Summary:The Global Conference held in March 1998 was the most recent in a succession of conferences sponsored by the Milken Institute, a not-for-profit, nonpartisan non-ideological economic think tank. The Institute's mission is to explore and understand the dynamics of world economic growth. By bringing together in a neutral environment, research, experience, and analysis from a variety of related disciplines as well as applied areas of public policy and finance, we are able to provide better insight into the effects of economic, political, technological, and regulatory changes on the world economy and its societies. This will lead, we hope, to better public policy and improved lives for all the world's citizens.
The Global Conference focused on the impact of the economic turmoil that began in Asia in 1997 and was continuing as these proceedings were published. Last year, we presented several conferences that looked at urban issues specifically in the United States. In April, we cosponsored "Los Angeles, Rebuilding for the Next Five Years," an examination of our city's economic progress in the five years since it erupted in urban violence. Two months later came our conference on "Urban America: Creating Opportunities for Business and Places for People." There we expanded our discussion to all American cities.
The present conference introduces our global economic agenda. Over the next few years, we will strive to understand the influence of globalization and trade on economic development. Our broadened research agenda also includes: the impact of technology on all aspects of society and, in particular, on the economy; the implications of world demographic changes; and regional economies. We are continuing our traditional focus on education, the labor market, jobs, and human capital as well as on capital markets, corporate finance, and financial institutions.
Though some feel that the Asian crisis has been only a blip on the economic radar, many believe it represents the kind of event we might have to learn to expect in the future. Because the situation certainly was of current concern, because we believe it will teach us many lessons about our current economy, the Milken Institute Global Conference was undertaken to explore as many ramifications as possible within a limited two-day time frame.
Some of the questions the panelists considered: Why had the effects of this instability extended so far and so fast? How far might they continue to extend, and where might they be felt next? Was the International Monetary Fund (IMF) doing good or harm? What lessons were likely to be learned from this episode and would they be applied? Was the Asian Miracle over or merely interrupted? Had the Japanese and Korean planning models been discredited?
Asia's economic evolution has been rapid. In 1970, the region contributed 3 percent of world output. By 1996, output had grown to 10 percent. In the same year, the United States, Japan, and Europe together produced 76 percent of world output. So, while Asia's economy has been growing, it has yet to approach the proportions of the developed Western nations.
Market capitalization figures tell a similar story. In 1950 the United States and Europe accounted for 85 percent of the world's market capitalization. By 1970, the United States and Europe were still holding at 85 percent and the rest of the world outside the United States, Europe, and Japan was at 8 percent. By 1990, these "other" countries had grown to comprise 15 percent of market capitalization, while the United States and Europe were down to just over 50 percent.
Even though Asia's and the rest of the world's economies continued to grow, the early 1990s saw a dramatic increase in U.S. market capitalization. By 1996 the market capitalization of the 25 largest U.S. companies in 1996 equaled the total market capitalization of Asia.
Where growth rate is concerned, however, Asia leads the world. Over the last three years, 9 of the 10 highest rates were posted by Asian countries. Asia also leads the world in exports, having followed an export-driven policy and growth path.
Asia's economic growth occurred quickly; its fall has been as surprising as its growth. Over the last five years, output in these Asian countries has increased about 40 percent yet the market now is back down to its April 1993 level.
Although the crisis that began in Thailand spread quite quickly throughout Asia, it should well be noted that these are heterogeneous economies. Some are rich and some are poor; some have a large supply of natural resources, some have a small supply; some have human capital at advanced levels, others do not. Some are committed to the market system and some are not.
Despite the gravity of the situation for those now having to live within these economies, can these economies truly affect the rest of the world? Using the United States for comparison, the total GDP(gross domestic product) of Thailand is equal to that of Indiana, my home state. Indonesia has the GDP of North Carolina. The output level of the rust belt is the same as the Asian 8, excluding China, India, and, of course, Japan. India's GDP is the size of Virginia's along with North and South Carolina. China's is the size of the Oil Patch: Texas, Oklahoma, Arkansas, Louisiana, and Mississippi.
What will happen next only time will tell. This is not the first crisis in the world's economic history. In recent times, crises have occurred in Mexico, Europe, and South America. Despite the difficulty, recoveries can be made. Where there is financial pain, there almost always are opportunities as well.
We are pleased to present excerpts from the 1998 Milken Institute Global Conference. We hope you will find this document helpful to you in your work. We thank the Milken Family Foundation for its support and welcome the opportunity to share our work with you and your colleagues in the future.
