KUALA LUMPUR: As late as 1980, North America and Western Europe produced more than two-thirds of this planet’s income. Not unexpectedly then, the world’s economic centre of gravity 30 years ago was a point deep in the middle of the Atlantic Ocean, 1,500km west of Morocco.

By 2008, however, due to the continuing rise of India, China and the rest of East Asia, that centre of gravity had shifted to a point just outside Izmir Turkey, east of Helsinki and Bucharest — a drift of 4,800km, or three quarters of the Earth’s radius.

My projection has it that this move east will continue until 2050. By then, the world economic centre of gravity will be clustering on the border between India and China, 650km of Kathmandu.

What is this world economic centre of gravity?

If you take into account all 700 locations on this planet individually identifiable as urban agglomerations and rural centres, and calculate their income weighted-average location on Earth, then you have found the world economic centre of gravity. Since incomes and populations change through time, so too does the world economic centre of gravity shift about on Earth. To visualise this on a map, “float” that centre of gravity towards the planet’s surface: Doing so produces the map in Figure 1.

That global economic activity moves east in this graphic fashion shows the rapid growth in incomes going to the large chunks of humanity who live in India, China and the rest of East Asia. (Population itself changes much more gradually; this sharp east-directed rise of the rest does not come from just population growth.)

Together with this growth has been the lifting from extreme poverty of over 600 million people — this is double the population of the US or the EU, and 10 times the population of the UK — an improvement in the well-being of humanity unprecedented in the history of this planet.

But more is to come. Today, the income of the average person in this Eastern conglomerate is still lower than that of his counterpart in a dozen countries in Africa; his carbon footprint is less than one quarter that of the average American; and he is intent on making not just refrigerators and running shoes, but solar panels, wind turbines and nano cars cheaply enough that yet more of humanity can afford them. What’s not to like?

But what does this mean for a country like Malaysia?

In 2009, Malaysia’s GDP was just 1.2% that of the US, or 3.7% that of emerging East Asia. Malaysia’s population? Only 8.9% of the US’ and 1.4% of emerging East Asia’s.

In the resolution that allows Google Earth to pick out the 700 global locations used in my study of the world economic centre of gravity, only Kuala Lumpur, Penang and Johor Baru are visible. Malaysia’s place in the world economy is rightly one that responds to emerging global opportunities, not to seek to change them.

This is not a weakness to lament but a strength to leverage. Size carries repercussions. China is viewed by many observers in the world as a potential threat to the global economic order.

Consequently, China faces possible trade reprisal — even though its average citizen remains poorer than his counterpart in Belarus, El Salvador and Jamaica, or for that matter, across nine countries in Africa.

If China kept its current average income but had the same population as, say, Namibia, and were located on the African continent, China today would be a candidate for US foreign aid, not a rival for global
hegemony.

Malaysia has learnt well the lessons from this shifting global economy. Figure 2 shows how Malaysia’s export patterns have changed, targeting where global growth is greatest. Through the 1980s and 1990s, the US and the EU provided Malaysia’s largest export markets.

However, Malaysia’s exports to the rest of developing Asia had by late 2000 overtaken those to the EU, and by mid-2003, those to the US. This trend has since only accelerated.

Despite a small setback from the 2008 global financial crisis, by the end of 2010, exports to developing Asia had grown to three times those of either the EU or the US.

Studying trade patterns elsewhere in the world reveals something significant happening here. First, these changing trade patterns do not just reflect a shifting global supply chain, where electronic components from Malaysia flow to China then get bundled into iPhones for
final re-export to the West.

These same shifts are observed, for instance, in many countries in the Gulf that obviously export goods very different from Malaysia’s. The Gulf economies have, in the main, continued to be buoyant through the global economic downturn.

Second, not all world trade has switched in this way. For instance, the UK now still has 60% of its exports going to the 10 slowest growing of its 50 largest trading partners; the correlation between UK export shares and trading partner growth is negative and large. Today, the UK’s economic growth is about zero.

In the jargon of young people today, it is an epic fail not to latch one’s export markets to the fastest-growing economies in a globalised world. Malaysia has avoided that danger. But at the same time, Malaysia needs to mind new risks. That the East is rising means Malaysia no longer has the luxury of appealing to foreign investors merely because in the past, it had stood out from the crowd for its natural resources.

Now, Malaysia is only one economy among many, all clamouring for attention: Now, even more tragically destructive will be Malaysia’s failure to combat rent-seeking and corruption, its ineffectual public services and weak transport infrastructure, exodus of talent and low human capital.

In this new world, it is right and proper, and indeed a key to success, to protect Malaysia’s culture and individuality, to distinguish it from all other emerging economy wannabes. It is right and proper to protect those in Malaysian society plagued with grinding poverty and stricken with economic misfortune: the prevalence of these provides no confidence to foreign and domestic investors.

But it is an epic fail if these mechanisms of enlightened social protection end up frustrating Malaysians’ entrepreneurial spirit and thwarting meritocratic reward, if they hobble Malaysia’s young from being able to compete at the highest levels globally by forcing upon them an unhelpful educational nationalism.

The shifting global economy has provided a platform for continued economic success in this part of the world. That Thailand and Indonesia have so much larger populations explains why they are bigger economies than Malaysia. Despite Singapore having a population only a fifth of Malaysia’s, it is now also the larger economy, and has been since 2005.

It would be tragic indeed if in the midst of all this, Malaysia regressed to being a pocket of poverty and under-development nestled within a shifting global economy and a regional neighbourhood of economic success.

Danny Quah is professor of economics LSE, co-director LSE Global Governance and Senior Fellow at LSE Ideas