This week the dynamic duo ask whether the 21st will go down in history as the Chinese century. Becker starts by noting that, while China has plenty going for it, in the recent past we have had not a few examples of economies that were supposed to bring the U.S. to its knees...
The “German miracle” after World War II was so impressive that many forecast Germany would overtake the United States rather quickly...
Krushchev’s prophesy in the late 1950’s that the USSR would “bury” the US was not about military victory but economic superiority. This was made when Soviet official statistics showed extremely rapid economic growth. The apparent miracle of Soviet growth suggested to the great economists Joseph Schumpeter and Paul Samuelson, and many others that central planning might be superior economically to capitalism and decentralization of economic power.
The latest case prior to China is Japan, which experienced impressive economic growth from the early 1950’s into the late ‘80’s that propelled Japan into the elite club of the richest economic powers. Japan too had supposedly discovered a new approach of consensus capitalism with a long-term business outlook that was allegedly superior to old Adam Smith varieties of competitive capitalism. This alleged superiority of the Japanese system was extolled in a series of articles by the very good economist Alan Blinder, and in books with various titles, such as “The Japan That Can Say No”. Yet Japan basically stagnated since the early 1990’s, and now the concern is whether it can ever come out of this stagnation and deflation...
... and he reminds us of a little basic growth theory:
Countries invariably discover that it is much easier to grow rapidly when they are economically way behind since they could then import the knowledge embodied in technology and human capital developed by leading countries. As a country begins to catch up to the knowledge frontier, a simple transfer of knowledge is no longer productive. It then has to participate in the generation of new technologies and approaches, which is far harder than simply using advances made elsewhere.
Posner is not so sure, though:
Although I agree with Becker that at some point China cannot continue progressing rapidly just by copying foreign technologies, already we see rapid growth of scientific research in China and a friendlier attitude on the part of the Chinese authorities toward intellectual property rights, which will facilitate the creation of new technologies.
Nonetheless, he clearly sees some downside potential. Bottom line, from both Becker and Posner: Nobody knows.