Perspectives on China

I’ve been pondering the prospects for Chinese superpower status and came on Gary Becker’s thoughts.

He opens by rehearsing previous predictions — e.g. that Germany and Japan were all set to overtake the US economically — which turned out to be vapourware, and then continues:

None of this proves that China will not be an exception, and continue to grow well beyond other nations, but these examples do suggest caution in conceding the next 50 years or so to China�s economy. Countries invariably discover that it is much easier to grow rapidly when they are economically way behind since they could then import the knowledge embodied in technology and human capital developed by leading countries. As a country begins to catch up to the knowledge frontier, a simple transfer of knowledge is no longer productive. It then has to participate in the generation of new technologies and approaches, which is far harder than simply using advances made elsewhere.

To be sure, China has considerable strengths that should enable it to grow relatively rapidly for much longer. China has an abundant, hard-working, and ambitious labor force. The government also radically liberalized the incredibly rigid labor markets under its old style central planning toward flexible markets that allow companies to hire and fire easily. Also workers now have the freedom, they did not before, to find jobs that best suit their talents and interests. China has opened its economy to foreign investments and domestic entreprenuers, something the Soviet Union, Japan, or even Germany never really did, and China has been learning from the new technologies brought by these investors.

He concludes:

I am not saying that China will not become the leading economic nation, but rather that it is far too early to tell. The many failed predictions about Japan and other nations should make us modest about such long-term predictions. Perhaps India will become the leader-it has strengths (and weaknesses) that China lacks- or maybe Brazil if it can finally get its act together.

Or indeed, perhaps the US will continue to be the most dynamic economy. Many economists and others wrote off this economy during the 1970�s and some of the �80�s when productivity growth declined and the economy faltered. Since I do not believe countries necessarily age the way species do, the US can continue to do well- productivity started growing rapidly about 10 years ago- if it provides a good environment for new companies, flexible labor and product markets, sizeable investments in human capital and technology, and an open attitude to new ideas, immigrants, and different ways. Those of you alive in 20-30 years will be able to discover if my skepticism and analysis will be borne out by events.