- Lord Copper
Japan, China and the EU
In 1970, an analyst with Rand Corporation predicted that Japan would overtake the US to become the world’s largest economy in around the year 2000. I can certainly remember that that was a pretty fixed view in the 1980s, helped by the ruling exchange rates, and as late as 1995 the Los Angeles Times was forecasting that the tipping point was only months away. Well, as we all know now, that didn’t happen, and it wasn’t long after that that Japan stalled into its ‘lost years’.
The error was twofold. First, while some economists would have us believe they are a subset of scientists, dealing in measurable realities, they’re not. They’re attempting to predict the interactions of human behaviour based on observation, not factual reality. (That’s not intended as a put-down, by the way, it is of course just an opinion – although a reasonably fair one, I think.) The second error was to assume that projecting the graphs of GDP forward would be a predictor of the future, whereas in fact it is probably no more reliable than the fairground gypsy’s crystal ball. Unfortunately, events are influenced by human behaviour rather than scientific rules, and the former is far more fluid and potentially changeable than the latter. It’s just a bigger scale version of predicting the copper price – sometimes you’re right, sometimes you’re wrong; doesn’t stop people trying, of course.
The purpose of introducing this subject is to pose the question of whether or not we are falling into the same error with regard to China. Rafts of commentators and economists have told us that China is set to overtake the US, and indeed we’ve already overshot the due date predicted by some. The huge weight on one side of the discussion is that of numbers. As the world becomes more open, in terms of the dissemination of knowledge, of trade and of movements of people, so it is surely a reasonable assumption that at some point a population of substantially over a billion will almost inevitably create an economy bigger than the one in a nation of a few hundred million. Just look at the United States itself, and the remorseless way it grew to prominence over Germany and the United Kingdom.
And yet, in the west we’ve also grown comfortable with the idea that capitalist economies are inextricably bound up with political democracy; that totalitarianism stifles free markets, which are the lifeblood of a growing economy. China is the experiment to see if that belief is true, or if it’s just a comfort blanket for us. There are bumps along the road, for sure, the latest of them the corona virus, which threatens global growth. And global growth is still necessary for Chinese growth; the interest in the question is how the relative rates of growth compare.
So – will the tipping point come in 2025, or 2030, or 2040, or 2050? Or even later? We can sit back and watch.
On a different subject, it would probably be wrong not to mention that at the end of this week, the United Kingdom will be leaving the European Union. Personally, I shall not be taking part in the celebrations or commiserations. I shall be in Paris, and while I shall almost certainly raise a glass of champagne, mine will have more to do with the hope for a good match at the Stade de France on Sunday afternoon. The EU result was probably not what I regarded as ideal, but the majority of voters (and before anybody tries any ‘ah, but…’ statistical analysis to prove a point: I specifically said ‘voters’, as in, those who voted, who are the only ones who count. Non-voters are precisely that, and have no place to complain) were in favour of the split. So that’s it; undoubtedly a rocky road through the relationship negotiations, and then who knows? I suppose it depends on your view of the EU. Are we leaving a nascent United States, primed to boom, or unshackling ourselves from an Austro-Hungarian Empire-like living corpse? We’ll actually never know, for sure, because there can be no empirical comparison.
Step forward again those pesky economists, I suppose, with their predictions of what might happen, or in this case, more like what might have happened.