DAVOS // Amid all the hand-wringing here in the Alps this week over how to build a better regulatory mousetrap for banks and the risks they take with other people's money, one group of participants has been sitting quietly on the sidelines - those from developing economies.
While emerging markets were hit hard by the global crisis, the financial system in countries such as China, India and Brazil was relatively unscathed. So the debate now over how to clean up the mess the crisis created and prevent new ones, is throwing into sharper relief the growing gap between the large, lurching economies of the US, Europe and Japan and the fast-growing economies of Asia, the Middle East, Africa and Latin America.
"What we've seen is a shift of economic power from the West to the East," said Peter Sands, the group chief executive of Standard Chartered Bank, repeating what is now a cliché in discussions about the direction of the global economy. But what appears to be emerging from discussions here at the World Economic Forum's annual meeting is that the emerging world's challenges in the post-crisis world are decidedly different to those perplexing policymakers in the West.
Participants in this year's meeting have, for example, thrown cold water on the notion that somehow emerging markets would be able to lift the world out of its current torpor through their own power. "The model of export-led growth in Asia and China is now challenged by the fact that countries like the US are importing less and consuming less," said Nouriel Roubini, the New York University Stern School of Business economist who is also chairman of Roubini Global Economics.
How to find growth for growing populations, therefore, may pose a particular challenge for developing economies as long as developed economies are in convalescence. "The demand in India is 'What's happening to all the jobs you promised would be created?'" said Montek Ahluwalia, the deputy chairman of India's Planning Commission. "Can India grow at nine per cent if industrialised countries are growing at 0.5 percent or one per cent."
"We will not experience the kind of economic growth that the world experienced in the 1980s and the 1990s," said Tony Tan, the chairman of the Government of Singapore Investment Corporation. Many nations are adopting a more protectionist stance towards trade and investment and investment returns may never be the same, he said. "I think the world will be a more uncomfortable place." That could pose a political and social challenge to nations with young and growing populations such as India and Saudi Arabia that would make the backlash against bankers in the US and the UK appear insignificant by comparison.
China is projected to surpass Japan as the world's second-largest economy this year. And developing economies are taking a more central role in global bodies trying to craft a new architecture for the global financial systems, including the Group of 20 and the Financial Stability Board. But the focus in the West on imposing greater regulation to reduce excessive risk-taking hits developing economies in the midst of a major effort to deregulate and develop their capital markets to create more equitable economic growth. Some fear that governments may use the retreat in the West from free-market fundamentalism to roll back their own free-market reforms.
For authorities in developing economies, therefore, the challenge will be how to maintain the momentum for policies that seem at odds with the West's retreat from the free-market frontier. "We're so far internal to the frontier that we will have to keep moving in the same direction," said Mr Ahluwalia. "While developed economies may seem shrinking we'll be moving further in financial liberalisation."