If The US Is Not To Be The Economic Engine Of The World, What Country Will Take Its Place?

Posted on December 19, 2012

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At the rate that things are going in America, it is hard to see how she can hang on to her economic leadership role in the world. So, if not the US, who? The consensus opinion that it will be China will not surprise you. But, there is at  least one contrarian opinion out there that says it will be India. That person is Gary Shilling writing for Bloomberg.

For those paying attention to America’s decline, I think it is important that we keep an eye on what the future of our world might look like. It is from that perspective that I write this post. However, in the interest of full disclosure, I do have an alternative reason for my interest in India. My eldest son (53) works for a subsidiary of the Caterpillar Corporation (the result of a recent merger). He has spent the last year in rural India supervising the assembly of 53 huge electric-wheel drive haul trucks for a new coal mine under construction there. He has over thirty of them up and running and expects to have them all operational by April of next year. My  son called me last week to ask my advice on something (his only means of communicating with the outside world is Skype). He was approached by senior Caterpillar management for the region and asked if he would consider becoming their manager for all their projects in India. That, of course, would mean spending several more years in India and that is why I have a special interest in what India’s future might look like as well as that of the US.

Mr. Shilling’s opinion that India will displace China as the growth engine for the world really is going against the current of most experts. If you were to enter the words “India, Economic Growth Prospects” in your search engine you would find that the majority of articles are predicting a slow down in growth for India. So, let’s see how Mr. Shilling justifies his view of India.

Those who are dazzled by China often forget that much of the rapid growth before 2008 was caused by the shift of global manufacturing from Europe and the U.S., not by domestic-oriented activity. China’s economy remains export-driven, with consumers accounting for only 38 percent of gross domestic product, far below the levels of many developing and developed countries.

Chinese leaders are working to shift toward a more domestically directed economy. They want households to spend more and save much less than the current rate of almost 30 percent. One of the reasons that savings play such a big role is the high value Confucian society puts on providing for one’s family. The Chinese also save to pay for education for their children and to cover health care and retirement costs because there is no equivalent of Medicare and Social Security.

The author lists a number of problems facing China.

  • China has been raising minimum wages by as much as 30% and are already losing low skill manufacturing jobs to lower cost countries like Bangladesh, Vietnam, and Pakistan.
  • Western companies are starting to resist the requirement to share their technology as a price of admission to operate in China.
  • China’s one child policy is creating a demographic problem. There will soon not be enough young people to fill their workforce requirements.
  • Rural living conditions are improving making it harder to find cheap labor for the industrial centers.
  • China’s central bank has no independence and is a political tool.

Shilling then goes over what he sees as advantages for India over China.

  • India has no constraints on population grow and for that reason the proportion of children and senior citizens to working-age people, is expected to continue falling in India in coming decades.
  • A younger population is  more geographically mobile and with the proper education and job opportunities,  this will lead to more productivity.
  • Centuries of British colonial rule left India with a vigorous democracy, which has led to a weak coalition central government and increasingly powerful states cpmpared with the centrally controlled communist system of China. Also, very importantly, the Brritish left India with the English language and a legal systen that is very different from that of China.
  • India has a rapidly growing middle class and so their economy is much more consumption orientated than China.
  • India has a vigorous and opinionated free press.

So, I find myself agreeing with Mr. Shilling’s contrarian view on India over China. In my opinion, a more free society will eventually outshine a more controlled society. Having said that, doesn’t it make you angry that we van be talking today about a third-rate country or countries that could soon make the United States of America a second-rate economic force in the world. How could this be what the Left has been wanting for so long? It makes me sick to my stomach!

Well, now you know what I’m thinking. What are your thoughts?

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Posted in: India vs China