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Economist and House of Lords member Dambisa Moyo speaks to Firstpost about the forces reshaping the global economy, from geopolitical rivalries and fractured supply chains to Gulf investments, artificial intelligence and the future of globalisation
The global economy is facing geopolitical tensions, fractured supply chains and growing technological disruption, challenging the foundations of globalisation. In an exclusive interview with Firstpost, UK House of Lords member and economist Dr Dambisa Moyo discusses the shifting world order, Europe’s economic troubles, the Gulf’s future, AI disruption and India’s rising global influence.
Edited Excerpts:
The earlier phase of globalisation was largely centred on economic interdependence. How do you see the current geopolitical order? Is globalisation in retreat?
The greatest challenge we continue to face is low economic growth. Globally, economic growth in major economies such as the United States, Europe and Japan remains below the three per cent rate required to double per capita incomes in one generation, or within 25 years, and make a meaningful dent in poverty. India is in a different category, with economic growth of more than seven per cent.
Whether the challenges concern debt, inflation or geopolitics, economic growth can ultimately help address many of the problems facing the world today.
On globalisation, if we look at the statistics, whether in trade, capital flows, orderly migration or multilateralism led by the Bretton Woods institutions, globalisation peaked in 2009.
Since then, we have had the global financial crisis and Covid-19. Competition for resources, political dominance, military superiority, economic influence and technological leadership has become much more pronounced. This is very different from the unified approach that characterised the globalisation era after the 1980s.
More from BusinessWe are seeing fractures in supply chains, challenges to global procurement centres, questions around hiring international talent and financing investments by borrowing in lower-cost environments such as the United States and the UK and investing in higher-return markets.
That global outlook has certainly been challenged, but globalisation has not disappeared. It simply means that there are more constraints on capital, trade and the movement of people, alongside greater challenges to multilateralism.
Former IMF chief economist Kenneth Rogoff described Europe as experiencing a slow economic decline. He also pointed to Europe’s inability to produce sufficient electricity. Do you believe Europe has fundamental problems that it needs to address immediately?
Europe is facing a multitude of well-known challenges. These include slow economic growth, structural unemployment, particularly among young people, and energy costs.
Take the United Kingdom, for example. About 10 million people between the ages of 16 and 64 who should be working have not returned to work after the pandemic.
Energy costs are another major concern. The UK and Germany have energy costs closer to 40 cents per kilowatt-hour. Compare that with 12 to 18 cents in the United States and around 8 cents in China. Energy costs are creating a chokehold on economic growth.
The combination of low economic growth, with Germany and France growing at around 0.5 per cent to 0.6 per cent and the UK at approximately 1.2 per cent to 1.3 per cent, high unemployment, expensive energy and geopolitical challenges, including disorderly migration, is undermining the region’s long-term growth prospects.
Productivity gains have also been limited. The Mario Draghi report highlighted the weakness of productivity growth across the region. These are well-known problems, but addressing them requires more than short-term tactical measures. Europe needs genuine structural reforms to become competitive globally and against countries such as the United States, which are leading in areas of technology.
What do you consider the biggest risk to the global economy right now?
It is interesting because the answer depends on the time horizon. There is a structural question and a tactical question. Structurally, the fact that we continue to be on a path of slow and low growth is problematic. We cannot solve climate change, support AI innovation and realise the productivity gains it could deliver, or address emerging geopolitical tensions and questions around immigration if there is no economic growth and no revenue.
We need economic growth, but most of these economies are not growing sufficiently. Some are actually shrinking. I just saw a number that France has actually had a GDP contraction.
In the near term, there are other tactical challenges. Bond yields are rising, increasing borrowing costs and making it more difficult for governments to finance public goods such as education, healthcare and infrastructure.
You touched on AI. A lot of the growth being priced into the United States today, as well as job creation and infrastructure investment, is hitched to AI. If the AI trade goes off the boil, as we are seeing during periods of sell-offs in equity markets, that could be problematic.
But that is a tactical challenge rather than a structural one. In the long term, the fact that we are on a path of low and slow growth while the world’s population continues to grow is ultimately problematic.
The ongoing war has highlighted the importance of resilient supply chains. How important is supply chain de-risking, and has the war exposed the vulnerabilities of the global economy?
I actually wouldn’t say it has uncovered something new. The question of global supply chain disruption and risks to international trade flows was already evident during the pandemic.
After the global financial crisis and then the pandemic in 2020, discussions in corporate boardrooms were about the repatriation of capital back to the West and the need to build resilience.
If anything, I would argue that the way energy prices and other natural resource prices, including fertiliser, have adjusted demonstrates that the global economy has restructured considerably.
China had stocked up on its energy. During the initial phase of the war with Iran, we did not see the energy price spike because China had anticipated that there might be a need for that backup. There is evidence of similar preparations across other energy and commodity markets.
There has also been a shift in demand following the pandemic. A lot more people work from home, and that in itself has relieved some pressure from the demand we might have seen in the past.
I am not saying there isn’t a need to rethink how global supply chains work. Questions around capital, procurement, securing talent and multilateralism are becoming much more pronounced with the chokepoints and challenges in the Gulf.
But we were not starting from zero. Resilience was already part of the discussion, and it has been tested not just because of the Gulf but also by the tariffs announced by the United States.
Companies were much more prepared, and that is why we still see growth in corporate earnings and why the global economy has not slipped into recession.
Chokepoints are undoubtedly negative for the global economy, but the world is much more resilient than it might have been if it had not already experienced these disruptions and reassessed its supply chains.
You have spoken about an AI-induced slowdown in the global economy. What exactly do you mean by that?
I grew up working at Goldman Sachs and have served on several corporate boards, so I understand the investment perspective. But I also serve in the House of Lords of the United Kingdom, which gives me a public policy perspective on these questions.
There is no doubt in my mind that AI is transformative. It has a lot of promise. PwC thinks it could add $16 trillion of GDP by 2030. We have seen the productivity gain estimates. Even Kristalina Georgieva from the IMF has highlighted the growth AI is expected to generate in the near term. But it would be naive not to consider the challenges.
We have high bond yields, driven not just by the AI trade and the fact that many corporations that used to fund investments from their balance sheets are now looking to tap capital markets, but also by government fiscal pressures.
These factors are increasing the cost of capital, which could become a drag on economic growth. I have not even talked about joblessness.
The transition from one equilibrium to another has repeatedly involved technology driving job displacement. Governments have to think about what that might look like. It is not a hockey stick where everything is going to be positive. There are adjustments we have to navigate around jobs, taxes, government budgets and natural resources.
The costs associated with AI infrastructure include not just the cost of capital but also energy and water costs. All these things have trickle-down effects on the economy and are going to cause a repricing of commodities.
I am not saying we won’t end up in a good place. Technology has always been a catalyst for driving humanity and living standards forward, whether through war, disease or industrialisation. But it would be naive to say that there will not be disruptions in the interim. We are already seeing market sell-offs in stock markets and bond yields continuing to rise.
You also sit on the boards of several prominent companies. What discussions are taking place in corporate boardrooms regarding AI deployment?
As time passes, these conversations are becoming more sophisticated. Organisations are expecting and wanting to see more evidence of the promised productivity gains because the cost outlays on tokens and the rollout of these technologies have to prove positive. It is expensive, so we need to see that we are getting returns on those investments.
Cyber risks are another concern. Organisations are considering whether they should look at open-source and open-weight models out of China and assess their cost-benefit advantages compared with frontier models, which can be more expensive.
We also need to make sure that there are no asymmetry problems with frontier models. These companies are interested in doing their IPOs and are incentivised to ensure their revenues continue to grow. But enterprises and organisations have to make sure they are pricing the benefits and risks appropriately.
I think there is a real question emerging about whether organisations need to be first movers. All organisations want to embrace AI because of its huge promise in efficiency, costs and reaching customers. But we also need to reevaluate the first-mover advantage. Maybe the advantage is being a fast follower. There might therefore be some recalibration around how much organisations need to spend upfront.
Nobody should be sitting back and thinking they don’t need to be part of the AI discussion. But organisations need to reprice the risks, taking into account open weights, cyber risks, joblessness and other factors. They need to ask whether they really need to be the first ones out of the gate.
In your book Edge of Chaos, you question whether democratic systems are capable of delivering long-term economic growth. China, meanwhile, has demonstrated that a state-led development model can generate rapid economic transformation. Do you believe democracies are struggling to make difficult economic decisions?
On the first question, the answer is yes. One interesting data point that recently emerged in the UK concerns its welfare budget. The welfare budget is somewhere between £300 billion and £400 billion a year, which is equal to the amount of income tax the government raises every year, at around £300 billion.
Of course, that is not exactly how it works in practice, but to simplify it, every pound raised through income tax is now going to support a welfare programme.
A more interesting data point is that 60 per cent of members of Parliament in the UK Labour Party today have more people on welfare in their constituencies than the majority with which they won their seats.
Those MPs will be less inclined to vote against welfare because doing so could endanger their political careers. To me, that is an example of how the democratic process creates some of the challenges you are describing.
In the long term, we have to ensure that short-term political incentives do not come at the expense of long-term growth. Having a country held hostage to large welfare costs, where productive people are not working, is not good for living standards or the longer-term progress of the economy.
The United States is the largest economy, at around $35 trillion, followed by China. These two economies have completely different political systems. One is democratic, while the other has deprioritised democracy. They also have completely different economic systems: one is market capitalist, the other state capitalist.
But the interesting thing is that the Gini coefficient, which measures inequality, is roughly the same in these two countries.
I have travelled to more than 80 countries, and when you meet business leaders or politicians, they all say the most important thing for them is inequality.
So which model do you choose? It is not obvious. China’s inequality has actually improved over time, while in the United States it has worsened. But to say democracy is bad or state capitalism is good is a bit naive. There are more subtle questions to be asked, particularly for countries trying to develop policies that deliver economic growth and innovation, ensure accountable political systems and institutions, and keep inequality under control.
The UK recently presented its budget on October 28, including measures related to defence spending and relief for households facing high energy prices. Do you believe the budget has addressed the country’s immediate requirements?
I am interested in growth and the levers that create long-term economic growth. These are capital, labour and productivity. Capital concerns how much capital a country has. Labour concerns the quality and quantity of the workforce. Productivity includes factors such as capital markets and the rule of law.
On capital, we know that the UK’s debt is too high and that the country is under immense pressure because of where gilt yields are trading. That is obviously problematic.
The fact that long-term bond markets, which used to be held by pension funds and insurance companies, are now dominated by hedge funds creates a lot of volatility. The capital picture is not great. The second factor is labour. We have real issues around the quantity of the workforce because people who should be working are not working. But there is also a quality issue.
If you look at OECD PISA statistics around mathematics, reading and science, the UK and other developed countries continue to face challenges. Then there is productivity. Capital markets remain weak, and there are questions around whether European countries will benefit from AI, which is the emerging supercycle. It is too early to say, but the region is heavily regulated, and we may miss out on some of those gains.
The whole growth picture does not seem particularly constructive. I haven’t even talked about energy costs. All these factors, combined with the burden of a huge welfare bill that is unsustainable, do not suggest a strong growth narrative.
A simpler way of putting it is this: in 10 years, will these countries be up, down or sideways? I think there is a lot of data and risk suggesting that they could be flat or down.
For a country to become an economic juggernaut, capital, labour and productivity must all be working in the right direction. I still feel we have a lot of headwinds in the UK and Europe.
Finally, where do you see the global economic order heading over the next five to 10 years? Which countries are on the right path and are likely to emerge stronger in terms of economic growth, policymaking and geopolitical leverage?
I would say it is very difficult to bet against the United States. It has its challenges, but it also has a lot of things going for it. It is largely energy self-reliant, has arable land, a young population and, broadly speaking, immigration that brings in young people, new ideas and talent.
It has deep capital markets, which support a lot of innovation. I think that combination means the US will remain a positive driver of economic activity, even if there is dysfunction in public politics. It is also very difficult to see the American dollar not being the reserve currency over the five-year period you are talking about. Where would people go instead? That is not obvious.
China is clearly interesting because economically, technologically and militarily, it is a very serious competitor. But China has structural challenges that may not be easy to solve. It has debt and demographic challenges. Some forecasters expect its population to fall to around 800 million by the end of this century.
It is obviously not a reserve currency, but it is a country that has shown itself to be competitive in the global economic and geopolitical sphere. I would also not count out countries such as India, given the economic transformation we discussed earlier.
There are some emerging swing states that will continue to become important players in commodities, critical minerals, demographics and technological advancements. I think they will continue to play a strong role in shaping the global economic order.
