The Future of Economic Convergence
It appears increasingly plausible that the balance of economic activity will partly shift away from the United States and its post-World War II allies and toward the new potential economic superpowers, China and India. But that shift will not necessarily change the way the world works.
WASHINGTON, DC – Who can now sustain rapid economic growth? The answer to this question will determine not just the geography of prosperity in the coming decades, but also what the balance of global economic activity will look like in 2030 or 2050. Increasingly, it appears plausible that this balance will partly shift away from the United States and its post-World War II allies and toward the new potential economic superpowers, China and India. But that shift will not necessarily change the way the world works.
On paper, economic growth – a sustained increase in productivity– may seem simple. An economy’s productivity, or output per capita, is a function of capital stock, labor (the number of workers and how educated they are), and an admittedly vague residual known as “total factor productivity,” which refers to how capital and labor are organized. The basic idea behind modern economic growth – which started in the late eighteenth century – is that it involves constructing physical capital (buildings, machines, and infrastructure), increasing education levels, and combining these “factors of production” in a way that raises productivity. Technological innovation, either homegrown or imported, typically helps.
There are no profound secrets here. Countries have been growing in this manner for more than 200 years. You can tailor a growth strategy based on your natural resources, such as abundant coal or access to the sea. You can grow by relying on a stronger role for the government (as in Singapore) or by relying mostly on the private sector (as in Hong Kong).