Dealing with the challenges of the future

Developed countries must look beyond the current global economic turmoil at how to defend themselves against the increasing economic threat of China and India, James Wolfensohn, former head of the World Bank, told senior business figures at the Lloyd’s London City Dinner on Thursday.

Economy has turned a corner

The global economy now appears to have turned a corner, sparking a return in confidence in the financial markets in recent months. “There is a sense that things are being restored to their former glory, or, if not to their former glory, at least in the direction of that happy moment,” said Wolfensohn.

But developed countries are now confronted with “the fiscal realities of life”, where heavy debts incurred by bailing out their banks will make it increasingly difficult for governments to meet spending commitments and stimulate their economies back into growth.

But looking forward, they must deal with an even bigger threat: the growing economic might of India and China. The G7 economies may account for only 25 percent of global output by the middle of this century – half that of India and China.

“This is a true challenge to the City and a true challenge to the G7, as we knew it,” Wolfensohn told an audience of 250 insurance leaders and senior figures from the worlds of finance, business and politics at Merchant Taylors’ Hall.

He said he viewed the most important issue facing the West to be: “the changing balance of our planet, the changing role of the City, and the enormous importance that we must give, as parents and as leaders, to guiding the next generation for the world that we're in. “

An educated workforce is key

The west’s most competitive asset remains its highly educated workforce, but more needs to be done to prepare future generations for the changing world ahead of them.

Increasing numbers of young people should go to further education colleges and the quality of the education they get from these institutions must improve, Wolfensohn said.

Young people in the West should also have a more international outlook to their education, he added. Today only 11,000 American study in China and 2,600 study in India; whereas 81,000 Chinese and 94,000 Indians study in the US.

Should be wary of knee-jerk reaction to banking crisis

In his speech Lord Levene, Chairman of Lloyd’s warned of a more imminent danger to the UK’s financial services industry: the threat of knee-jerk regulation from regulators and policymakers in response to the financial crisis.

“There is a very real danger that we shall end up doing irreparable damage to one of the strongest sectors of our economy,’ Lord Levene said.

He acknowledged that parts of the banking industry had behaved irresponsibly, but added: “it is certainly not a reason for politicians and policymakers to start undermining the UK financial sector – which is one of the country’s great national assets.”

Levene said: “This is the one industry where we are world beaters. We must regard its continuing competitiveness in a ruthlessly competitive global marketplace, as an absolute priority.”

This is the 9th annual Lloyd’s London dinner. Previous keynote speakers have included the Governor of Rio de Janeiro Sérgio Cabral, NATO Secretary General Jaap de Hoop Scheffer and Singapore Prime Minister Hsien Loong.