The Worlds Leading Economic Power

Blog, December 2009

Pew Research last week put out an opinion poll with the astonishing result that 44 per cent of Americans think that China is now the “world’s leading economic power”.

Here are the survey numbers:

Asked to American public: What is the World's Leading Economic Power?

China 44%
USA   27%
Japan 15%
EU     5%

In fact, using 2008 statistics, here are the GDP and GDP per capita numbers:

Country            GDP (M$)       GBP/Population
World               60,917,477     10,433
EU                  18,387,785     33,700
United States       14,441,425     47,440
Japan                4,910,692     34,116
China*               4,327,448      5,970
Germany              3,673,105     35,539
France               2,866,951     34,205
United Kingdom       2,680,000     35,445
Italy                2,313,893     30,756
Russia               1,676,586     16,100
Spain                1,601,964     30,589
Brazil               1,572,839     10,466
Canada               1,499,551     36,444
India                1,206,684      2,972

*China is growing very rapidly and its GDP will pass Japans in early 2010. Extrapolating China's current growth rate has it passing the US within 20 years.

Of course the opinion poll does not look as if it makes much sense: By nominal GDP the EU is first but it placed last in the survey. Alternatively, looking at per capita GDP, the US tops the list, and China is in last, not first, place.

Nevertheless maybe the public has a point - GDP is not a perfect reflection of economic power. For example in America private plus public sector debt adds up to around 250% of GDP. If one was to calculate an individuals net worth his assets and liabilities would count for more than his annual spending. Another problem with GDP that immediately springs to mind when comparing America and China is the quality of what is being produced. The 16% of GDP spent on healthcare in the US delivers less than the 3.7% of GDP spent on healthcare in Singapore. In America manufacturing is more likely focused on the upper end, but the difference between a Montblanc pen and a Bic is far less than the price tag suggest. In the US and UK Banking and Real Estate make up a dubious slice of GDP. The main popular alternative to GDP is the Gross National Happiness index pioneered by Bhutan, but this takes another tack and seems ill equipped to answer the question of who is the “world’s leading economic power”. Judging the questions is difficult, but my guess is that the survey respondents were concentrating on the future, on the rate of change, not the here and now.

I recently read a very good article in the FT Self-doubt tarnishes Brand America

He describes the melancholy mood which has recently settled upon America, brought about by the rise of China, the increasing awareness of the US's indebted condition, the failure of Obama, but most vitally by America’s declining intellectual hegemony. He explains how in the 1990s the US was the model to aspire to, now many people feel it is deeply flawed.

He points out that this sense of decline has infected the country before, eg during the late 1970s when US Stocks traded at a PE of 8 and Japan was seen as the rising economic power. Perhaps China will implode the way Japan did and a new President will turn the country around the way Regan did in the 1980s. However he concludes:

Given the sclerotic condition of America’s political system, the smart money is on decline. Uncharacteristically for a country built on optimism, most Americans believe their country is on the wrong track. An even higher number believe their children will be worse off than them. Until Americans reacquire their optimism, observers will keep remarking on that rust in their soul.

"The smart money is on decline" - I agree with him. The argument can not be summed up by statistics, it comes down to politics, to the failure of democracy. However, if one had to suggest a single metric, this table of "Worldwide Cement Production" might be a contender: