Economics
The Washington Post has a handy tool for calculating when China’s economy becomes the world’s largest.
The short answer is: not very long from now.
- If China grows rapidly, its economy is largest by 2025 EVEN IF the US grows at an improbably fast 4%.
- If China slows to 7%, and the US grows at 4%, it is only put off an additional 17 years, till 2042.
- In what seems most plausible, the US reverts to its long-term average (2.5%), and China slows to 7%, yielding 2032.
| US RATE |
China fast (11%) |
China current (10%) |
China slower (7%) |
| US fast (4%) |
2025 |
2027 |
2042 |
| US current (3%) |
2022 |
2024 |
2034 |
| US long-term (2.5%) |
2022 |
2023 |
2032 |
These scenarios are not inevitable, of course: economic disaster scenarios for both countries are accumulating. They seem more likely for China, and range from social instability to the “middle-income trap,” in which China’s growth strategy stalls at a midpoint on the development ladder.
Some patterns are emerging from the Middle East unrest that began in Tunisia.
This chart combines three factors that seem relevant:
Tunisia, Egypt, Jordan, Algeria, and Yemen are highly similar when plotted against these variables.
- They all have a “5″ level of civil liberties, as assigned by Freedom House; this might be characterized as medium-bad.
- While their income levels vary, they have similar poor levels of economic freedom, characteristic of the state-heavy Arab approach. This chart reflects a multiplier effect for higher levels of economic freedom.
Is it predictive? Where countries end up on the plot may reflect these factors:
- Countries too far to the right on civil liberties — at 6/7 levels — may be too repressive for people power to succeed. Thus, Iran already had its Egypt moment (for now), but it was suppressed. This will be tested as people attempt to demonstrate in Syria.
- Countries too high on the chart may be purchasing stability with wealth (and economic openness). Poverty is absent as a driver, and more of the population is effectively middle class. (Though note Bahrain, which cannot be called truly stable.)
- Countries to the left on civil liberties may be offering enough room to prevent a buildup. Morocco — which is hardly free — may be the test of that.
This is a roundup of some of the fast-accumulating forecasts for Egypt and the Middle East, particularly those taking a longer view (including some of my own).
General
- Threats to US interests — “Were demonstrations to spread in a big way to Jordan and Saudi Arabia, a catastrophe could be looming. A more enlightened, pro-American regime than the one now in Jordan is hard to imagine. As for the Saudi royal family, it is probably the worst possible form of government for that country except for any other that might credibly replace it. (Robert D. Kaplan, Foreign Policy, 1/28/11)
- Relations with the US — “Any freely elected govt will want to distance itself from U.S policies.” (Shadi Hamid, The Atlantic, 1/25/11)
- The Gulf — The Gulf states are relatively safe from unrest. (Michael Binyon, Al Jazeera English, 1/28/11)
- Diversity of outcomes — Even if protesters were going into these protests intending the same outcomes (and they aren’t), the outcomes will be different. A relatively secular, middle-class nation like Tunisia will emerge drastically different from a crisis than a place like Yemen. Look to Eastern Europe in 1989, which yielded everything from rapid democratization in Czechoslovakia to a murky power transfer in Romania. (Future Atlas)
- “Normalized” politics — “Whatever the outcome of these uprisings, it seems clear that Arabs and their new leaders will be focused for years to come on the imperfections within their own societies — perhaps to a greater degree than on injustices committed by Israel and the West abroad. …. Politics may thus become normalized in the Arab world, rather than radicalized.” (Robert D. Kaplan, Foreign Policy, 1/28/11)
Economics
- Jobs and poverty — The demands of so many protesters around the region — jobs and food — may be internally at odds. Statism in the Middle East suppresses growth and entrepreneurship, but also provides the region a lower level of abject poverty. Freeing up the economies of the region could provide opportunity but could cause poverty and inequality to spike. (Future Atlas)
- The Chinese model — For the portion of the protesters who are motivated by economic opportunity and prosperity above all, the “Chinese model” — authoritarianism with freewheeling capitalism — could look good. (Future Atlas)
Israeli-Arab issues
- Israel — Democratic Arab states will tend to be less friendly to Israel than many current regimes, as long as the peace process is frozen. While the occupation continues, peacemaking will tend to be viewed as collaboration. (Future Atlas)
- The peace process — “Prolonged crisis in Egypt will hurt Palestinian-Israel peace process, not clear what following Mubarak may mean for peace process either.” (Vali Nasr, 1/29/11)
Egypt
- Limited unity — “Once Mubarak goes, the open source movement will evaporate — after that, divergent motivations repeatedly fork the movement.” (John Robb, 1/30/11)
- Uncertain outcomes — “The ideology and composition of protesters can wind up having very little to do with the political forces that end up in power.” (Stratfor, 1/29/11)
- Islamists — “The Muslim Brotherhood in Egypt functions to a significant extent as a community self-help organization and may not necessarily try to hijack the uprising to the extent as happened in Iran.” (Robert D. Kaplan, Foreign Policy, 1/28/11)
- Getting the army to stand down — “Militaries don’t leave politics easily. Even after Mubarak goes there could still be a battle to get military to leave politics.” (Vali Nasr, 1/30/11) “If the military’s senior leaders decide that Mubarak’s ouster and a subsequent democratic transition would unacceptably risk reducing the military’s political and cultural power, they will be more likely to defend the regime.” (Michael Wahid Hanna, The Atlantic, 1/29/11)
- Military vested interests — The Egyptian military may not look favorably on a more open and equitable economic system, as it has its own business interests, established to help invest it in the status quo. (Future Atlas)
- End of Mubarak — “Until Mubarak finally does leave, the unrest in the streets is unlikely to subside, raising the question of just how much more delay from Mubarak the armed forces will tolerate.” (Stratfor, 1/29/11) Mubarak will fall and the army will take over. (Mike Murphy, “Meet the Press,” 1/30/11)
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Image copyright FutureAtlas.com — usable with attribution and link. Fire background courtesy Dave Hogg (Flickr).
The Washington Post covered China’s rising scientific prowess today, revealing both impressive gains and some weak spots.
China is steadily accumulating bragging points:
- China has the world’s second-fastest supercomputer.
- China has gone from 14th place in 1995 in publications in scientific and technical journals to 2nd now, behind the US.
- A Chinese institute made the largest-ever purchase of high-tech genome-sequencing machines, and with them “could very well surpass the entire gene-sequencing output of the United States.”
- More Chinese researchers are being lured back to their homeland after training in the US (raising issues around the risks and rewards of hosting so many Chinese students).
Chinese weaknesses are apparent too:
- Government bureaucrats “mandate discoveries,” completely missing the nature of innovation (and likely promoting shoddy work).
- China engages in huge amounts of junk science–the articles cites dubious stem cell therapies–and junk patents.
- Plagiarism and doctored results are commonplace — which should give Western researchers, especially those in health and pharma, pause.
Perhaps most interesting are indications that Chinese researchers are less constrained by ethical concerns than Western scientists. One Chinese geneticist mentioned in the article is studying the genomes of his most adept peers in school, comparing them to “normal kids.” If something is too controversial for the West — cloning, human enhancement, or genetic interventions, for instance — it could well end up happening in China.
Author Bruce Sterling offered his “State of the World 2010” on The Well this week. A few excerpts follow.
As a result of “an emergent, market-driven global financial system that was all about a faith-based market fundamentalism,” he says,
we’ve ended up with our current “It’s a Wonderful Life” Pottersville, where Rupert Murdoch plays our Mr Potter. …. Societies that are top-heavy in this way are just not gonna have major prosperity. Too much of the civil population has been fenced off from the trough. The wealth-generating capacity of the society has been short-circuited. There’s zero political will to socialize the entire planet and re-channel its currency flows, so that’s not gonna happen. Basically, the political class is waiting for the civil population to come back to the church of the free market and get over the fact that its cardinals walk in public with no clothes on.
So you’re just not gonna see a lively, vibrant scene in Pottersville. You can have a Japanese Pottersville, where everybody’s getting older and they’re building huge concrete bridges to nowhere. Or a Managed Democracy Putin-Pottersville, where everybody agrees not to say anything much about the many Potemkin aspects. You could even get some Rio de Janeiro Pottersville full of armed, dropout-ethnic shantytowns where everybody’s high on medical marijuana. But not prosperity.
Continue reading ‘Bruce Sterling’s State of the World’
I attended the Economist’s World in 2010 conference this week. The economic outlook was cautiously positive.
Carmen Reinhart, Professor of Economics and Director of the Center for International Economics, University of Maryland:
- A rapid V-shaped recovery is unlikely, as the conditions are not in place.
- The revenue hit inflicted by the recession will accelerate the arrival of problems associated with paying for rising health care and Baby Boom retirement costs in the US.
- There is no natural successor to the dollar in view. The dollar has Treasuries behind it, but the euro has no unified debt market.
- A “Tobin Tax” on financial transactions would have to be orchestrated globally, or it would simply push business to markets that declined to implement it.
Leo Abruzzese, Economist Editorial Director, North America:
- By the 3rd quarter of 2011, world economic growth will not be back even to 2003 levels.
- The US economy will reach its 2007 size by the 3rd quarter of 2011. It will have taken 16-17 quarters, much worse than other recessions in recent decades.
- The US banking crisis is not over, and many more small- and medium-sized banks will still get in trouble.
- In China, stock and property bubbles are forming, and are likely to pop within 2 to 3 years.
- China should overtake Japan as the world’s second largest economy in the next few months.
Twitter: @Geofutures
(Image copyright FutureAtlas.com, usable with link and attribution)
Zachary Karabell, author of Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It, spoke at New America Foundation this afternoon.
In discussing the deep mutual dependence of the US and Chinese economies, he suggested that two pathways are likely:
- China and the US might be like future EU members at mid-century, in proto-partnership, though no one is acting with that intention.
- China might be playing the role of the US in its relationship to the UK in early-mid 20th century, with the US fighting irrelevant fights (Iraq, Afghanistan) while China grows in power; it was ultimately the US that supplanted Britain, not Germany.
Other ideas of interest:
- It is not clear if global resources –- steel and oil, for instance –- could even support a much more prosperous China. Chinese demand is likely to drive up oil, copper, etc. prices in a few years.
- The chances are “almost nil” that China will follow Japan’s path, falling into stagnation. Japan was never as open to global commerce than China is; India is not as open as China either.
- China may be pleased with the American obsession with Iran, because that is something that it hardly cares about at all — it is always great to have one’s adversaries expending their energies at something that doesn’t matter to you.
(Image copyright Futureatlas.com — usable with link and attribution)
Follow on Twitter: @Geofutures
China is about to become the world’s second-largest economy, supplanting Japan, the New York Times reports.
This “will bring an end to a global economic order that has prevailed for 40 years, with ramifications across arenas from trade and diplomacy to, potentially, military power,” the Times notes.
China is already the second-largest economy measured by purchasing power, of course. But as early as next year it could achieve this status at exchange rates as well, a crucial turning point, as it is a better measure of global economic clout.
China is projected to overtake the US in total purchasing power before 2020, the Times says. Then comes the big moment:
Based on current growth and currency trends, Mr. Kwan forecasts that the Chinese economy could surpass that of the United States in 2039. And that date could move up to 2026 if China lets its currency appreciate by a mere 2 percent a year.
Meanwhile, Japan is not faring as well:
China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral. “It’s beyond my imagination how far Japan will fall in the world economy in 10, 20 years,” said Hideo Kumano, economist at the Dai-Ichi Life Research Institute.
Japan is already fraying, by some standards:
Many here ask whether Japan is destined to be the next Switzerland: rich and comfortable, but of little global import, largely ignored by the rest of the world… The per-capita gross domestic product of Japan … stalled at $34,300 in 2007; it is now a quarter below American levels and 19th in the world. Both income inequality and poverty are on the rise.
No Japanese companies are now in the top 10 firms by market capitalization, and Japan’s largest, Toyota, is 22nd. Only 5 other Japanese companies are in the top 100.
Japan’s self-regard has taken a hit; a new poll finds Japanese to be the least proud of their country among 33 nations surveyed.
(Japanese self-image: tip from @Urbanverse)
(Image of Shanghai courtesy alexkost, Flickr)
International system
Pei suggested that there will not be an “Asian century” in the same way that the 20th century was the American century: Asia will lack the capabilities and skills to remake the world in the way the United States did. Moreover, the region is too divided, and intraregional rivalries will cancel the individual powers out, for no net effect.
Martinez agreed that, in the short term, the narrative of American decline due to the financial crisis was overblown. He emphasized that the US and China are now in a position of mutual dependence, a relationship could actually help the US perpetuate the American century. He does not see any innovative ideological worldview motivating China: no great ideological challenge is coming out of Asia.
Japan does not want to be second to China in Asia, Pei noted.
Asian economies
Continued growth in the 7-9% range should not be assumed, Pei asserted, given the challenges countries face in as little as 10-15 years. He suggested that Asia lacks an ecosystem for innovation, and that such a system is obstructed by the entire Asian “way of life.”
China’s domestic evolution
China will become a democracy at some point, Pei said. It will come from the top down, when members of the political elite choose to use popular discontent to further their personal goals. This could actually undercut its economic performance, he added.
He said that the Communist Party has successfully whitewashed history, and Chinese know little of the repressions from the 1950s to Tiananmen. As a result, the Party’s legitimacy could be threatened when it all comes out, as happened to the Party in Russia during glasnost.
Martinez forecast that, if economic growth falters, the Party would need an alternative rationale for its continued dominance, and might turn to nationalism, for instance on the Taiwan issue. He noted that even young, educated, cosmopolitan Chinese are in full agreement with the government on nationalistic issues such as Tibet and Taiwan.
Pei said that the financial crisis has not disillusioned Chinese about Western capitalism, but it has provided an “aha” moment, as they have watched the US make serious mistakes.
The discussion is at the NAF site on video.
Image copyright FutureAtlas.com — usable with attribution and link.
ChangeWaves last week noted that the landscape of the world economy has changed overnight.
With a recalculation by the World Bank, China’s and India’s economies are now much smaller, at least as measured by purchasing power.
This is how things used to look (click on the graphic to activate):
With the recalculation, the developing Asian economies are rather less imposing:
The upshot that the age of American (and Western) economic dominance may persist longer than people thought.