West's Gloom Aside, World is Getting Much Richer

♠ Posted by Emmanuel in at 10/30/2011 07:31:00 AM
It is probably a reflection of Western media dominance that the overriding tone of much coverage is of sour times. I was particularly struck by the TIME cover story that inflated the recent London riots to a tale of the decline and fall of the West. Having personally witnessed next to none of the violence while living in London--like most cities, it is geographically clustered into socio-economic pockets--let's say I have my doubts of what really happened in a single city. Still, the prevailing mood is undoubtedly glum in Europe, North America and so forth. With their ageing populations and stagnant (crisis-prone) economies, it's hard not to see why many of their citizens think that their better days have come and gone.

Which, thank goodness, is not really the prevailing story in much of the rest of the world. Although global media coverage is sparser there, developing economies are on a roll especially compared to recent decades. Having sorted out on their own many of the causes of previous frailties, many are now poised to reap substantial economic benefits Why is that the rise of the rest gets little acknowledgement except from a handful of commentators? To paraphrase a certain good book, there is good news that's being seriously neglected as living standards rise in the wider world where more of us live.

Recently, Credit Suisse came out with its Global Wealth Report 2011. While obviously focused on high net worth individual (HNWI) market that the bank services, the broader implication is that benefits are more widespread in the developing world. Financial Post offers a summary of the main points. I am especially struck by how holding "real" as opposed to "financial" assets is a meaningful difference in the developing world:
You wouldn’t know it from the endless torrent of gloomy news but the world is getting a lot richer. In fact, according to the Credit Suisse 2011 Global Wealth Report, total household wealth in the world has reached an all-time high of US$231-trillion. This enormous sum, which encompasses real assets including homes as well as financial assets, and is net of debts, is equivalent to $51,000 of wealth for every adult in the world.

It turns out the financial crisis was only a temporary setback in the march of wealth accumulation across the globe. Although total wealth in Europe and North America remains slightly below the 2007 peak, rapid growth in the wealth of emerging markets in Asia, Latin America and Africa helped lift total wealth by 18% over the past year. Unlike the U.S., wealth in Canada has fully recovered from the crisis.

Wealth composition varies across the globe. Although financial assets including bank accounts, stocks and bonds constitute slightly more than one-half of the world’s wealth, developed nations such as Canada tend to have a higher proportion in financial assets. Americans, in particular, hold a large chunk of their wealth in stocks. In contrast, in emerging markets such as India or Indonesia as much as 80% of total assets are non-financial including housing, farms and small business assets.
Nor are global households much like megadebt American ones, thankfully:
For all the chatter about a world awash with debt, household liabilities on average globally are only 15% of total assets. Although household liabilities grew rapidly from 2000 to 2007, they have since fallen back and are now below their 2007 level. Debt levels are particularly low in the developing countries, but even in the advanced nations household debt tends to average only 15%-20% of assets. It is governments, not their citizens, which have been profligate.
For instance, India continuing to surpass the (abysmal) "Hindu rate of growth" has astounding implications for the creation of household wealth. While the Western world's often-romanticized good times were during the postwar period, there is already speculation that the coming decades will be similar for developing countries:
The pace of expected wealth accumulation in these countries is astounding. India today has aggregate wealth that is comparable to that of the U.S.’s in 1916. Over the next five years, India is forecast to gain as much wealth as the U.S. did in the 30 years after 1916.

Credit Suisse isn’t alone in seeing the world becoming much wealthier as the emerging markets leapfrog ahead. Citigroup Global Markets recently forecast global economic growth over the next 20 years that will rival the worldwide boom that occurred in the 1950’s after the Second World War.
Good, optimistic stuff--for the growing non-Western majority of the world's citizens, that is, for all its implications.