What does a multipolar world mean? Brian Easton urges the need to establish a framework to guide New Zealand in the developing new order in the decade ahead.

• Author: Easton, Brian

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Last year was a period of economic re-stabilisation after the global financial crisis which began in 2008, although there were clear signs of its onset in 2007 and even 2006. It would be easy to think that the world has got through this pretty unscathed--unless you became unemployed or lost a large chunk of your wealth--but there is much yet to work its way through. Far too many countries are currently depending on the public sector to sustain economic activity; that means their public debt is growing rapidly. Getting the balance right is going to be hard enough, but there is a danger of sovereign debt crises in a second phase global financial crisis following the first phase crisis involving financial corporations.

Underneath is the need to change the framework of managing the financial system, although it is unclear what the new paradigm will be or what economic theory will underpin it. Undoubtedly the change is going to be bitterly fought over.

These are matters which will, one way or another, be revisited over the next few years. In this article I will address an even greater transformation of the world economy, one which has been evident for ten or more years, and which was prominent last year. Even so it is difficult to get our heads around it. The world economic order is changing.

Late last year, at the BRIC seminar, I talked of how 250 years ago manufacturing was located where the population was, but how the falling costs of distance and economies of scale meant that during the 19th century manufacturing became concentrated in the North Atlantic economies. (1) In the 20th century Japan joined them, but manufacturing still remained concentrated in a handful of countries.

Towards the end of the 20th century, there was a change to that pattern, one which is predicted by the same economic models that explain the concentration. Manufacturing began to move to the poor and middle income countries of East Asia, while the rich economies de-industrialised. Manufacturing has been moving back to its 18th century pattern of location with population. And since the bulk of the world's population is in China and India, that is where factory production is moving to, although perhaps we should not get too hung up on sovereign boundaries and see the growth in the entirety of East and South Asia.

This is not bad news for New Zealand. Their growing affluence generates a demand for food, while the factory labour leaving the farms...