jester wrote:India, China, etc. are going to own a larger piece of the pie, and if we assume people think comparatively ... they will notice that shift.
Absolutely, growth in the developing world will continue to outpace growth the developed countries. In absolute terms, that will continue to reequilibrate economic and geopolitical power dynamics. We will continue to evolve towards a more multipolar world.
However, what I mean is that developing economies (China most notably) will have to successfully undergo very substantial economic transitions and they are unlikely to be in position to catch up to and effectively compete with the advanced economies in post-industrial (and to some extent post services) knowledge economies.
China’s growth is slowing considerably. Its hit its peak as an exporter of manufactured goods. Manufacture exports from China have fallen substantially as a % of GDP from the mid 2000s and will continue to fall. They have become too expensive as a low skill manufacturing center and lost ground to other SE Asia economies, such as Vietnam. This will continue and accelerate. Growth based on low skill manufacturing can only go so far before rising wages make other lower labour cost centers cheaper and automation further drives down manufacturing costs. Trump and the trade deficit obsessed folks are literally fighting Chinese exports a decade or two too late.
China knows this and is very consciously shifting to a much more consumer demand based economy. In the era of Trump’s focus on protecting low skilled manufacturing jobs, China is shifting to a demand economy where US high tech exports are fast growing. China is becoming a market for advanced tech companies. Low skill manufacturing in china was fuelled by investment capital into relatively inefficient state companies. This results in a precarious corporate debt (bad government loans) situation. China is walking a tight line on this. Its debt to gdp ratio (incl SOE debt) is similar to those of the advanced economies, but China has reached comparable state and soe debt at much lower levels of consumer purchasing power. Consumer debt (which is very low) can fuel demand growth but this requires substantial cultural change and most likely greatly increase government spending on social services to give people confidence to spend. Additionally, China, as counter-intuitive as it seems, is also facing significant demographic challenges. The one child policy (which is now lifted, but birth rates haven’t really increased, likely because China has experienced “demographic transition” to low birth-low child mortality (and high cost of childrearing) like in the West) has created a demographic imbalance where old people outnumber younger people. And this is compounded by the fact that Chinese productivity remains a fraction of that of the most advanced economies.
Basically, China will continue to grow quicker than the West, but I’m far from certain that it is “better positioned” for the economy of the future. It’s days of growth as a cheap low skill manufacturing center have passed, that sector of its economy is now rapidly declining. Its growth has been largely fuelled by investment in relatively inefficient manufacturing and construction SOEs. It kept growth going by undertaking further massive investment in real estate development, which has also now largely reached its limits. China has reached the limits of its growth by government investment and exploiting mass cheap labour. It now has to transition into a consumer demand economy. China is becoming increasingly a market for Western firms -as its consumers demand for better Western tech is one of its fastest rising markers. The Chinese service sector has risen some, but mostly its share of gdp (which now surpasses manufacturing/industry) has grown more out of decline in manufacturing/industry than absolute growth.
China, in catching up with the advanced economies, encounters the same headwinds and lower growth than the later do as well. But, I believe it is at a significant technological and productivity deficit to the West and seems to have already capped out on direct government spending and export growth. They have to now transition to a “post-industrial” economy, but lag behind the West in their capacity to do so.
Their expenditures in R&D are actually pretty high (2% of GDP), in line with UK/Can/EU levels but still significantly being the tech leaders such as Germany, Japan and the US. Further, the spending is slightly inefficient. China based leading researchers, inventions, fundamental discoveries lags significantly most the advanced economies. They are catching up on technological execution, basically, not leading the way forward.
Anywho, long post again (feel free to ban me, greg), I think there are two things: 1) continued faster growth in the developing economies and corresponding rebalancing of macro economic/geopolitical power relations (more of a multipolar world) and 2) living conditions in the advanced economies (particularly those leading in knowledges based economies) will continue to be well ahead of the developing economies. I see the US, with its leading tech economy and no major demographic cliff ahead (that’s immigration!) as still the best positioned economy going forward. That’s followed by the Germany/Japan tranche of countries of high tech economies but demographic decline (probably leading to high wages/labour shortages/high tax burden to pay for all the old people) resulting in fairly flat growth/maintaining of living standards. The EU/Can/UK strata are in similar position to Ger/Japan but less tech/productivity advanced. China will become the largest market in the world, wielding major regional geopolitical power, but with living conditions well below the advanced economies. India/Brazil/Indonesia will all grow, perhaps more rapidly than China, but face even greater challenges in economic transition.
We’re in a time of transition and rebalancing of power dynamics, but I feel that the Western outlook is too doom and gloom. GDP growth isn’t end all be all. It will shift power to other poles, but living conditions in the advanced economies are unlikely to drop. What I think is a far greater risk is increasing income disparity. As economies become more knowledge/innovation/high skill based and as automation continues to progress and productivity increases, we’ll get on the whole more wealthy but with that wealth more and more concentrated in the hands of leading firms and (to a lesser extent) their high skill workforce. Truck drivers won’t fare so well.