PA Consulting warns for economic decline of the West

05 November 2012

The economic domination of the West is at serious risk. The economies of for instance the United States, United Kingdom, Germany and the Netherlands are seriously threatened by the emergence of China, India and other emerging countries. If the West does not act quickly, the next generations have much lesser living conditions than the current ones. This is evident from the impressive report "The continued economic decline of the West” by Jon Moynihan, CEO of PA Consulting Group.

GDP growth

In the report, PA Consulting Group uses the development of per capita GDP to demonstrate the increasing economic convergence between mature and emerging markets. Between 2007 and now the real DGP per capita of western economies has either declined or grown marginally, in comparison, the economies of emerging markets grew exponentially.

PA Consulting - GDP Growth-3912

Four reasons for the decline of the West

According to the consultants, there are four main reasons for the rapid decline of the west:

- Global wage disparity: the large differences in wages between countries results in an almost insuperable competitive advantage for the 'East'. As a result, in particular low- and medium-skilled jobs are shifting away from the West and in the long-run wages in the OECD countries will inevitably fall.

- Ineffective governments: governments and financial institutions have for decades stimulated people in the West to borrow heavily and live an 'unmaintainable lifestyle'. Government debts and individuals debt have staggered to levels that can never be repaid, ultimately destroying Western economies.

- 'Entitled' groups: the problems in Western economies are worsened by a small number of influential groups, such as bankers, CxO's, public sector workers and the elite rich. These small groups of people benefit disproportionately compared to other citizens and encourage stimulate unsustainable behavior.

- Inefficient tax spending: governments have in recent decades spent too much tax money in a wrong way. As a result, crucial long-term areas such as innovation and education are underdeveloped in the western economies.

PA Consulting - Four Reasons-3910

What should the West do?

If the West wants to maintain its status of economic superpower, five actions need to be undertaken according to the consulting firm. Firstly, government spending needs to be shifted to education and high-return infrastructure projects. Secondly, the financial sector, and in particular banks, should be reformed to minimize the excessive profits in the sector. Thirdly, taxes should shift to more lucrative areas, such as consumption and property taxes. Fourthly, the West needs to invest significantly more in new technology, in order to stimulate innovation and retain its competitive edge in key industries. And lastly, the West should immediately accept a lower living standard.

PA Consulting - Potential Actions-3911


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