‘Shocks, tech and climate change will grow — as will India’s global leadership’

Michael Spence, Nobel Laureate in Economics, is Professor Emeritus at Stanford University’s Graduate School of Business and Senior Fellow at the Hoover Institution. Speaking to Srijana Mitra Das at Times Evoke, he discusses global jolts — and resilience:
You’ve written a book called ‘Permacrisis’ — which factors are driving this sense of constant upheavals?
I think about this as a collision of three sets of forces. The first is shocks from wars, pandemics, increasing climate change, geopolitical tensions, etc. The second is slower-moving secular trends, including ageing in the part of the global economy which still produces about 80% of the world’s GDP, declining productivity trends in developed countries with inflation for the first time in 30 years, etc. The third set of forces are stunning advances in science and technology, from the digital revolution to AI, huge advances in biomedical and life sciences and a very large tech component associated with the energy transition towards sustainability. This book tries to help people orient themselves in a world that seems to be changing very quickly.
Speaking of shocks, the US-China trade war is only growing larger — how will each economy be impacted?
It’s certainly not good for either. That said, these are both big economies — 25 years ago, China was a relatively lower-income nation, heavily dependent on foreign markets for growth. Today, it has a large internal market, the United States accounts for only about 15% of its exports and the rest of the world remains quite open to China. Meanwhile, the US itself has relatively low trade exposure. So, both are quite resilient with technological advances, sizable internal markets and access to large emerging economies. Their tariff war will disrupt global trade but I doubt it will derail either of these two.
UNKNOWN WATERS: For the last three decades, globalisation and relative world peace ensured smooth international trade — now, with global warming and geopolitics heating up, the future of commodities looks more uncertain (Photo credit: Istock)
Could this reshape globalisation though?
It depends on what happens in the US in this 90-day period — if the US held onto higher tariffs on many countries in addition to China, we would likely see the global economy being reconstructed without including the US — there’d be relative isolation of Washington while everyone else would get on with business.
Now, things depend on bilateral negotiations between the US and other nations — what is clear is the Trump administration has no interest in multilateral structures, from the World Trade Organization to the Paris Agreement. Any multilateral system now will be very different from before — the US won’t be a sponsor. It will fall to Europe, India and China to do this. We are heading into a very different world from the post-WWII era.
Is it ironical that even as the world faces unprecedented climate change, it’s now dealing with this trade war?
Yes. It’s not helpful, is it? The climate challenge is major. We are making some progress but more slowly than ideal in the energy transition and achieving sustainable growth. That should be on top of the list of priorities for international cooperation. Trade wars deliver shocks and leaders’ effort to buffer their nations from these may delay achieving clean growth. This is an unfortunate development. The purpose of tariffs, as per the Trump administration, is to provide inclusive growth in the US by reshoring economic activity. I think if they were doing that properly, they’d have much more targeted tariffs. What is certain though is these tariffs are a setback for the sustainability agenda.
THE POWERS THAT BE: China, the EU and the US are key for energy and geoeconomics
Can you share your insights on China’s progress in green technology?
Through a combination of public sector investment and private sector innovation, China has achieved a leadership position in certain green technologies, both in tech and cost.
This includes solar panels, electric vehicles (EVs) and batteries. Data shows more than half the vehicles purchased in China today are EVs — that hasn’t happened anywhere else in the world. EVs in China are also cheaper than fossil fuel vehicles, which is unique. Ideally, the rest of the world should benefit from this but the automobile industry, a big employer in many countries, is reluctant to expose domestic markets to Chinese exports.
You’re enthusiastic on artificial intelligence being a pivotal technology but this has a huge appetite for energy, water, etc. — can that be resolved as we seek sustainability?
You have to make calculations. If AI was going to deliver very marginal benefits, while creating a huge increment in the demand for various inputs, that’s not a great deal. I doubt that’s the situation though — even now, it looks like the potential of AI on the development of a range of sciences, technology, economies, efficiency, complex systems, etc., has massive long-term benefits. We have to figure out ways to accelerate the provision of clean energy to accommodate demand here. There will be innovation in this area too — the Chinese, for instance, recently developed highly capable AI systems that seem to require considerably less computing power, which correlates to electricity. This makes it more accessible to a wide range of countries and companies. We can anticipate more of that. As with most sciences and technology, an open global system will be highly beneficial here.
As the world changes, what role do you see India playing?
I expect India to continue to grow — among the world’s major economies, India has the highest potential growth now. It should keep growing at very high rates — it is about to become the third largest economy after China and the US, not counting the EU bloc. If that happens, India will become increasingly important in terms of its size and influence. That will increase both India’s multidimensional impacts and create pressure to develop policies which will benefit the nonaligned group of countries that India leads.
We had a similar discussion about China 15 years ago — then, China was focusing on its own development. The same thing will happen to India — in my view, India will become one of the architects of a new global system, dealing with a range of challenges the world faces.

Will adopting sustainability comprehensively in its economic rise be a smart move for India to make now?
Yes. It’s a large carbon emitter and its size will increasingly highlight this fact. Of course, the actual path of adopting sustainability entirely, the timing, pace, etc., will matter but it’s true that all countries benefit in multiple dimensions by pursuing sustainable growth patterns. One huge advantage is energy resilience — in the old world, traditional sources of energy were geographically concentrated, as in the Middle East, etc. Some places were relatively dependent on external sources of fossil fuels while others were heavily endowed with them. Those dependencies will decline in a world which has sustainable growth and clean energy — as will the tensions associated with fossil fuels since you don’t have to import sunlight or wind.