The past three years have seen both the triumph of liberal ideas, as to how economies should be ordered, and also some of the most serious challenges to those ideas. At the risk of over-simplifying, it is fair to say that the triumphs have by and large happened in the emerging economies, while the challenges have come in the more established ones.

After all, the emerging world as a whole carried on growing throughout the recent downturn, while in the two largest members, China and India, growth barely dipped. By contrast, only one sizable economy in the developed world, Poland, escaped recession. Most of the rest had their most serious recessions for 80 years.

This leads to a huge question: How could one part of the world get things so right while the other part got them so wrong? Put another way, how could the ideas of how to run an increasingly liberal market economy be so successful in the emerging world, while those self-same ideas failed so miserably in the countries that developed them in the first place?

We are too close to events to be able to give a complete answer but several points do seem pretty clear. One is that the market-friendly reforms of China, India, Latin America and more recently much of Africa have become self-reinforcing. The result is that the emerging world can grow almost independently of the old developed world.

It is true that markets of the West remain important for some exporters and that much of the technology driving the emerging world’s growth spurt was originally developed in the West. But in terms of demand the two worlds have largely disconnected.

A second point that has become clear is that this growth divergence will continue through the recovery. There are several reasons for this, including the more adverse demography of the ageing West. But there are also the much lower debt levels of the BRICs’ (to use the cute acronym coined by Goldman Sachs to lump together Brazil, Russia, India and China) vis à vis the Group of Seven (G7).

If you add together all debt — personal, corporate, government, etc — the most indebted of the large emerging economies, China, has little more than half the debt relative to GDP than the least indebted of the G7, Germany.

This leads to a further thought. Has the market liberal model of the West somehow gone off the rails? There is no doubt that most European nations, and the United States, have a huge fiscal problem. They have run up debts that will approach or in some cases exceed 100 per cent of GDP just at the time when the costs of providing for their ageing populations are climbing.

In some countries, Germany for example, the size of the workforce is already falling. So the next generation of working people will have to pay not only for their own pensions, health care and so on, but also that of their parents, and on top of that they will have to pay back all these debts. On top of all that comes the cost of supporting the banking system and the need to accept that regulation of financial services has failed.

It is almost as though the emerging world has become a better custodian of market liberalism than the developed world — or at least better at applying it to economic policy. There is an intellectual re-balancing going on, alongside the economic rebalancing.
I became very aware of this while researching my new book, What Works, which looks at 20 examples of success in different parts of the world, including two from India.

The starting point was that good ideas come from every corner of the earth and we have to learn from each other. We have also to accept that embedded in success there is always also the potential for failure. So some of the examples given — property development in Dubai, for example — have had a rough ride as a result of the recession.

But every example has a “what can go wrong” section, for it is when things seem to be going well that complacency can creep in and flip success into failure.

This is evident in the two examples from India, the high-tech industries of Bengaluru and the slums of Mumbai. If the first is an obvious example, with flaws of course but impressive nonetheless, the second may seem surprising.

But as I try to explain, actually Dharavi is in its own terms a hugely successful community, successful as an economic engine, an example of a self-organising liberal market economy.

That theme — that to be successful in the long-term you have to listen to market signals — carries right through the examples. The market signals what people want. Sometimes the signals are muffled, sometimes distorted, sometimes corrupted.

But if you ignore the market you will surely fail. That important message applies as much to the public sector as to the commercial world, something that is, I fear, too often forgotten by civil servants and politicians.

The market has of course to be channelled and sometimes curbed. The weaknesses of the way markets function in old developed world sometimes differ from the way they operate in the new emerging one but both need a sensitive hand to guide them: not something they invariably get. There is a lot of bad regulation everywhere.

However, the market alone, even when well-regulated, is not enough. One of the things that struck me when writing the book, and was reinforced on tour of India last month, is that there must also be a sense of mission, a drive to do things right, to treat people properly, to respect diversity, and so on.

It is surely part of the liberal ideal that the purpose of economic success is not just to improve living standards, though it is certainly that, but also to support societies that function better in every way.

Hamish McRae is the chief
economics commentator for the Independent in London. His book, What Works: Success in
Stressful Times, is published
by HarperCollins.