[SOUND] In our previous session, we talked about the emerging economies as ones that increase their importance in the global economy. And the media has been talking a lot about China and India as the quintessential examples of these emerging economies. [MUSIC] Now when we study the role in the economy, there is something that we need to take into consideration. And that is that maybe we should not even call them emerging economies but re-emerging economies. And let me explain you why. China and India have been important in the world economy for a long time. Take India, for instance. By the late 18th Century, when the British were going through their industrial revolution, the manufacturing output of India was higher than that of Britain. So, India was actually a bigger manufacturing economy in the times of the industrial revolution that is shown, usually, as a quintessential example of the rise of the West. And take China, by the year of 1800 it represented half of the world economy. So these two countries were powerful. They were major players in the economy and their importance unfortunately decreased. But this does not mean that they did not know how to participate either in manufacturing or trade in the world economy. And we're going to explain this evolution. So if India and China were important, what happened? Why did they lose importance in the world economy? This is a very complex process that we're not going to explain in detail in this class. But some elements are worth mentioning to, again, understand the importance of these two countries. India, as mentioned earlier, used to be a bigger manufacturing power than Britain, in the times of the British Industrial Revolution. Afterwards, fortunately for India, India became a British colony and manufacturing efforts were discouraged by the British. The British actually tried to de-industrialize India in order to turn it into a market for British manufacturing output. Now, what is the case of China? China, we have this combination of isolationist policies by the Chinese emperors that later on led to a series of defeats against Western powers. In things like the Opium War in the 19th Century that led their Western powers to dominate the Indian economy and control important segments of it. Later on, China faced other complicated challenges such as, well, World War II that had terrible effects in terms of destruction and killing of a lot of people, which was followed by the Revolution that, again, was a very bloody war that destroyed a lot of the potential of the Chinese economy. By the 1960s, we have a China that after going through processes like the Cultural Revolution, we find a country that did not represent more than 2% of the world economy. An economy that in the year of 1800 was 50% of the world economy went down all the way to 2%, even though it had 25% of the world's population. So this was something that remained like this until the decade of the 1970s. During that period, the Chinese Communist Party embarked in a series of economic reforms that shifted the communist model towards a market economy that encouraged foreign direct investment, the creation of domestic private corporations in China, which eventually led to our reemergence of China in the world scene. So China was not important for a while, but it was a very short period of time for the standards of Chinese history. They count their history in terms of 5,000 years ago. So this was just a small parentheses, and China is back. Now what about India? India, as I mentioned before, was part of the British empire for a while, and it got its independence in the year of 1948. Later on, India adopted a highly protectionist model that was characterized by its very rigid bureaucratic system that discouraged the creation of new enterprises. And at the same time, the model discouraged the arrival of foreign multinationals. By the early 1990s, the Indians shifted this model. And adopted a more market-friendly economic system that opened doors to foreign investors who could take advantage of several of the Indian advantages. Mainly, the existence of a highly educated labor force that worked for lower prices than the western labor force. So this is something, well, in the case of India, and the exploitation or the use of cheap labor in China and other resources existing in China, led to these two countries to reemerge in the world scene. And this is why we have them present again. But the point here is, it is not that they're learning how to behave or how to operate in the world economy. These two countries are just back and they're, again, major protagonists in the global economy. So to summarize here, we have been talking a lot about in the last years, we've been talking about the emerging economies. And yeah, some of them have emerged after years of poverty. But some others, like the major players such as India and China, are re-emerging. And they're exploiting all the resources that they have in order to compete in the world scene. So, this is changing the landscape. And this has changed the landscape of the world economy in a way that has affected all the rest of the countries of the world. Some historians have said the emergence of China in the 1970s and 80s is the most important historical event in the world since the arrival of Christopher Columbus to the Americas in 1492. Whatever happens in China affects us all. And therefore, these guys are not just coming back, but they're coming in full force. [MUSIC]
