06/08/2011 09:20 EDT | Updated 08/08/2011 05:12 EDT

Multipolarity: It's Already Here

Six emerging economies will account for more than half of global growth by 2025. But "emerging" is really a misnomer. These economies exercise their expanding power every day on every continent in every sector. The only thing "emerging" about them is how powerful they could become.

Understand. Plan. Act.

That's what we should do when something big and new comes along. That's what we need to do about the Chinese yuan.

Why? Because it's going to become an international currency within the next five to 10 years, maybe sooner. Institutions and individuals around the world will be able to buy the yuan, also called the renminbi, and trade it on currency markets.

The Chinese will do this for two reasons: First, this internationalization process will reduce China's exposure to too many non-performing U.S. assets, now held in the form of stocks, bonds and treasury bills. Recent unemployment figures suggest that America's recovery is going to be a long and uncertain one. Second, having an international currency positions the Chinese to consolidate their growing economic strength around the world -- and take it to the next level.

What will that next level be? In a recent report entitled "Multipolarity: The New Global Economy", a forecasting group at the World Bank has predicted that, by 2025, the global economy will replace the U.S. dollar as the sole international currency with a new, multi- currency system comprising three major components: the buck, the euro and the yuan -- or, as my wife calls them, "our new four letter words!"

There's a lot more in the report. "By 2025," the World Bank team writes, "six major emerging economies -- Brazil, China, India, Indonesia, the Republic of Korea, and the Russian Federation--will collectively account for more than half of all global growth."

"Emerging" is really a misnomer. These economies exercise their expanding power every day on every continent in every sector, from oil and gas to manufacturing to infrastructure. Let's just call them new economic powers. The only thing "emerging" about them is how powerful they could become.

Indeed, look at what these countries have already achieved: "Emerging and developing countries now hold two-thirds of all official foreign exchange reserves," the World Bank study confirms.

A decade ago, the advanced economies held two-thirds of all reserves. Reversals don't come any more complete than that. In other words, the report tells us, first, multipolarity is already here. Second, it will only gain greater momentum.

Note, though, that the study hasn't projected beyond 15 years out. How strong could China's economic power be in, for example, 2050? Can you say "global economic hegemony?"

These scenarios raise obvious and sobering questions about the economic future of our children and grandchildren. How much of Canada's resources -- our oil, gas, strategic minerals, forests, food and water -- are we willing to sell to China and the other new powers? How many good jobs will we be able to negotiate? How, ultimately, will we sustain our households and communities?

For defensive reasons alone, we should start buying yuan. It will give us a window on this new world. It will get our heads in the new game. Investing in yuan could also give us some say in how China itself performs -- socially, environmentally, in terms of labour and human rights -- as it rides the escalator of economic ascendance to the top.

We should invest in yuan -- but we can't. We'll only be able to buy it when the Chinese Politburo says we can.

In the meantime, however, there's important work to do. First, taking a page from the new powers' own approach, our governments should invest in one or two world-class Canadian multinationals in each strategic sector of our economy.

With the backing of both the state and the market, and deploying leading-edge technology, these companies would have the scale and resilience to compete in the multipolar world. (Yes, the original planners--not the later managers--of Nortel were right.)

Second, we should lever our capital pools for both offensive and defensive purposes. Again, as the new powers do, we should use our 'sovereign wealth funds' -- the Canada Pension Plan Investment Board and Quebec's Caisse de dépôt et placement -- to invest in foreign securities as sources of economic intelligence and some influence on the behaviour of new-power companies.

At the same time, these funds should allocate capital to major Canadian companies that create and sustain good jobs for Canadians in the face of fierce competition. And, third, governments should give serious, preferential tax treatment to companies that maximize these jobs and minimize layoffs.

Advocates for such policies would be easily found in the caucus and allied organizations of the New Democratic Party, sections of the Liberal and Green parties, and some red Tory networks. What about the Conservatives? Without doubt, this approach would be too 'big government' for them.

But, in his quiet, private moments, Stephen Harper surely knows that Canada's market forces alone are no match for the new powers. The state must be fully engaged.

Something big and new has, in fact, come along. Multipolarity is here. What we do about it is, so far, still up to us.

Understand. Plan. Act. Now, not later.