Measuring and comparing two economies is not an exact science and there is considerable room for interpretation. However the conclusions to be drawn from any such comparison depend on the underlying economic ideas and here I set out mine:
[1] The rise of the West was due to the technicalisation of the economy and the evolution of institutions that created the basis for continuous scientific innovation. The political institutions of the West evolved in tandem with the economic evolution.
[2] For various reasons the other main civilisations got left behind for several centuries by this scientific and technical flourescence and when their markets were penetrated by products manufactured in the West their economies went into a downward spiral as the internal linkages were disrupted by the cheaper imports.
[3] In the post WWII period most of the developing world regained it’s independence and since then individual countries have sought to recover their domestic markets in the first instance and then, subsequently, seek to emulate the scientific and technical institutions of the West to create the basis for their own industrialisation.
[4] This has been carried out with varying degrees of success according to the country and region over the last seven decades.
[5] However, it should be clear from the data on the previous pages that China is now the world’s preeminent manufacturing power and outranks the US in this domain by quite some distance. The US, the EU, Japan etc may still have technological advantages in certain niches but the momentum is with China and it has a record of closing the gaps in most fields.
[6] It may be apparent to those who have followed this far that I don’t rate services in determining an economy’s size. Yes services are important and the largest part of modern economies but, in my view, they tend to follow development and from the perspective of historical methodology what counts is competitive advantage from scientific and technical innovation. Services innovation in China will occur in any event but it’s the lead in manufacturing that is of far reaching significance. I believe it would be preferable to compare market based economies by ignoring services.
In relation to foreign policy and the international system here are some observations from this analysis:
(a) China is in a much stronger position than many in the US believe (or at least say publicly); it may be that this information is absorbed but not yet internalised.
(b) The world we inhabit since 1945 is based on Pax Americana. That is, it’s governance is based on rules drawn up and enforced by the US. That is no longer sustainable and the US will, in due course, be forced to share ownership of the system with China. In fact, the US has recently been reneging on it’s own rules, such as World Trade Organisation arbitration, signalling that it’s economic hegemony is over.
(c) Military power without a solid economic base is unsustainable in the long term.
(d) In many parts of the world, where the US has been the dominant outside power, China has replaced the US as the major trading partner (see Trade), so it is only a matter of time before it’s diplomatic role replaces that of the US. If the US tries to lean on a country economically and that country is forced to make a choice it will be strongly inclined to side with the country with which it has the larger trading relationship.
(e) There are lots of reasons why this transition won’t happen smoothly but if the US fails to acknowledge it’s inevitability then it increases the risk of conflict.
