It has been a popular meme in recent years that American power is in decline. China’s rise is impressive, although some predict a Chinese crash. However a recent report by HSBC on the world economy in 2050 casts doubt on the assumption of American decline and sheds some light on the prospects of social democracy. It predicts that by 2050 the US will indeed be the second-largest economy in the world, about 10% behind China. Chin and the US will be the economic giants with the next largest economy India being about 37% the size of the American economy. However American living standards will be about three times much higher than those of China, even although Chinese incomes will have risen much more rapidly than those in the US in the 2010-2050 period. Thus it seems to me that it would be much easier for the US to divert a large share of its economy towards unproductive military expenditure. Perhaps Chinese citizens might be more willing to accept the constraints on living standards that result from an excessive military budget but it is difficult to imagine they would do so to such an extent as to counter the advantage that the US has. The United States will remain much more powerful than China. Robert Kagan claims (in an article that supposedly impressed Barack Obama):
When gauging the impact of the growing economies of other countries today, one has to make the same kinds of calculations. Does the growth of the Brazilian economy, or of the Indian economy, diminish American global power? Both nations are friendly, and India is increasingly a strategic partner of the United States. If America’s future competitor in the world is likely to be China, then a richer and more powerful India will be an asset, not a liability, to the United States. Overall, the fact that Brazil, India, Turkey, and South Africa are enjoying a period of economic growth—which may or may not last indefinitely—is either irrelevant to America’s strategic position or of benefit to it. At present, only the growth of China’s economy can be said to have implications for American power in the future, and only insofar as the Chinese translate enough of their growing economic strength into military strength.
It will be difficult for China to effect this translation. Some similar arguments are made by Daniel Drezner.
The HSBC work also provides an convenient refutation of ‘the decline of the west’ school who argue that an ageing population makes current European levels of public expenditure unsustainable. Proponents of this school ignore productivity growth and assume that any decline in the workforce must equate to a fall in living standards. However Japan will see a fall in its working population of almost 40% from 2010 to 2050 yet it will fall only from second to fourth position on the list of overall GDP and per capita GDP is predicted to rise about 60%.
In the medium term the slow growth that has followed the recent financial crises has undercut the case for capitalism, as Chris Dillow argues:
for years, politicians from the centre-right leftwards agreed that capitalism was unfair but at least delivered the goods. However, it is now questionable that it can even do the latter. The problem is not, then, simply that capitalism is predatory, irresponsible, unfair or immoral. It’s that it is inefficient too. As Faisal Islam rightly says, the party leaders just don’t see this. Now, before the closed-mind libertarians whine, I’ll agree that capitalism has been a massive force for global prosperity. But on this, everyone agrees. It was Marx, not Hayek, who wrote that capitalism “during its rule of scarce 100 years, has created more massive and more colossal productive forces than have all preceding generations together.” However, to presume that this must continue is to mere inductive reasoning, of the sort the chicken commits when he expects to be fed by the farmer, only to have her neck wrung.
However this is not the case in the developing world. Much contemporary Marxist thought is relentlessly Eurocentric. If Egyptian per capita GDP triples by 2050 as predicted political stability seems likely. Perhaps the best opportunities for social democracy as a radical force (rather than the conserving of past gains as in Europe) lie in countries such as Egypt. Overall economic progress will encourage voters to believe that life can be better (and thus encourage increased political participation) but inequality and oligarchy stand in the way. in the west the prognosis is less attractive, slow economic growth may shift voters to the right and weaken unions.