JULY 6, 2010.
The New Economic Order
Without fundamental reforms, the U.S. and Europe risk being left behind by the world's rising powerhouses.
By FRITS VAN PAASSCHEN
Europe's sovereign-debt crisis signals the end of an era. Wealthy Western countries may no longer be the safe havens they once were for international investors. By contrast, many emerging markets—particularly India and China—proved more resilient to the global recession, and are less heavily indebted. The new "stable" economies can be found in the developing world.
In global economic terms, this happened fast.
It is not hard to remember the panic of 1997, which was triggered by debt and uncertainty in Asia—and which then ignited a meltdown in Russia and Latin America. Leaders in those economies learned to avoid the bad habit of excessive debt and the straitjacket of the International Monetary Fund's austere financial requirements. One wonders if Europe's leaders will be forced to learn that same lesson.
Associated Press
Less burdened by debt, emerging markets could leave the West in their dust.Unless you've seen it first-hand, it's difficult to appreciate the magnitude of the transformation that's taking place right now in rapid-growth economies. As a global hotel company, we operate in nearly 100 different countries. So we're on the front lines of this change, and it's staggering to watch its speed. The economic center of mass is shifting at an unprecedented rate. For more than 40% of the world's population, the local economy is growing at an average of 8% per year.
Take India. Just 25 years ago, regions like Punjab were the site of blood turf wars, and were known for backbreaking poverty. I recently watched a Punjab team play cricket at a 75,000-seat stadium in Delhi. These cricket teams are worth hundreds of millions of dollars each. There are leagues, franchises, and huge, packed stadiums all over India.
India's economy grew 6.7% in 2009. And in case you forgot, that was the year of the global economic meltdown. Between 2004 and 2008, the country averaged an incredible 9% average annual growth rate.
Yet India's infrastructure—and the investors who will help build it—have a lot of catching up to do. India has over a billion people, yet only about 100,000 hotel rooms. To put that in perspective, New York City alone has 80,000 rooms.
How are we adapting? Starwood currently has 26 hotels in India, and looks to operate 50 by 2014. The market will still be vastly underserved.
China's growth is even more impressive. Its economy slowed only briefly during the downturn. In the first quarter of this year, the People's Republic posted an 11.9% growth rate. Not surprisingly, more than 80 of the 300 hotels we at Starwood plan on opening in the next three years will be in China. Although we're based in America, we have over 25,000 Chinese employees.
In previous global contractions, developed nations led the world's economic recovery. That's not the case this time around. America, Japan, and countries in the European Union are all posting anemic post-recession growth rates. Collectively, they are likely to grow less than 3% this year. Meanwhile, Moody's recently took the unprecedented step of warning that it might downgrade U.S. Treasury bonds. Spain and Greece have already suffered that indignity.
To be sure, the Western world will recover and stay affluent for years to come. But it won't necessarily be at the front of tomorrow's pack.
As a global hotel company, we are directly—and immediately—affected by this change. So we are responding. Right now, 75% of our planned hotel openings are outside the U.S., EU, and Japan.
Political leaders must respond, too.
About 30 years ago, Western economies, led by U.S. Federal Reserve Chairman Paul Volcker, bit the bullet and stopped inflation. The same resolve needs to be shown in adapting to today's reality.
For starters, "wealthy" nations must get their fiscal houses in order and simplify tax codes. They need to reform immigration rules to ensure that the world's best and brightest can come to their countries to work, regardless of where they're born. And regulators and business leaders alike should take a second look at labor rules that constrain productivity and growth.
The power dynamics in the global economy have shifted profoundly and unalterably. Unless America and Europe fundamentally reform their policies, they risk being left behind by the rising economic powerhouses of the developing world—with the IMF calling the shots.
Mr. van Paasschen is president and CEO of Starwood Hotels & Resorts Worldwide.
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