LONDON - In 2008, at a time of financial peril, the world united to restructure the global banking system.
In 2009, as trade collapsed and unemployment rose dramatically, the world came together for the first time in the G-20 to prevent a great recession from spiraling into a great depression.
Now, facing a low-growth austerity decade with no national exits from long-term unemployment and diminished living standards, the world needs to come together in the first half of 2011 to agree on a financial and economic strategy for prosperity far bolder than the Marshall Plan of the 1940's.
Time is running out on the West, because both Europe and America have yet to digest the fact that all the individual crises of the last few years - from the sub-prime crisis and the collapse of Lehman Brothers to Greek austerity and Ireland's near-bankruptcy - are symptoms of a deeper problem: a world undergoing a far-reaching, irreversible, and, indeed, unprecedented restructuring of economic power.
Of course, we all know of Asia's rise, and that China exports more than America and will soon manufacture and invest more as well. But we have not fully come to terms with the sweep of history. Western economic dominance - 10% of the world's population producing a majority of the world's exports and investment - is finished, never to return. After two centuries in which Europe and America monopolized global economic activity, the West is now being out-produced, out-manufactured, out-traded, and out-invested by the rest of the world.
Otto von Bismarck once described the patterns of world history. Transformations do not happen with "the even speed of a railway train," he said. Once in motion they occur "with irresistible force." If the West fails to understand that the real issue today is responding to the rise of Asian economic power by renewing its own, then it faces the grim prospect of steady decline, punctuated by brief moments of recovery - until the next financial crisis. Throughout it all, millions will be without jobs.
So why, despite this new reality, am I convinced that the twenty-first century can be one in which the United States, by reinventing the American dream for a new generation, remains a magnet for the greatest companies, and in which Europe can be home to a high-employment economy?
Because, fortunately for all of us, soon one billion and more new Asian producers will - first in their tens of millions, then in their hundreds of millions - become new middle-class consumers, too.
The growth of an Asian consumer revolution offers America a road to new greatness. Today Chinese consumer spending is just 3% of world economic activity, in contrast to Europe and America's 36% share. Those two figures illustrate why the world economy is currently so unbalanced.
By 2020 or so, Asia and the emerging-market countries will bring double America's consumer power to the world economy. Already, companies like GE, Intel, Proctor & Gamble, and Dow Jones have announced that the majority of their growth will come from Asia. Already, many Korean, Indian, and Asian multinationals have majority foreign (including US) shareholdings. This new driver of world economic growth opens up an opportunity for America to exploit its great innovative and entrepreneurial energy to create new, high-skilled jobs for US workers.
Asian consumer growth - and a rebalancing of the global economy - can be the exit strategy from our economic crisis. But the West will benefit only if it takes the right long-term decisions on the biggest economic questions - what to do about deficits, financial institutions, trade wars, and global cooperation?
First, deficit reduction must occur in a way that expands investment in science, technology, innovation, and education. Both public and private investment will be needed in order to deliver the best science and education in the world.
Second, new markets cannot be tapped if the West succumbs to protectionism. Banning cross-border takeovers, restricting trade, and living with currency wars will hurt the US more than any other country. In the last century, America's own domestic market was so big and dominant that it need not worry much about trade rules. But, with Asia poised to be the biggest consumer market in history, US exporters - the greatest potential beneficiaries - will need open trade more than ever. America must become the champion of a new global trade deal.
A commitment to public investment and open trade are, however, necessary but insufficient conditions for sustained prosperity. All the global opportunities of the new decade could fade if countries withdraw into their own national shells.
In another age, Winston Churchill warned a world facing the gravest of challenges not to be resolved to be irresolute, adamant for drift, solid for fluidity, and all powerful for impotence. I believe that the world today does have leaders of Churchill's stature. If they work together, drift need not happen.
America must now lead and ask the world to agree on a modern Marshall Plan that coordinates trade and macroeconomic policies to boost global growth. America should work with the new chair of the G-20, French President Nicolas Sarkozy, to revive private lending by creating global certainty about the standards and rules expected of banks.
Agreement is also needed that each country's multi-year deficit-reduction plan will be accompanied by acceleration of consumer spending in the East and of targeted investment in education and innovation in the West. Such a plan must encourage China and Asia to do what is in their and the world's interest: reducing poverty and expanding the middle class. And
the West must speed up structural reforms to become more competitive while ensuring that fiscal consolidation does not destroy growth.
Through joint action, the G-20 economies can see not just a marginal change, but growth above 5% by 2014. Instead of a world deadlocked over currencies and trade and retreating into the illusory shelter of protectionism, we could see $3 trillion of growth converted into 25 million to 30 million new jobs, and 40 million or more people freed from poverty.
Copyright: Project Syndicate, 2010.