China as number one? Remember Japan in the ’80s
An Asian nation with a roaring economy will eclipse the United States … America has entered a cycle of decline, while the sun is rising in the East … soon all our products will be made overseas and America will falter … doom is at hand.
The above paragraph does not describe Monday’s news about the expansion of the Chinese economy — this is what opinion-makers were saying about Japan in the 1980s. And how’d that work out for you, Tokyo?
“Experts,” the New York Times intoned on Monday, are impressed by “China’s clout” and believe “China will pass the U.S. as the world’s biggest economy as early as 2030.” If experts think this, then it’s certain not to happen.
Yet the sentiment is widespread. This recent Pew Research Center poll found that a plurality of Americans — 44 percent — think China already is the world’s number one economic power, while just 27 percent of Americans think the United States still anchors the global economy.
It is wise therefore to remember what was said about Japan in the 1980s. Japan’s GDP growth was rapid, Japanese investors were snapping up New York City real estate, Sony just bought CBS Records. Japan’s Ministry of International Trade and Industry was whispered about as possessing near-supernatural prowess. Commentators said only “industrial policy” – direct government control of business decision-making – could save America from becoming a vassal to Tokyo’s super-ultra-unstoppable economy.
The epitome of this thinking was a 1980 book called “Japan As Number One,” by Ezra Vogel of Harvard, which became a bestseller in Japan and sold well in the United States, too. “It is a matter of urgent national interest for Americans to confront Japanese successes,” Vogel warned, before Japan takes control of the global economy. As Meredith Woo of the University of Virginia has written of the early-1980s U.S. mindset reflected by this book, “Japan seemed superior to America in every way.”
You know the rest: the Japanese economy stagnated in the 1990s while the U.S. economy roared, Japan replaced Turkey as the “sick man” of major nations, the Japanese experienced a real-estate crash, low growth, deflation – and MITI was folded in 2001, after compiling a track record of one bad decision after another.
But historical perspective isn’t the U.S. long suit. Here we are thinking about China what we once thought about Japan. There are good things to be said for Chinese political, cultural and economic trends. But overall, China is a chaotic nation with a weak social fabric, perilously poised on the assumption of rapid economic growth. China has far more potential for major social problems than the United States.
As for those experts who think China will pass the United States for number one economy in just 20 years?
This year China is on track for a $5.2 trillion GDP, very impressive compared to where China was economically just a generation ago — but still staring at taillights of the United States, whose GDP should finish the year at around $15 trillion. Even if China’s annualized growth stabilizes at 6 percent — and most nations would be quite happy with that level — it will take China until about 2030 to match America’s $15 trillion GDP.
But the United States won’t be sitting still. If U.S. growth is 3 percent, half of China’s, in 2030 the American GDP will be about $27 trillion, comfortably ahead. If the United States sustains half the growth rate of China indefinitely, China’s GDP will not pass America’s for several generations.
China might end up number one — or become Japan: the Sequel. China’s national economic policy of mercantilism, coupled to its social policy of attempting to discourage individualism, seem awfully similar to what backfired for Japan.
For more than a century, Westerners, and especially Americans, have experienced some form of yellow-peril fear. Exaggerating the shadow of Japan was a manifestation of such fear in the 1980s, and exaggerating the shadow of China is a manifestation today. I’ll take a “buy and hold” attitude to stock in the United States, thanks.