments in Argentina? Chinese state-owned COFCO bought 51% of Nidera and the agricultural branch of the Noble Group; the Bridas group (50% owned by the Chinese company CNOOC International Limited) entered the Argentinian oil market by buying Exxon Argentina (re-named as Axion); the ICBC bought the Standard Bank operations in Argentina; Acindar is currently Indian. Currently there is no ‘American invasion’. Which were the last American companies to enter Argentina? Facebook and Google.
Nonetheless, we keep studying English. But in the USA, the best economists are studying China, and the most studied language in Harvard is Chinese. We must begin to studying China in order to understand it. We must understand them, understand their culture and respect them. Understanding them is the key to take advantage of their growth, and to understand how things will start working, because things will not keep working on the same way.
All these involves changes; there will no comfort zone. Power schemes, dominant cultures and technology will change. Even more trivial things, such as the retirement age – are you going to retire at 65 when you will live 150 years? – or the concept of the value of things, will change. Which company is more valuable, Motorola – creator of the mobile phone – or Whatsapp? Increasingly, we will need more tools and less dogmas, because we don’t know how everything is going to turn out.