Defining Decline

by Erik Voeten on February 6, 2012 · 5 comments

in International Relations,International Security

I am delighted to welcome Michael Beckley’s response to my earlier post on China and the United States. I may write a brief response later this week.

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Is the United States in relative decline to China?  In a recent article in International Security, I say no.  In a post on this blog, Erik Voeten says yes.  Who’s right?

The answer is:  we both are, but only by our own definitions of decline.  I define decline as a narrowing of gaps in wealth, innovation, and military capabilities between the United States and China.  Voeten defines decline in terms of economic growth rates.  Voeten and I come to opposing conclusions because the United States is growing at a slower rate than China while simultaneously becoming wealthier, more innovative and more militarily powerful.

How can this be?  Normally economic growth rates dovetail with changes in wealth gaps.  But these measures often diverge when comparing a rich country like the United States to a poor one like China.

Since 1991, China’s per capita income rose 11 percent annually while America’s rose 3.5 percent annually.  But 11 percent of $900 (China’s per capita income in 1991) is less than 3.5 percent of $24,000, the United States’ per capita income for that year.   As a result, the average Chinese citizen is $17,000 poorer compared with the average American today than he was in 1991.

The figure below illustrates this phenomenon.  The blue line denotes the absolute difference between the United States’ per capita income and that of China.  The red line shows China’s per capita income as a fraction of the United States’.

The best way to deal with this situation is simply to report both figures:  the United States is growing slower but becoming richer than China.  Yet, as Voeten points out, most analyses of U.S. decline only report growth rates.

It’s not hard to see how defining decline in terms of growth rates produces nonsensical results.  Over the past twenty years, more than half the countries in the world grew faster than the United States, including such titans as Bangladesh, Pakistan, Uzbekistan, and Rwanda.  Moreover, by Voeten’s definition, the United States has been in decline to China since 1968, during the Cultural Revolution and over a decade before Reform and Opening.

The problem with growth rates is that they compare countries to their former selves.  China’s growth rates are high in large part because its starting point was low.  For this reason, Harvard political scientists Sheena Chestnut and Alastair Iain Johnston contend, “it strains the concept…to characterize any state with a faster growth rate than the United States as a rising power.  This does not fit with a commonsensical notion of rising power.”

One can argue that comparing growth rates helps account for potential diminishing returns of wealth.  Voeten asserts “it is much easier for a country with a GDP per capita of 30K to bully a country with a GDP per capita of 1K than it is for a country with a GDP per capita of 50K to bully a country with a GDP per capita of 15K.”

Perhaps.  But one can also imagine the opposite being true.  Highly developed countries may get more bang for the buck than less developed countries – that is, every dollar they spend on innovation, military capabilities, international influence, etc. produces greater returns.  This idea of increasing returns to wealth fits with the standard conception of economic development as efficiency of production and is supported by studies showing that more developed countries are better able to translate their basic resources, or “latent power,” into actual capabilities.  For a few examples, see:

http://www.tandfonline.com/doi/abs/10.1080/01402391003603581#preview

http://www.rand.org/pubs/monograph_reports/MR1110.html

http://rcer.econ.rochester.edu/RCERPAPERS/rcer_27.pdf

Obviously growth rates should not be ignored.  They provide an important data point and allow us to make educated guesses about the future.  But neither should they be conflated with total growth nor used to define loaded terms like “decline” or “catch-up.”

{ 5 comments }

PLW February 6, 2012 at 2:26 pm

It’s not obvious to me that “per-capita” even makes sense. Just think about war… do we care about capability per capita or just overall capability? Are the NY Knicks more powerful than wal-mart because they earn more money per-capita? I doubt it.

Adam February 6, 2012 at 8:53 pm

Thank you for posting a sort-of-counter view. I had similar thoughts as Michael’s–though without the data to back it up–when I first read your piece, so I look forward to your response.

Peter T February 7, 2012 at 6:16 am

I don’t think either side is right here, for both ignore the subleties of power. Your clever rivals do not seek to match your strengths, they seek to render them irrelevant. If, for example, the US has (as it does) more air and naval strength than the next 30 countries combined, then the answer is to look for moves where air and naval strength cannot be used, or does not matter. See Vietnam, Cuba, Iran.

In that context, is it now harder for the US to pressure China than 30 years ago? Probably yes. Has China more influence in SE Asia (and arguably Africa and Latin America) than 30 years ago? Probably yes? Does China have more influence financially and industrially than 30 years ago? Certainly (see European leaders flying to Beijing, much nervous debate in US about Chinese holdings of US bonds, the potential impact of disruptions to Chinese supply on global supply chains).

The US is still far more attractive culturally and in other soft power ways – although the tendency to use political muscle to push others on eg intellectual property or financial regulation is generating some pushback (and reliance on these sectors is a mark of fragility). China too has enormous problems, so I would not call this one, but it would be hard not to see the US as in relative decline.

Dan Nexon February 7, 2012 at 12:59 pm

Meh. If we care about per-capita GDP, then the US is already in trouble: http://duckofminerva.blogspot.com/2012/02/american-relative-decline-no-dansk.html

Thomas Brambor February 8, 2012 at 6:10 pm

Per capita comparisons do make sense to me in this instance. If we care about power, shouldn’t we use absolute GDP numbers. Of course, part of the insight (China low base – high growth vs. US high base – low base) travel, but in the logged chart China does indeed look like it is catching up. Take a look here:
http://www.wolframalpha.com/input/?i=gdp+us+vs+china

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