Being an older sort of gent, I have the benefit of experience. And one of the experiences that I had is highly relevant to thinking about world affairs today.
My experience was to listen to great and wise men pontificating back in the 1980’s that Japan would soon surpass the US in economic prosperity. The US was doomed to be a second rate power compared to the Japanese. Lots of folks were preaching this, and this video by science historian James Burke gives you a rather extreme view of how clever the Japanese were supposed to be.
It was all rather depressing. Wasn’t there something we could do in the US to stave off our imminent demise? Apparently not.
The funny thing is that the demise didn’t happen. It still may happen, but more than thirty years alter, Japan looks less threatening. Why were the great thinkers so wrong?
The answer is rather simple. The great thinkers saw Japanese economic growth and said “Aha! The US could not grow so fast! Ergo, Japan was superior to the US.!” And it was true that the Japanese economy was growing faster than that of the US. Japanese companies were also gaining market share at alarming rates. The problem, however, is that a spurt of economic growth based on gaining market share may or may not be sustainable. It is not sustainable when the growth is caused by transactions that do not lead to profit. In that sad case, the more you grow (because you do more deals), the deeper in debt you go. And that is what happened to Japan. And at a certain point, the party was over. Japan had to deal with a collapsing banking sector, from which it still has not fully recovered.
This is highly relevant today We hear the same sort of chit chat about Chinese growth. It is amazing! It is unstoppable! It will make China the greatest power on earth! Except that it might not. It certainly will not if the transactions driving Chinese growth are not generating profits. And, as far as I can tell, they are not.
What does this mean? It means that China is more likely to follow the Japanese model as it pursues the same path. It will reach a certain point when it cannot sustain the debts that it is racking up, and that will produce an economic crisis in the banking sector, where the Chinese have to adjust to slower growth. That will not mean a complete collapse. But it will mean a reality check to the ambitions of those in power who thought they had figured everything out.
And bw, , at that moment, we will see that the Japanese economy is in fact far more prosperous per capita than its neighbors — including China. Japan will re-emerge as an Asian power. And the great and wise thinkers in the west will say, “no one could have predicted that! Japan has had an amazing resurgence!”
Except that this is most likely what will happen.
And the US? Aside from access to huge resources, and a vibrant internal economy, the US has one thing that the Asian economies have yet to develop — more efficient capital markets. US entrepreneurs are not any smarter than their compatriots. But they have a harder time “faking it” when they are losing money. And when companies go bust, the lawyers clean up the mess pretty quickly so the party can go forward.