US versus China: Who will own the future?

 
A Chinese worker in a factory in Jinjiang Will China's economy overtake America's?

Will this really be the Chinese century? Or, in our awe at what China has achieved in a single generation, do we give its economy the benefit of far too many doubts?

That was the first big question for my guests on Stephanomics this week, broadcast on BBC Radio 4 today. The follow-up was about America: for all its squabbling politicians and ballooning public debt, are we in danger of selling its economy short?

People often look at America and see a global super-power literally living on borrowed time - much of it borrowed, incidentally from China, which for all these years has been buying US bonds to soak up its massive cash reserves (now an astonishing $3 trillion).

US politics are probably more dysfunctional - more polarised - than at any time in living memory. The leading presidential contenders are in a statistical dead heat in the opinion polls and people despair of Congress getting even the smallest things done.

For the first time in the post-war era, there are fewer jobs in the private sector than 10 years ago. Real wages for the average US worker are no higher than in the 1970s. And the share of total income taken by the top 1% of taxpayers has risen from 10% to 21% between the 1970s and 2008.

And yet, as the Economist pointed out on its cover recently (see 14 July issue), there are signs that America's private sector is even now reinventing itself, yet again - just as it has so many times before.

The current account deficit is down, exports are up, and productivity has taken off. That could help sustain America's place in the global economy long-term, even if it produces a miserable jobs market right now.

Charles Dumas, of Lombard Street Research, is one of the US optimists. He's even co-authored a book called "The American Phoenix".

When I tell you that another guest, Arvind Subraminian from the Peterson Institute in Washington, has written a book called "Eclipse: living in the shadow of Chinese economic dominance", you will gather that he takes the opposite view.

When macroeconomists get together to talk about China and America, there's always a risk it will end up in a brawl over who has the biggest structural imbalances. (Piece of advice: never go to the pub with a macroeconomist who's not interested in sport.)

There was some of that on the programme, not to mention a lively debate about whether any of China's official statistics bore any relation to reality.

There's a line going around the City that "China's GDP is the next Libor" - a crucial number for the world economy that turns out to be, er, somewhat fictional.

But we also had Paul Ormerod to throw into the mix, an economist known for having a more unusual, microeconomic take on things. His new book (sigh) is "Positive Linking: how networks can change the world".

He was long-term optimistic about America as well, partly because the US does seem a lot better at innovating and creating powerful networks. But not without sizeable reservations.

It was a spirited discussion - and unexpectedly entertaining. I could barely get a word in, some of you will be relieved to hear.

But I was struck by the lack of disagreement about Europe, which all my guests were deeply gloomy about.

Paul Ormerod even thinks countries such as Greece and Spain could be facing an era of almost unprecedented "de-development", with the crisis and its aftermath reversing decades of economic progress.

That is, indeed, what many people see when they look at Europe. And looking at today's headlines, you can see why.

But when so many economists agree on something, you can't help thinking it might be time to buy some euros. When the dust settles from this crisis, years from now, we might discover we were missing the big picture on Europe as well.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • Comment number 152.

    All this user's posts have been removed.Why?

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    Comment number 151.

    150 I haven't tried sitting on my Android phone also probably made in China. The beauty of them is that Apple pays so little for them from the factory and makes so much profit on them that they can afford to replace them when they break without much thought. In fact "insurance policies" on these phones bring in a lot more money than they pay out.One more way to exploit cheap Chinese labor.

  • Comment number 150.

    All this user's posts have been removed.Why?

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    Comment number 149.

    Europe is not in a recession.It's in an economic collapse. It economies are not viable, it's main currency is about to go into free fall. There is nothing China needs that Europe can supply. What China really needs is larger export markets.You don't get that from people who are bankrupt.The USA is in a slow recovery from a depression.It will take more time.It may become protectionist.Good for it.

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    Comment number 148.

    China needs to start spending in order for the Chinese Economy to grow. The domestic consumption will improve the standard of living in China and the exports will help Europe and the US come out the recession.

  • rate this
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    Comment number 147.

    145"Students would be best to learn mandarin for future job prospects"

    Yes if they aspire to $1 a day jobs assembling consumer electronics or sewing textiles.If they want to earn a decent living in the US they'd better learn a more challenging skill and go to college.

    "cheaper costs by factors of 30"

    Probably by a factor of 200.$30 a month instead of $30 an hour.Chinese work faster too

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    Comment number 146.

    What lots of people fail to realize is that China has like 20 million people A YEAR relocating from the countryside to cities. Reduced growth means that lots of this people will be soon jobless. That's a HUGE social problem which will eventually result in conflict.
    So the Chinese have to hope that Europe (its biggest market) recovers really fast, a development which I don't see coming.

  • Comment number 145.

    All this user's posts have been removed.Why?

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    Comment number 144.

    143 Yes different strategies.US strategy; do what makes the most profit where it makes the most profit.Thinking, prototyping in the US.Tedious, labor intensive, dangerous, environmentally risky manufacturing where labor is cheapest and regulations and laws most lax.

    China's strategy; provide as much of the cheapest semiskilled labor without restrictions possible regardless of the consequences

  • Comment number 143.

    All this user's posts have been removed.Why?

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    Comment number 142.

    The lesson is not to overweight the views of economists when predicting the future. You see that mistake being made over and over again.

    Better to visit the universities in both countries and ask people where they see themselves in 20 years. Average incomes in the US`are flat but average thinking certainly isn't.

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    Comment number 141.

    139"The Americans are not just the brain capital of the world, they are the brain drain capital of the world"

    America is the rest of the world's castoffs, its throwaways, its rejects and their descendants.Had Einstein stayed in Europe he'd have been killed for his religion.To our ancestors who were driven out or had no hope for a good life where they were born, we unwittingly are their revenge.

  • Comment number 140.

    All this user's posts have been removed.Why?

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    Comment number 139.

    Correction for 137
    The Americans are not just the brain capital of the world, they are the brain drain capital of the world, and the only reason that is so is because of the American dollar... you take away that massive international advantage and America is just another nation. Brains have moved around this world for 1000's of years. it’s not a new thing. Europe will be next, America is spent.

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    Comment number 138.

    GDP is wealth created on your land.GNI is wealth you own.To convert GDP to GNI you subtract profits expatriated to other countries & add profits repatriated from other countries to yours.It's why China's GNI is so low & the USA's so high.GNI per capita shows an even greater difference.Remove PPP, what's paid for things locally is and it increases again.US & China pay the same for Saudi oil, no PPP

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    Comment number 137.

    The Americans are not jsut the brain capital of the world, they are the brain drain capital of the world, and the only reason that is so is because of the american dollor... you take away that massive internation advantage and america is just another nation. Brains have moved around this world for 1000's of years. its not a new thing. Europe will be next, America is spent.

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    Comment number 136.

    135The USA is the brain capital of the world.That's where the real money is made.Thinking up new ideas & turning them into produts that can be made is done in the USA.The dirty work of physically making them is done wherever it's cheapest and most efficient in a globalized world.That's why 10% of the profits stay in China & 90% goes outside China, much of it to the USA.GNI not GDP is what matters

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    Comment number 135.

    China are the manufacturing capital of the world and that is how economies achieve real substance, prosperity and sustainability.
    No other economy can match it as a cash making machine.
    The best USA can hope for is that the Chinese like a flutter and might spend all that cash in their Casino's.

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    Comment number 134.

    #125. United Dreamer

    That is why I have long considered the USA to be an imperialist power.
    Americans I know deny this vehemently. Yet fall quiet when asked about the spread of US power into the likes of the Philippines.

    It wont be long before China starts doing exactly the same across Africa. Both to gain access to minerals and as a market for its goods.

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    Comment number 133.

    What are China's advantages?It has a limitless supply of unskilled & semiskilled labor that performs the most tedious & dangerous jobs under any conditions for almost no money.It has no regulations protecting the environment, workers, or anything else.What few restrictions it has can easily be overcome with a small bribe.It circumvents all US laws preventing the same from happening here.Not much

 

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