Current issues related to economics, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap on the question of what the global South has over Europe. “They provide something we need.”
“Europe needs to grow out of the mindset that Europe’s problems are world problems, but world problems are not Europe’s problems.” It is a recent statement by Indian Foreign Minister Subrahmanyam Jaishankar. He is referring to the relations between the “rich” North and “poor” South. Yet his words do not seem to fall on deaf ears. Outgoing Foreign Minister Hanke Bruins Slot says in the podcast The World from New York, during the United Nations General Assembly, how she sees countries in the global North becoming more aware of countries in the global South, a collective term for the countries in Latin America, Southeast Asia and Africa, among others. “In his speech, President Biden told the Global South, ‘Your future is mine.’ By saying that, he is emphatically showing awareness of other countries. He realizes that if we want to move forward in this world, we need each other.” The question then arises: what does the Global South have over Europe?
Seeing things in perspective
“To see things in perspective, an interpretation of the world economy over the past decades is in order," Knaap says. According to him, that starts just after World War II, the moment when all major international institutions were established, such as the United Nations, the IMF, the World Bank and the World Trade Organization GATT (today's WTO). “A logical moment, because at that time almost all trade in industrial goods took place between Western Europe, America and Canada.” On the other hand, you had the southern countries, Knaap knows. “They supplied the raw materials, the coal, copper and uranium, for example, which we could use to make things and trade.”
And the northern countries did plenty of that trading, Knaap outlines. “Why do countries trade? Economics has two answers to that. Countries that can make a product better or cheaper have advantages. They may have these because of the climate, because of certain raw materials, because of location, or because of lower labor costs. But a country may also have the economies of scale of a large industrial sector, or because of accumulated knowledge. Take ASML; everyone trades with the Netherlands to get those machines. Not because we are so cheap here.”