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.”