After enduring months, even years, of political campaigning, many Americans probably identified with little Abigael Evans this week: “I am tired of Bronco Bama and Mitt Romney,” the four-year-old wailed in a video that quickly went viral.
Don’t worry, the election’s all over … for now. But 2016 is not too far down the road and by then Abigael may have something new to complain about: Namely, all that talk about China finally overtaking the United States to become the world’s biggest economy. That change will come soon, possibly not before America chooses Barack Obama’s successor but certainly under the decade-long watch of the new Chinese leadership installed this week.
Of course, China has been here before. As the late Angus Maddison noted, China was the world’s biggest economy for almost 2000 years “but in the 1890s this position was taken by the United States”. But when the two giants swap places again, it will undoubtedly attract a lot of attention, not all of it favourable. In reality, the change will represent just a moment in a much longer shift in the balance of power in the global economy.
Today, the wealthy countries of the OECD area account for almost two-thirds (65%) of world GDP. But by the time little Abigael is in her mid-50s, their share will fall to not much more than two-fifths (43%). That will be below the forecast combined share for China and India of 46%, which today account for just around a quarter of global economic activity. Average living standards in China and India, as measured by GDP per capita, will more than quadruple, although by 2060 they will still be well behind those of the leading economies.
All these forecasts come in a fascinating new paper from an OECD team led by Åsa Johansson, which attempts to set out the shape of economic things to come between now and 2060. The paper forecasts that, as soon as the debris from the great recession is tidied up, the world economy could start growing by about 3% a year.
The bulk of that growth – at least in the early years – will be in emerging economies like China and India, and it will be driven by a number of factors.
One is demographics. India and South Africa, for example, may enjoy a “demographic dividend” – a period when they have a lot of workers and not too many dependant retirees and children. China faces a different fate: Partly as a result of the one-child policy, it’s poised to go through what a World Bank report calls “wrenching demographic change” that could start shrinking the size of the labour force by 2015. That’s one reason why China’s share of the global economy is forecast to level off at 28% in 2030. India’s, by contrast, should keep growing, from 11% in 2030 to 18% in 2060.
But there’s an even more important factor behind the world’s shifting economic balance – rising productivity. Technology and a more highly skilled workforce are already allowing many emerging economies to shift from relying on agriculture and mass manufacturing towards more high-end production. Their businesses, too, are becoming more efficient and effective in how they operate. In the coming decades, these trends will only deepen.
Of course, the future is, by its nature, unknowable. So what might happen to blow all these forecasts off course? To quote the former British prime minister Harold Macmillan, “events, dear boy, events”. More importantly, and this is a point the OECD paper stresses, there is much that governments themselves could do to outpace current growth forecasts, especially in the areas of product-market regulation and in reforms to labour markets. Substantial change in these two areas alone, it argues, could add 16% to global GDP by 2060.
The OECD’s Chinese-language site – 网站 (中文)