An economist named David Hale has a piece today in The Wall Street Journal which tells an interesting story:

    The current business cycle will go down in the history books as one which confirmed that leadership in the global economy is now shifting from the old industrial countries to the emerging market countries. During 2007, the developing countries produced over 52% of global growth, compared to 37% during the late 1990s. China alone produced 17.8% of global GDP growth last year, compared to 14.6% for the U.S. economy. The developing countries’ share of total world output has risen to 29% this year from 18% in 1995. The World Bank is forecasting that the economies of developing countries will grow 7.4% this year, compared to 2.2% in the old industrial nations.

    The problem is that it tells only one half of the story. If the above numbers are correct (and I’m just going to take them at face value for now, though I think the trend sounds right), there is an important aspect of this that his piece ignores: the shift in world output comes along with a shift in where wage rates are set. That is, the flow of capital and production to emerging market countries is driven, in part, because there is a large pool of low-wage workers ready to be exploited.

    And, therein, lies the great flat world that pundits and politicians all talk about. Note: they aren’t the ones suffering from that trend. In fact, they are making off like bandits.