A Wealthier Third World

January 07, 1993|By JOEL KOTKIN

Bill Clinton's obsession with America's First World rivals could lead him to mistakenly fight the last economic war when we need to prepare for the next.

Although barely noted by the academics around the president-elect, the economic key to the 1990s may lie not in relations among the ''Triad'' competitors -- Japan, Western Europe and the U.S. -- but in adjusting to the inexorable economic rise of what used to be Third World countries. Last year, for example, overall growth in the developing nations neared 6 percent, three times the rate for the stumbling Triad.

This phenomenon covers large regions of the developing world. South Korea, Taiwan, Thailand and Singapore enjoyed economic growth at double-digit rates throughout the '80s. More recently, rapid economic expansion has spread to several Latin America countries and to the Indian subcontinent. Last year, for example, Chile's economy grew by roughly 10 percent. Mexico's has expanded at around 4 percent annually since 1989. India has, on average, grown at nearly 5 percent a year since the late 1980s.

The surge of Third World growth rides atop powerful long-term demographic trends. As the populations of the industrialized countries age and as their work forces stop growing, or even decline, the labor pools in such developing countries as South Korea, China and India are expected to expand at roughly twice U.S. rates and at four or more times those of Europe and Japan.

The shift to a post-Triad world has as much to do with brains as numbers. Since the 1970s, many developing countries have been nurturing human capital at rates far exceeding their population growth. In 1970, these countries accounted for fewer than one-third of the world's college graduates; by the late 1980s, they boasted more than half of them.

Even more critical, many developing countries are moving ahead in such crucial disciplines as the sciences, engineering and software programming. Mexico produces as many scientists and engineers as France; South Korea turns out more such highly skilled personnel than any country in Europe, save for Germany. India and China each educate more scientists and engineers than Germany and France combined. Students from developing countries, mostly from Asia, also account for nearly two-fifths of all U.S. doctorates in engineering.

As a result of this growth in brainpower, the developing world is gaining in such advanced business sectors as semiconductors. The costs of running a semiconductor plant in East Asia, with its large supplies of skilled labor and favorable business climate, are about 20 percent less than in Japan or the U.S., nearly one-third less than in Europe.

India, which has 50 percent more software engineers than Japan and more than twice as many as Germany, has spawned a burgeoning software industry -- ranked No. 1 in the world for cost-efficient product development in a recent World Bank survey -- that employs more than 300,000. India-based companies develop software programs, chip designs and computer specifications for such leading U.S. firms as Texas Instruments, Hewlett-Packard and Sun Microsystems.

The shift to the post-Triad world, of course, does not mean that the First World is in imminent danger of surrendering its high standard of living. Nor does it mean that prosperity is about to reach the many economically marginal nations of the Third World. But the shift is large and broad-based enough to shake the economic foundations of the global economy during Mr. Clinton's term.

The most powerful influence will come from East Asia. Largely impoverished backwaters only 25 years ago, East Asian countries now boast levels of literacy higher than the U.S. and send more of their children to college than any of the major European nations or Japan. South Korea, which in 1960 was barely better off than sub-Saharan Africa, is likely to surpass Britain in gross national product by 2000.

Even more awesome has been the rise of Chinese Confucianist minieconomies -- Taiwan, Hong Kong and Singapore -- that are rapidly displacing the Japanese as the leading investors in most of Southeast Asia. They also account for four-fifths of the money moving into coastal China, the world's fastest-growing industrial region. Barring a political setback, China's economy, according to the World Bank, could surpass Germany's to become the world's third largest by the end of a second Clinton term.

Mr. Clinton and his advisers would be greatly mistaken to overlook the formidable new economic and foreign-policy challenges posed by these emerging powers. For starters, the president-elect's economic planners should brush up on the mentality of cash-rich Chinese investors, who already hold the world's largest cache of foreign currency reserves and may prove far more capable of supplying capital to the U.S. in the 1990s than either the Japanese or Germans. Taiwan, for example, has recently replaced Japan as the world's biggest foreign buyer of U.S. Treasury notes.

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