By Dick Kamuganga

Recently, 20 powerful world leaders met in London to discuss the necessary reforms to revert the current global economic crisis.

The crisis is taking its toll day by day from Wall Street executives in US, to ordinary citizens in Uganda.

The crisis has exposed serious flaws in the current world economic system challenging the West’s dogmatic belief in the supremacy of the free markets and capitalism as the best way to organise society.

The most forceful question arises — will the crisis lead to a new geopolitical, economic world order that ends Western domination, including institutions like IMF and World Bank? Will the West cede ground in these institutions for the voices of Africa, Asia and Latin America to be heard?

Most probably yes. Historically, every depression resulted into a new geopolitical power balance. For instance, the 1930s depression shifted the centre of gravity of global economic power from Europe to the US. In this article, I discuss eleven signs that could predict once again a rebalance of power between nations of the world:

- The recent London summit of G20 nations, represented a new geopolitical configuration of the world’s powerful, a departure from the traditional G7/8 most industrialised nations.

- The crisis with its genesis in the US, has starkly exposed its waning economic leadership, reputation, stature as the world’s role model.

For over 60 years, the US has been considered a master of markets and lectured other countries on the need to change their ways. This crisis is proving that it is not after all.

- The US dependence on foreign borrowing. It is the world’s largest foreign debtor. Its current account deficit is the world’s largest above 5% of its GDP. There is widespread fear that its massive stimulus spending, budget deficit could further create unsustainable debt. What does it mean when the world’s largest economy starts borrowing rather than lending? It means political and economic vulnerability to its lenders.

- The US’s declining trade balance. Its imports of goods and services has been exceeding its exports to the rest of the world with a wide margin. In 2004, the US imported $1.76 trillion worth of goods and services while its exports were only $1.15 trillion, thus a negative trade balance of $610b. This could represent its declining economic competitiveness as an industrial powerhouse.

- The US’s declining saving rates. When an economy runs a persistent negative trade balance, which is a current account deficit, its saving rate will decline. The US, receipts from its sales of exports and other current payments have been insufficient to cover the cost of imports and other payments to foreigners, thus, the US government, firms and households, resorted to net borrowing the difference from the rest of the world. Hence a declining national saving rate. For example in 1985 the US, gross national saving was 18% of GDP, in 1995 (16%), in 2004 (14%). This is even below the rate of a least developed country like Uganda.

- Increasing threats to the dollar as a global reserve currency. Recently, the central bank governor of China suggested the creation of a supra-sovereign international reserve currency “that is disconnected from individual nations”, ousting the US dollar from its traditional throne.

- End of “Washington consensus” — at the end of G20 summit Brown and Obama seemed to be in agreement that the era of “Washington Consensus” was over, perceived as an era of less than perfect set of economic policies that brought economic ills to most of the developing world.

- The rise of “factory Asia” as a factory of the world and new centre of gravity for the global economy, China, India, Korea, Taiwan, Singapore, Thailand, Malaysia and Indonesia.

- The rise of the BRIICs, like Brazil, Russia, India, Indonesia, China and South Africa, Goldman Sachs has predicted that these countries are to become a larger force in the global economy over the next 50 years — larger than the G6 (US, Japan, UK, Germany, France and Italy).

They have the highest economic expansion rates currently, for instance Brazil the world’s largest exporter of sugar, coffee, iron ore, beef and chicken will expand over 2%), India (5.1%) China (7%) and South Africa (1.2, and 4.0% by 2011) while EU zone, the US Japan, may contract between 1 to 3% in 2009.

- The hard to govern and coordinate European Union with its 27 sovereign states, no joint fiscal and tax policy and the rules governing its supranational institutions. Organs like its central bank and divisions among its members has exposed lack of common voice in response to the economic crisis within the 16 nation Euro zone. The crisis has demonstrated that the EU is not a country and cannot act as a single power after all.

- In the industrial countries, populations are growing, slowing and aging rapidly. The ratios of retirees to workers will rise sharply in the coming decades. In US, for every 100 people between the ages of 20 and 64, there are currently about 21 people aged 65 or older.

The United Nations has projected that by 2030 the population of the US will be represented as 34 people aged 65 or over for each 100 people in the 20-64 age range and for Europe and Japan, it will be 46 and 57, respectively.

This global transformation will take a couple of decades in transition with America still in leadership, Barack Obama at its helm. But his central strategic task should be to forge a more balanced world order that will advance every global citizen’s interests, even at the price of diminished American pre-eminence.

The writer is is an international trade economist based in Geneva, Switzerland