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Will China
Pass the U.S. as the Economic Superpower of the World?
Purchasing Power
The gross domestic product (GDP) of
the U.S. in 2005 was $11.7 trillion, and it was growing at the
annual rate of 4.4% per year.
The GDP of China was $1.7 trillion
in 2005. But China's GDP was growing at a 9.1% annual rate.
At these rates, China will pass the
U.S. in the year 2049, 43 years from now. Both GDPs would then be
close to $78 trillion.
But GDP is not a good estimate of
the standard of living. The U.S. dollar, and local currencies as
well, buy more in some countries -- less in others. The $1.7
trillion is China's GDP actually buys $7.1 trillion worth of goods
and services in China. That makes China the second-largest economy
in the world. In contrast, the U.S. GDP of $11.7 trillion gives us
a purchasing power in the U.S. of $11.6 trillion.
If we use purchasing power to
project future GDPs, we learn that China will actually pull even
with the U.S. in 2016, just 10 years from now, and pull away in
2017. In 2032, 26 years from now, China's GDP will be more than
twice as large — at $74.6 trillion.
Is there a way for the U.S. to
match, or equal, this pace?
A country can grow in basically two
ways: By an increase in its labor force, or by an increase in the
productivity of its labor force.
China is making a conscious effort
to maintain the current size of its labor force. If the U.S.
maintains its current fertility and immigration rates, the U.S.
population will actually shrink in the 21st century —
perhaps by as much as one-fourth.
The only way the U.S. can meet, or
beat, the economic challenge from China is by dramatically
increasing the productivity of its labor force.
There is no other feasible way.
None.
If the U.S. economy grows at its
130-year historic rate, which is about 2%, the U.S. economy will
quickly be dwarfed by China's, and by India's as well — perhaps
even by Brazil's.
If the U.S. is to maintain its
status as an economic superpower, she must find ways to increase her
productivity by at least ten percent per year. That will mean a
Productivity Revolution in the U.S. at par with China's. During the
first quarter of 2006, the GDP of China actually grew at an annual
rate of 10%.
Is this
possible for the United States?
Yes. It is
possible, but for reasons that are not commonly known.
The
Sources of Our Economic Growth
Eighty
percent of the U.S. economy is what we might call a Knowledge
Economy.
Ten percent of the U.S. economy is
transformational. That is to say, we produce finished
goods from raw materials.
Ten percent of the economy is
transactional. The transactional economy is characterized
by people doing machine-like work — bank tellers, supermarket
checkout clerks, fast-food servers, and the like all perform work
that is primarily transactional.
The transformational
and transactional economies are limited by the
restrictions of time, equipment, machinery and capital available to
workers.
The knowledge economy is much less
restrictive. The currency of the knowledge economy is ideas. In
the knowledge economy, output may be produced from invisible
resources — from human capital that basically is locked in the heads
of knowledge workers.
What do you think is the most
productive part of the U.S. economy? It is not the
industries of old: Automobile manufacturing, farming, chemicals,
mining. Nor is it the $2 trillion health care sector, which
actually shows negative productivity year after year.
It is Silicon Valley.
Productivity increases by 16% per year as the producers of computer
hardware and software re-invent themselves, according to Moore's
Law, every 18 months. That means that the value creation of Silicon
Valley doubles every 54 months. The driving force of the economy of
this sector is ideas -- it is a pure knowledge economy. So is the
health sector, by the way. And there is no reason, in my opinion,
why it could not create value at the same pace. |
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What happens to this
enormous value creation by computer and software firms?
Much of it finances annual price reductions that in the
end benefit us all. It also creates high paying jobs,
and income for those who invest in companies such as
Cisco, Google, Apple and Microsoft.
What is the real capital
in a knowledge economy?
The largest amount of
capital in this economy is not found on the corporate
balance sheet. That capital is the one that is human in
form, presenting itself at the workplace at 8:00 a.m. —
leaving at 5:00 p.m. If the employer is lucky, it
returns again the next day.
How valuable is this
capital?
Given a U.S. per capita
income of $40K, the equivalent amount of money yielding
4% is $1M. With a U.S. population of 300 million, that
capital is worth $300 trillion. On the average, we all
are millionaires in human capital.
These are only the
roughest of estimates. I cannot begin to discuss all
the assumptions that must be made before such a
statement can be made But the reasoning is sound.
Drucker's Famous
Challenge
When Peter F. Drucker
said to me in 1974 that the greatest challenge in the 21st
century would be to learn how to increase the
productivity of knowledge workers, he clearly foresaw
the knowledge economy (of which he was very much a
part). Knowledge workers live in a world of ideas; they
do not react well to productivity experts armed with
stopwatches and clipboards. On the other hand, they
react very well to education and learning and
innovation and change.
The most fascinating
feature about the knowledge economy is that it has no
ceiling on what can be produced. Knowledge workers, in
principle, can work any time, any place, just using
their heads, their creativity, a computer, pen and
paper, and very inexpensive resources such as cell
phones or desks, in order to generate valuable economic
activity.
The annual productivity
of a knowledge worker could increase by hundreds of
percent in a good year. It could also be negative.
Knowledge is
inexhaustible. It doubles every five years. It does
not pollute. It is available to everyone. And it pays
very well.
The knowledge economy is
the economy of the future.
We know how to increase the performance of
knowledge workers! We
also know how it can be
done so that job satisfaction increases, job stress
decreases, and performance ignites. It remains only to
apply all this hard-won knowledge. When we do,
increasing productivity by 10% is not only doable, but
desirable as well.
Is a focus on
productivity and GDP too materialistic?
Using GDP to measure our
relative progress may well seem materialistic; and to
some extent, it is. But expanding our wealth is also
mankind's best hope in its struggles against poverty,
disease, ignorance and conflict. What is of interest to
me is how people will choose to spend such new wealth.
As an economist, I know
the attraction of scarcity. We value most what is most
scarce. I was reminded of that fact at the World
Productivity Congress in Edinburgh, in 1999, when the
British Minister of Tourism revealed the new strategy
for future — wealthy — travelers.
He said, "The supreme
luxuries of the future will be time,
space and human contact."
That is what people will
always desire: The very finite resource of time,
spent in a very attractive place and with
people you love.
And research shows that
when you work, doing what you love to do
is what will give you the most satisfying and longest
life.
It
all falls into place then, doesn't it?
The knowledge economy offers the U.S. a
golden opportunity for extraordinary growth and
prosperity. It will improve upon all that our
civilization has to offer: Art, music, theatre, science,
literature, adventure and the good life. It will come
to us in the realization of what each and every one of
us was meant to be. China, India, Brazil and all the
other countries should join us in this quest. Realizing
that human potential to the fullest, has always been the
promise of our civilization. It should be the promise
of the world.
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