The age of affluence in the West has come to an end, according to Stephen D. King, Group Chief Economist at HSBC. Speaking at the Asia Society Hong Kong Center, King argued that while the West has enjoyed many opportunities for more than half a century, this era of extraordinary economic progress has now come to a halt.
The economist asserted that the West has experienced an extended period of expanded global trade that started off in the 1950s and 1960s in the U.S., Europe and Japan. This, he argues, led to a much more efficient allocation of resources around the world, significantly lifting the level of activity in a rather short period of time. So extended was this period of prosperity that uninterrupted growth is now considered the norm. Yet King argues that such an era of continuously rising living standards is a historical anomaly.
In a bleak assessment, King, author of the recently published When the Money Runs Out: The End of Western Affluence, maintained that the economic stagnation currently prevalent in many industrialized Western nations such as the UK, US, Italy and Spain threatens to reach crisis proportions in the not-so-distant future. Instead the West has returned to a period of growth that will be less exciting as that experienced in the middle of the last century, he explained.
The West, asserts King, has made promises to society collectively and individually which have not taken into account this structural loss of economic growth. Such promises — including pensions, healthcare and social security — are only achievable through economic growth, and he highlights the growing chasm over the past decade between political promises, financial hope and economic reality.
Asked if the Western world was about to experience a Japanese-style “Lost Decade,” he suggested that one was already underway. “It’s already happened in the last ten years, the risk is now having a second Japanese-style Lost Decade, ending up with soft performance.” He noted that the financial crisis had contributed to this, and that the U.S. economy was slowing down even before the financial crisis.
On a more positive note, King believes the next stage of world trade revolution is still to come, and that it will take place in Asia. He predicted the creation of a “sudden Silk Road” — a new connection from Asia through the Middle East, to Latin America, and to sub-Saharan Africa. If such a trade connection opens up in the years ahead, he asserted, it will be the big driver of growth in Asia over the next few decades.
This is originally published on Asia Society Hong Kong Center’s blog.