Also the East Asian countries around it, like South Korea, Taiwan, Singapore and Hong Kong had mounted their economic miracle by opening up their market and making their exchange rates competitive and basically getting huge amounts of foreign investment. That model worked effectively and it is the only model that really is open for emerging markets to prosper. But now they are facing a problem. Their populations have stopped growing so they do not have young, creative workers coming into the workforce in-order to make their economies continue to grow at the fantastic rates of growth they achieved for several decades; 10–12% of rates for economic growth. So now the challenge is for the countries around the Indian Ocean. Particularly the Southern Indian Ocean. The whole SAARC Region including India, Sri Lanka, Pakistan, Bangladesh, even the Maldives in its own way, and then look at the Middle East, parts of the Middle East which are prospering, particularly the UAE, Oman, Qatar and similar countries and then the whole of the African Continent, which you may or may not know, has about a billion people. This is almost the size of China about ten years ago. If Africa can get going with its vast stores of minerals and other types of natural resources, then you really see a transformation in this part of the world. This part of the Indian Ocean  4  BIS central bankers’ speeches  will, I think, really be the fastest growing region in the world in ten years’ time.
Clearly the wage bill cannot be expanded by major pay rises, since this eventually leads to a higher relative cost of labour and, consequently, less job creation, higher unemployment, loss of household confidence and fresh falls in demand, which would mean still lower growth and more unemployment. Therefore, it is crucial to adapt wages to the specific situation of firms, to their activity, productivity gains, profits, etc. The current wage bargaining system does not take into account the large differences in individual firms’ specific situations, so it is not the most suitable one to prevent the bout of weak demand from generating a sharp fall in employment. Further, the predominance of indexation clauses in collective labour agreements is a problem that becomes particularly harmful when, as in the current circumstances, inflation has risen due to an external shock, like oil prices, at a time of cyclical weakness. It is naive to believe that automatic wage adjustment to reflect past consumer price increases provides any protection to household disposable income. On the contrary, these clauses (which have now been done away with in most European countries) lessen the ability of firms to compete and keep creating jobs, generate inflation (which affects those not protected by similar provisions) and, in short, hinder adaptation to the external shock. In general, these characteristics of the Spanish labour market have meant that employment has so far been the economy’s main adjustment variable in periods of crisis, since it is the quantities (i.e.