Is the World Economic Center of Gravity Moving to Asia? Becker

The short answer is "yes", although not immediately, and not inevitably. My reasons for an affirmative answer are partly demographic and partly economic. Asia has a large fraction of the world's population, and their biggest economies are generally experiencing rapid growth as they narrow the gap in living standards with the West. To start with the demographics, about 4 billion persons, or almost 60% of the world's population, live in Asia. India and China alone have about 2 ¬Ω billion individuals. Other Asian countries with populations in excess of 100 million are Japan, Indonesia, Pakistan and Bangladesh, while Vietnam and the Philippines each have almost 100 million persons. In addition, Asia's population is growing much faster than that of either Europe or North America, so that 20 years into the future, Asians will constitute more than 2/3 of the total world population. By contrast, the whole European Union has only about 500 million people, and the very low birth rates in almost all countries within this Union imply that its population will be falling over time, unless offset by steep levels of immigration. The United States is still growing- partly fueled by considerable immigration- but more slowly than Asia's. As a result, the populations of Europe and North America will decline over time, perhaps absolutely but surely relative to the growing numbers in the rest of the world. Large populations alone do not have much impact on the world economy, as seen from the rather minor economic influence of both China and India prior to 1980, or the unimportance to the world economy of Sub-Sahara Africa's 800 million persons. Asia must have rapid economic growth during the coming several decades for it to become the major player in the economic world. Fortunately for them, China, India, Indonesia, Vietnam, and some of the other larger Asian countries discovered during the past 20 years many of the vital ingredients required to produce economic progress. These ingredients include first of all a reliance on private companies and competition, and a much smaller role for government direction of the economy. China started along this path in the late 1970s, while India began to throw off its socialist traditions in the late 1980s and early 1990s. Second in importance is the utilization of the world economy to find markets for Asian exports, and to attract foreign capital to finance its rapid industrialization, although India has lagged far behind China in using both world capital and world markets. Most Asian countries also have recognized that human capital is the foundation of modern knowledge-based economies, and they have begun to emphasize investments in education and training. As a result of these and related policy shifts, Asia as a whole experienced rapid economic growth during the past 20 years, and has narrowed the gap in per capita incomes with the rich countries of Europe and North America. The major Asian economies are likely to continue to grow rapidly for the next decade, and perhaps well beyond that decade, given how far behind Asian per capita incomes still are, the thirst of most of its population to become rich like the West, and the momentum their economies have built up. I say "perhaps" beyond the next decade because one cannot be sure that leading Asian countries will not shift away from growth-producing policies in the more distant future. its rapid growth in both per capita income and population implies that Asia's importance in the world economy will increase quite rapidly. As a result, Asia will become a far more important source of consumer demand not only for products made in Asia, but also for exports from America and the EU. In addition, it is likely that researchers and companies in Japan, China, India, and elsewhere in Asia will generate an increasing share of the world's important innovations. Greater economic dominance of Asia does not necessarily mean that the United States will not continue to be the world's leader in per capita income and innovation. The development of Asia can stimulate the US and the EU economies by providing greater opportunities for trade, including valuable imports and large markets for its exports, and other advantages from having a more developed and larger Asia. The economic threat to the West is not Asia's development, but it is government excessive interference in the performance of markets, like the automobile bailout in the US, that may choke the very competitive system that created Western wealth, and demonstrated how to become rich to countries elsewhere. To be sure, as the economic center shifts to Asia, that continent will expect much greater influence over international institutions, like the IMF and the World Bank, ia greater role in determining common international trade policies, more say on climate policies, and on many other world economic issues. The larger Asian countries will also expect to have a more important role in determining world security and anti-terrorist policies. On security issues and possibly on climate and some other international questions, major conflicts might well emerge between countries like China and India, and the United States and the EU.

Comments

[Anonymous]

With all due respect to the authors, government "involvement" in the markets is not always "interference." Their reference to this factor is spoken almost as a religious invocation that is not supported by data, history or the current situation. Moreover, it is largely off-point.

Whether by historical coincidence or otherwise, government involvement in US markets occurred at the same time as the longest increase in the depth, breadth and intricacy of these markets. Precipitous declines in output can be linked to de-regulation without invocation of religion or ideology.

Every economy mentioned in the blog post has seen, and continues to see, not merely massive government involvement but intervention, as well, China's SEO's being the best example. Permitting private enterprise to enter (or expand) has been the direct result of government involvement in ALL cases mentioned. Transnational intervention (e.g., the IMF) has occurred as a result of de-regulation (e.g., lending practices) and their de-regulatory pushes, with a resulting loss of huge amounts of funds that could have gone to productive investments.

I am neither for nor against regulation but I am against semi-religious invocations of ideology. Regulation is, and must be, a part of all markets (think private property via the rule of law). It will be a question of "smart" regulation to "tweak" the market to enable speculative urges to be channeled where the markets are most effective.

Financial markets could easily move to Asia (as they did to London) but not because of population size but because of regulatory environments.

And finally, Asia has done exceptionally well because the US has been the banker and the consumer of choice for these economies.

[Anonymous]

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[Anonymous]

If population growth is a strong indicator of growing economic strength, as is suggested above, one country to watch is The Congo, where the CIA places the average birth rate at 6.2 children per female.

Personally, I believe that North America will regain the leadership position, and is in fact set to become more powerful than it was during the 20th Century. This is because America is energy independent, food independent, and has good work force leadership.

It is not widely known that North American oil shale reserves consist of 2.1 trillion potential barrels, or 400 years of domestic consumption at current rates. This is approximately half of the world’s remaining hydrocarbons, not the 3% some would like us to believe. This resource is extractable at $20-25/bbl. Windmills, by the way, are misrepresented. 90% of rated wind capacity must be backed up by conventional power plants, operated in an inefficient manner. This is because the wind stops.

Franklin argued that there is intrinsic value in three things; labor, land, and precious metals. He did not mention ‘financial markets’. In the era of fossil fuels, he would likely add energy reserves to the list however. If (when) the nanny state collapses, the efficient government that will likely emerge will have everything it needs. We just need to hold firm to our Constitutional Values, and the American future should be just fine.

[Anonymous]

does it really matter, the economy?
we're all going to die someday, anyway. For some, sooner than later.

[Anonymous]

I have to believe that the young people who voted for Obama did not consciously vote for the kind of centralized and innovation stifling government that we are getting.

I also have to believe that people have a capacity to learn -- free markets and a constitutionally limited government in the U.S. will return someday.

[Anonymous]

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[Anonymous]

Anon: Indeed land, labor, rich natural resources are a great help to a nation; today we'd include creativity, along with a skilled and highly educated workforce.

As for what "young people" (and FAR more who are no longer young) voted for......... I suspect many would have a difficult time putting into words, though I'd bet that in one way or another they have finally learned that "trickle down" is a Las Vegas style hustle, and that they KNOW the wealth created by a doubling in productivity is NOT being distributed to those doing the work.

As for "fee markets" returning, one HOPES that we can harness the efficiencies of a properly regulated capitalism and rid ourselves of the many economic distortions that have been welded in place over the decades. But! if your hopes lean to yet another "Robber Baron" or unregulated devil-take-the-hindmost grab-a-thon, one suspects you might have to wait until the results of this one is forgotten. Say 1930 --- 1980?? Perhaps half a century?

[Anonymous]

Anon 737 am:

"It is not widely known that North American oil shale reserves consist of 2.1 trillion potential barrels, or 400 years of domestic consumption at current rates. This is approximately half of the world’s remaining hydrocarbons, not the 3% some would like us to believe. This resource is extractable at $20-25/bbl. Windmills, by the way, are misrepresented. 90% of rated wind capacity must be backed up by conventional power plants, operated in an inefficient manner. This is because the wind stops.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Would you agree with the Wiki entries that the outlook for shale is not quite so rosy nor cheap? And has considerable environmental issues in its production and the same problems as traditional oil when it's burned.

http://en.wikipedia.org/wiki/Oil_shale_economics

As for wind you may be too negative. The prime wind areas of the mid-west have a million or so sq miles with an average wind speed of 8 mph; the air seems to be going somewhere most of the time. Other large areas have average winds in the 5 mph range.

I don't know what to expect from greatly improved "smart grids" but they should smooth the peaks and valleys a lot. Plug in hybrids are often mentioned as a means of storing energy so perhaps as battery tech improves, many may find it worthwhile to avoid "peak usage" costs by having a battery pack at home.

I've hope too for "distributed energy" ie energy produced near the user's facility. These Capstone Micro Turbines are being used in colleges and other facilities even where grid electricity is readily available. By using the waste heat from the exhaust to heat hotel water or swimming pools the cost are lower than from the power company, and might be employed for peak energy or as local back-up.

http://www.capstoneturbine.com/

(Some interesting installations)

While using traditional gas or coal, "inefficiently", as back up, I suspect a combination of cap and trade, and subsidies designed to lower CO2 as well as lessening the amount of imported LNG, will provide plenty of incentives to turn off coal or NG fired generation whenever possible. We are truly, and belatedly, in a changing era.

[Anonymous]

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[Anonymous]

Population stats are well and good, but are the governments in those countries capable to creating sustainable and lasting economic growth for their citizens? Do they even have the infrastructure to accomplish that?

[Anonymous]

Population stats: Ha! I'd agree with your point. America didn't become wealthy due to population growth but due to having a high rate of productivity increase per capita.

Individually most of us have long consumed what we produced (or at least what we were paid for producing) so adding population is hardly a winner. Lately, for decades we've been consuming half a trillion or so more than we produced so adding more folks who do the same isn't going to enrich us.

I suppose one aspect is that of military power which is more easily afforded by a fairly wealthy large population. Despite all the concern about China, with a $3.5 trillion economy trying to feed a billion people, compared to the US having $14 trillion to feed only 300 million, it would be tough for China to invest and grow its economy if it opted to match our half trillion military budgets, though their current 10% growth rate would see there economy doubling every seven years.

Ha! if the US grows GDP at a 3% rate it will take us 24 years for a doubling, which would be a $28 trillion economy. China, though I doubt they'll maintain 10% growth rate, would have three doublings and "catch us" with $28 trillion, but even should they do so well it's spread among 4 times our population.

Whew! What will the world look like when these two economies alone go from $17.5 trillion of GDP to $56 trillion? Plus similar increases from India, Russia the EU, Africa and all the rest? Whew!

[Anonymous]

Thank you so much for your help too.

[Anonymous]

"The economic threat to the West is not Asia's development, but it is government excessive interference in the performance of markets..."

Understatement of the Year...!

And unfortunately, that trend isn't going in a favorable direction anytime soon with the current administration.

[Anonymous]

Re: Wind Power

http://www.eon-netz.com/Ressources/downloads/EON_Netz_Windreport2005_eng.pdf

The above pdf link is from the German energy integrator Eon-Netz, a wind power advocate. In it they discuss the challenges of integrating intermittent wind power into a modern electrical grid:

"Wind energy is only able to replace traditional power stations to a limited extent. Their dependence on the prevailing wind conditions means that wind power has a limited load factor even when technically available. It is not possible to guarantee its use for the continual cover of electricity consumption. Consequently, traditional power stations with capacities equal to 90% of the installed wind power capacity must be permanently online in order to guarantee power supply at all times."

Wind power is a decent, if overly expensive, compliment to hydroelectric power because hydroelectric power can be throttled real-time by opening and closing valves. This is why much of Denmark’s wind power is sent to Scandinavia, at highly discounted rates. Unfortunately, in America, there are not many dams in the ‘wind corridor’, and it takes a long time to bring a conventional plant on line from cold iron. Thus the need for full-time backup.

Eon-Netz goes on to explain that the 90% backup figure will grow to 96%* as more European wind turbines are brought on line.

* percentage from memory, the number might have been 97%, but I cannot open the link at the moment.

[Anonymous]

Anon sez (jokingly?)

"The economic threat to the West is not Asia's development, but it is government excessive interference in the performance of markets..."

Understatement of the Year...!

And unfortunately, that trend isn't going in a favorable direction anytime soon with the current administration."

............. Perhaps Greenspan's "Whoopsie!" in regard to discovering too little "government interference" is the understatement of a much longer period!! And, yes! Let's hope that the memory of this mess prevents future generations mistakenly believing that if we let the foxes into the hen house they'll behave nicely.

Ha! I wonder if an abstract image of Sen Phil Gramm Phd Econ might be cast as a warning as to the power of Phds gone wrong to cause harm?

[Anonymous]

Anon 6:41 pm: Thanks, while I think some of your negatives on wind power deserve consideration the sources cited seem hardly "wind power advocates".

"http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/04/08/wind-power-is-a-complete-disaster.aspx

We're in a curious era in terms of valuing future energy sources as we still benefit from "cheap" oil, gas and coal.

When I first went to Alaska the politics of the huge Prudhoe Bay discovery dominated everything. It struck as a bit odd that, then, the price of oil was basically the cost of extraction and transportation.

"No intrinsic value considering each bbl "produced" is one burned and never to be replaced?" and "No means of valuing oil reserves in the ground that would be worth more later? or held to provide future energy security?" I wondered? No, in fact "depletion allowances" seem to provide more incentives to pump and sell it out as fast as possible.

The expectation was that the Slope would supply the 48" pipe for a century, but here we are 40 years later with production a third of pipeline capacity and concerns that it may have to be shut down periodically. We are, clearly, at the precipice of fossil fuels no longer meeting the demand curve.

So wind might only utilize its grid to capacity at 20-40%. Today, oil used to power transportation delivers only 15% of its energy to the road. With deep offshore drilling, "Ice Road Truckers," and shipping more of it halfway around the world, the "well to wheel" percentage is bound to decline further, though (costly) hybrid or other technology may give us a small increase in that percentage. But "oil is cheap so it matters little".

Trouble is we are very close to the end of that era and all of the alternatives are far more costly. My favored "alternative" for the US is that of conserving more of what we now waste as it's the cleanest, cheapest, means lowering CO2 and flattening the oil consumption curve. But, that's not nearly enough.

So our future is one of myriad approaches to both "peak oil" (or simply the departure of the supply and demand curves) and CO2 all of which are going to be more cumbersome and costly than tapping an oil or gas reservoir. Wind and the even more costly (today) solar will be a part of the alternatives.

Jack

[Anonymous]

I very much agree with your point of view.In particular, China's economic rapid growth.

[Anonymous]

Re: Oil Shale

Professor Volkov of Russia reports that the production cost of oil shale is $14-17/bbl, Russia currently produces 2 million bbl/year, and is tripling their production:

http://www.ceri-mines.org/R03a-EduardVolkov.pdf.pdf

Oil shale contains kerogen, which is a large hydrocarbon. All oil started out as kerogen which was subsequently heated in the earth and broken down into smaller hydrocarbons (oil) through a process called catagenesis. Or further broken down via metagenesis into natural gas. Volkov adds heat to excavated shale using something like a cement kiln to break down the kerogen and create oil.

His process is not currently feasible in America due to EPA issues with the spent shale, but in the pinch we will surely find ourselves in as the century proceeds, the 2.1 trillion barrels of American energy will be able to be processed in a similar manner. This is again 4 centuries of domestic liquid fuel.

My bias is some intellectual property detailing an in-situ process to extract oil from shale more efficiently and cleanly than any existing process that I know of. The trick is constructing a good collection system, and a thermally efficient heating system. The production cost should be under $30/bbl. It requires next to no water usage.

www.dripbabydrip.com

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[Anonymous]

I'm a Chinese. In my opinion, Europeans and Americans have overestimated and been over-optimistic on Chinese development.

Of course, Chinese economy grew rapidly in 1990s and early 2000s. But this growth relied on our low human-resource cost. Most merchants had calculated that manufacturing their commodity in China had the lowest cost. But it's not cheap any more. Maybe the most rapid development in next decade is Africa, because they have the lowest cost now.

On the other hand, European and American government have eased their sill of immigrant. Low growth rate doesn't means less population.

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[Anonymous]

Dripbaby: It strikes me, in the way the world is shaping up, that there's some (considerable) advantages to producing oil at home, even if the "price" is a bit higher than imported oil. I suspect we'll have to make some of these choices in response to our huge and growing trade deficit and to "create" jobs here as well.

Also, if "the world price" (ie. "manipulated "speculative"" of traditional oil is going to bounce from $40 to $100 (as "speculators" alternate from loading up to dumping?) that IF $30 shale is widely available it should sell well and fit into a policy of creating jobs and keeping some more of our petro-bucks as home.

So, perhaps I'm with you on substitution if it can be done with little destruction to the environment. But, many of the "shalies" seem to use the existence of another century?? of fossil fuel supplies to say "Hey it exists and it too is ours to burn, so why make efforts to conserve or spend more on costly alternatives?

Obviously the capping of CO2 is the biggest reason, along with the production of ozone, NOX and other pollution.

Fooling around here the other day, using 3% growth for the US GDP and 10% for China, I came up with just those two economies growing from a combined $17.5 T today to $56 T in just 25 years. Even with dialing in much lower rates of fuel consumption per dollar of GDP we have BIG problems in both supply and pollution.

If the cap in "cap and trade" is truly a cap, my guess is that a lot more transportation will be electric powered with the electricity produced by a combination of wind, various forms of solar, perhaps nuclear, and natural gas with the power of NG being multiplied by fuel cell technology.

But, though it's very late in the fossil fuel era, it's too early in whatever is to be our future to make accurate predictions. Ha! perhaps one question is "Which future generation will see the burning of oil in much the same light as we might view killing sperm whales to salvage a bit of oil for lighting lamps?"

[Anonymous]

Mr Chinese: Agreed; the US had high growth rates too when it was "behind". What's occurring today is that of applying well known technology to a nation with plenty of available, and as you say, lost cost labor.

For now, they are taking a position of growing "cheap" by relying on coal etc. (and probably not to be faulted for it considering their need to lift the std of living for a lot of people, fast!) But. predictably they'll have to deal with smog problems, traffic congestion and all sorts of "growth" problems that seem to get more and more costly to solve.

Many years ago..... geez can it be nearly 50? I suggested to Koreans that their small and densely populated nation could benefit by just skipping the automotive age, that the US, due to its huge size and low density had to adopt at the time. China could benefit from the same; to use their central government to good end to develop land use planning with new cities and industrial areas sited along rail transportation corridors that link to subways, much as is the case in Japan.

Then....... they could have roads and cars for enjoyment and family travel, but copying the US model of a car for everyone will sink China with the costs of building the infrastructure, the costs of cars, insurance et al, obtaining fuel, and of course then dealing as we are trying to do, with the pollution.

[Anonymous]

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[Anonymous]

"Population stats are well and good, but are the governments in those countries capable to creating sustainable and lasting economic growth for their citizens? Do they even have the infrastructure to accomplish that?"

Do people really think governments are the creators of growth?

[Anonymous]

Anon 2:27: Looking around the world can you think of anything more important to prosperity than good government?