The Futurist

ATOM Award of the Month, February 2019

For this month's ATOM AotM, we examine something that even the rest of the technology industry has virtually no awareness of, and the US public is entirely oblivious of, even though we have a President from the construction industry.  

The US construction industry has had no net productivity gain in the last 70 years.  Even worse, it declined by 50% over the last 50 years.  Construction should be seen as a type of manufacturing, as most construction is not devoted to anything highly customized or unusually complex.  Yet, manufacturing itself has risen in productivity by 800% over the same period that construction has not risen at all.   A combination of organized crime, government graft, and an anti-productivity ethos have contributed to this epic failure.  

Given that construction is about 7% of the US economy, this is troubling.  Imagine if that 7% was 16x more productive (i.e. merely keeping up with manufacturing).  Americans, particularly urban Americans, don't realize that they could have thrice the square footage for the same price if this sector merely kept up with manufacturing.  There would also be several hundred thousand more jobs in construction, and much broader home ownership.    

Meanwhile, outside of the many biases of the Western media, there is an amazing example of supreme construction efficiency.  China has grown at 7% a year over the last 20 years, even as the US has shrunk at -1% a year (click image to enlarge).  The productivity of China has greatly enlarged the size of its construction sector, to the extent that it is 20% of China's economy vs. just 7% in the US.  While the two countries are a different stages of growth and China is still at a much lower absolute level, the differential is still immense.  

Normally, in any industry, such an immense productivity differential leads to the productive country exporting products to the less productive country, swiftly driving local unproductive businesses to their deserved demise.  Construction, however, produces a product that is not transportable, so a productivity normalization has not happened.  At least not yet.  But this high of a differential eventually finds a way to engineer a normalization.  Modular construction is one method where parts are manufactured, and then assembled on site.  China could start exporting this to the rest of the world.  

Here is a Spire Research report on the advances in China's construction technology.

The Western media, in its hubris, is quite willing to criticize China for building entire cities 10 years before they are needed.  How often have we seen stories about empty cities in China that take a few years to fill up?  By contrast, the United States (and California in particular) does something much worse, which is to build structures 20 years after they are needed.  Given the choice between these two schedule misalignments, China's approach is vastly preferable.  

Beyond this, the costs of US ineptitude are about to become more problematic.  The eCommerce revolution is exposing the massive misallocation of land toward retail space, that is a uniquely American distortion.  Part of this is due to a peculiar depreciation schedule in the tax code originating in 1954.  The abundant land in the US interior led to the same lopsided usage of land in California, leading to the grotesque situation we have today where ultra-expensive housing resides next to vast, empty parking lots.  High California housing prices are the product of extreme artificial supply restriction, aided by low construction productivity that ensures an apartment complex takes three years to complete, where the same in China takes under one year.    

Dramatic photos of dead malls can easily evoke emotions in the average American, who has been trained to think this sort of retail experience is normal.  But charts that reveal the unique extent of US profligacy with regards to retail land reveals a much more logical sequence of impending events.  As eCommerce continues to shutter brick and mortar retail, there will be a rising groundswell of pressure to repurpose this land for a more contemporary use.  Unfortunately, the inadequate level of US construction productivity threatens to greatly delay this conversion, severely damaging our national competitiveness relative to China.  

On the subject of where the US may see China catch up, most of the focus is on Artificial Intelligence, Quantum Computing, and other high-concept technologies.  Yet the construction productivity differential alone represents the single biggest sectoral deficit from the point of view of the US and many other countries.  China is well-positioned to dominate the entire construction industry worldwide once it can more easily win international contracts and transplant its productivity practices abroad.  If the US blocks Chinese construction imports, other countries across the world will happily partake in these high-quality end products.  This should be welcomed by anyone with a free-market bent. 

For this reason, China's construction sector, in breaking the low-productivity pattern seen in almost the entire rest of the world, is the recipient of the February 2019 ATOM AotM.  

 

 

Economic Trendline Reversion Does Not Happen Evenly

If we could point to one aspect that makes the modern era different from centuries past, the premier candidate for that distinction is how the centuries-established exponential, accelerating trend of technological progress manifests in economics, and the fact that the trendline is now in a steep upward trajectory.  These are all worldwide metrics, and have to be.  But if one examines the components, the variance contained therein is immense.

One table that I use relatively often is the one that depicts relative GDP gain by country, and have in the past used it to describe how the 2008-09 crisis led to the rebound happening elsewhere.  Google has just updated its economic data engine for 2017, enabling a full decade to be included from the start of the prior crisis.   This enables us to see what happens when the global economy experiences a major dislocation.  The Great Depression (1929-39) was one such dislocaton, and while the trendline is too steep today for a downturn of similar duration to manifest in the global economy, the more recent dislocation was almost as dramatic in terms of how it reoriented the tectonic plates of the global economy.  

From the table, we see that the World Economy grew by 40% in Nominal GDP.  We do not adjust for inflation in these metrics for reasons detailed in the ATOM publication, and we take the US$ metric as universal.  

The US, remarkably, did not grow at a much slower rate than the world average, and hence has not yet experienced a substantial proportional shrinkage.  By contrast, the rest of the advanced world has scarcely grown at all, while European economies have outright shrunk.  An advanced country, of course, does not have the same set of factors to contend with as an emerging economy that is at a stage where high growth is easier, hence this is really two tables in one.  India's underperformance relative to China is just as substandard as the UK's underperformance relative to the US.  

China has effectively dominated the entire world's growth.  China has grown at an astounding 245%, partly due to a structural strengthening of its currency, which itself is partly due to their more advanced understanding of technological deflation and the monetization of such through their central bank (as per the ATOM concepts).  India has not experienced any such strengthening of its currency (quite the opposite, in fact), which is why India's economy has grown at a far slower rate despite starting from a very low base.  

Consider this other chart, of GDP distribution by country (as per the current borders) from the year 1 until 2017.  The growth of China (and to a lesser extent, India) appears to be a reversion to a status quo that existed from the dawn of civilization all the way until the early 19th century.  If this factor is combined with the exponential trend of world growth, then China's current outperformance seems less like an aberration.  

This begs the question of what the next decade will look like.  There is almost no chance that China can outperform the RoW by the same magnitude from this point onwards, simply due to the RoW no longer being large enough to manage the same intake of Chinese exports relative to China's size as before.  But will the convergence take the form of China slowing down or the RoW speeding up?  Will India experience the same convergence to pre-19th century proportional size, or is India a lost cause?

Under the ATOM program, it could certainly be the latter, since the advanced economies already have enough technological deflation that they can monetize it through central bank monetary creation.  China, by contrast, will not be technologically dense enough for it until 2024 or so.  The US could rise to 5-6%/year Real GDP growth by 2025.  

The current mindset in the Economics profession is vastly outdated, and there is little to no curiosity about accelerating economic growth rates, or about the relationship between technological deflation and central bank monetary action.  If China can no longer be an outlet to accommodate the entirety of the trendline reversion force that is seeking to work around these obstructions, then explosive growth combined with chaotic disruption will happen somewhere else.  

 

Related ATOM Chapters :

2.  The Exponential Trendline of Economic Growth

 

 

ATOM Award of the Month, May 2017

For May 2017, the award goes in a direction that not many associate with technological disruption.  Remember that the ATOM relates to not merely products that themselves have a rapidly improving cost/benefit profile, but also towards technological improvements in products, processes, and services that themselves may not be high-tech.  

The standard shipping container is just an inert box, and most people rarely ever see one.  It is not improving from one year to the next in any meaningful sense.  The real innovation was in the process technologies enabled through this standardization, and the immense deflation derived through these technologies.  

Malcolm McLean, a trucking tycoon, envisioned the idea of standardized container sizes, and generously decided to give his idea away for free rather than patent it and seek profit.  After the first experiment was a success, rapid adoption and port standardization followed.  

As we can see from the table (click to enlarge), the introduction of the shipping container swiftly led to an almost 20-fold increase in unloading rates from 1965 to 1970, an unusually rapid improvement of any productivity metric for such an early era.  This increased speed led to larger ships, and this in turn led to larger and fewer ports.  From an ATOM perspective, these productivity gains introduced a great deal of deflation in the prices of the goods themselves.  A broader range of goods could be traded internationally, leading to many more countries being able to compete for the same export demand.  New countries could merely join existing supply chains, rather that build entire industries from scratch.  China's entry into international trade could not have been as rapid as it was, without the shipping container, and the advantages it conferred onto large countries over smaller ones, and to low cost production countries over expensive ones.  This advantage is ongoing, as countries poorer than China are still in the process of integrating the low-hanging fruits of benefit that the shipping container provides.  

Despite this introduction having begun almost 50 years ago, the full ATOM effect continues to increase.  The precise logistics of the entire container-shipping ecosystem demands more powerful computation, sensors, and other innovations like RFID tags and GPS tracking.  Furthermore, supply chains transporting trillions of dollars of goods each year generate a huge amount of data, which for the longest time was not even being utilized.  Any large and ever-growing collection of data will attract Artificial Intelligence onto it, and this AI will generate additional productivity gains for participants in the supply chain, and hence price reductions for end-users.  

Since shipping containers are produced in such volume, there are ideas emerging to use them elsewhere, such as a building block for modular construction, or as simple pop-in swimming pool enclosures.  

For this reason, the shipping container, an inert metal box that transformed the entire award, receives the May 2017 ATOM AotM.  

H/T : Geoman 

 

The Next Two US Recessions

Here at The Futurist, we maintain a track record of predicting bubbles, busts, and recessions long before they happen.  For example, the housing bubble was identified in April 2006, back when a person could be socially excommunicated for claiming that houses may not rise in value forever.  After that, I have identified when the current recession started, months before most economists, and have even predicted when the present recession will end, and at what level job losses would end at.  This track record will now lead me to set my sights on the next two troubles on the horizon, which will be the causes of the next two potential recessions. 

1) 2011 : The tax cuts enacted by President Bush are set to expire at the end of 2010, returning tax brackets to what they were in 2000.  Most middle class brackets will rise by 3%, and the top bracket will rise 4.6% from 35% to 39.6%.  This is effectively a tax increase that will be upon us in 14 months.  At the same time, the Fed Funds rate is at a record low near 0%, and has been for several months.  This low interest rate has ended the current recession, but virtually guarantees future inflation.  As the Federal Reserve is forced to raise interest rates, liquidity contracts again, the housing prices continue on the correction that was not allowed to complete itself in 2009.  A mere rise in the rate back up to 3% could push housing prices down another leg, battering household wealth yet again, and driving yet more people into negative net worth.  The housing correction is not fully complete until we have sustained a Fed Funds rate over 3% for at least a year.  The timing of this could combine with the tax increase, which would create a joint burden too heavy for the economy to bear, causing a new recession in 2011. 

This situation could be avoided easily, by reducing the budget deficit through the quaint notion of spending cuts instead of tax increases that stifle incentives and encumber small businesses.  However, barring a seismic shift in the 2010 congressional elections that dispose of many Democrats and replace them with fiscally conservative Republicans (themselves an endangered group within the Republican Party), I do not see the government taking prudent preventive action. 

2) ~2017 : For all the uninformed talk about a 'weak dollar', the damage of this will affect nations that export to the US more than the US itself.  However, when the PPP per capita GDP of China begins to exceed the world average (by about 2017), then Chinese currency will have to rise to achieve convergence with PPP GDP, effectively adding several trillion dollars to nominal World GDP.  This will lead to massive tectonic shifts in the global economy, none of which are destructive, but will result in confusion, for which the immediate reaction will be a US and EU recession (even amidst a rise in World GDP) until all of the following effects are sorted out :

a) The US will see a bout of inflation as prices of Chinese imports rise.  At the same time, US exports will surge.

b) Oil prices will briefly spike above $120 as Chinese purchasing power of oil rises, effectively creating greater demand.  This will cause short-term pain, followed by longer-term good as described here.  Part of the good from an oil spike will be the collapse of many tyrannical petro-regimes, due to burning the candle at both ends, as detailed in the link.

c) Many of the developing countries that neighbor China (which are populated by an additional 2 billion people) will experience the gravitational pull of China's now huge economy, and see a forced currency appreciation long before they are ready.  This will cause an unexpected set of changes in India, Pakistan, Bangladesh, VietNam, the Philipines, and Indonesia (these 6 countries containing 2 billion people) as a massive adjustment process will have to occur in a very short time, toppling many industries and creating new ones within these countries. 

d) After everything is sorted out, the US and EU will be significantly smaller percentages of World GDP, but the US would see higher GDP growth rates due to a near-elimination of the trade-deficit.  Asia, as a region, would have a much larger economy than the EU or North America. 

So these are the two possible recessions that the US faces, the first in 2011 and the second in the latter half of the next decade.  Prudent fiscal management could sidestep the first, while the second is an inevitable byproduct of the adjustments borne of poverty reduction. 

In any event, investment opportunities, and, more importantly, bullet-dodging opportunities abound.  In the immediate term, however, if you are considering buying a home in an expensive US area such as New York or California, do not buy one.   

Related :

The Housing Bubble - 20-Year Gains May Never be Repeated

A Future Timeline for Economics

Why I Want Oil to Hit $120/Barrel

Why Government is Set to Constrict Silicon Valley

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

- Robert Heinlein

The secret sauce of Silicon Valley is the tradition of leaving established companies to start or join new ones, secure funding from venture capitalists, build the company to a suitable size, and then either float or sell the company for a windfall to the founders and early employees.  The incentive to continue this practice is the engine that keeps the fire of human technological innovation alive. 

Silicon Valley's unique ecosystem has so far been nearly impossible to eclipse.  The combination of research universities, the best and brightest immigrants from India and China, a culture of entrepreneurship, and a nearly perfect climate has kept the competitors to Silicon Valley at bay.  In the 1990s, the prevalent belief was that the high cost of living in Silicon Valley would enable Austin, Dallas, Seattle, and Phoenix to attract technology workers and cultivate their own tech sectors.  This did not happen, as the Silicon Valley ecosystem just had too strong of a gravitational pull. 

This, however, should not be an excuse for complacency, or a belief that Silicon Valley is a bottomless supply of tax revenue.  There are four steps that would make Silicon Valley prohibitively inhospitable to the formation of new ventures. Any one of these by itself would not be enough to dent the might of the Silicon Valley engine, but all four combined would exceed the breaking point.  The first two of these four steps have already happened, and the final two are set to happen, barring direct intervention. 

The four steps are :

1) Sarbanes-Oxley : This attempt to reduce the risk of another Enron-style fraud has inflicted a cost on the US economy greater than 100 Enron collapses.  In Silicon Valley, the crushing costs of Sarbanes-Oxley compliance (up to $3M a year) have dried up IPOs to a trickle, as the prospect of spending money of compliance that could otherwise be spent on R&D is unappealing.  IPOs are less frequent than they were even in the early 1990s, before the bubble, and start-ups can only hope to be acquired by a larger company.  In the last 8 years, only two IPOs were large enough to be considered 'blockbuster' : Google and VMWare.  This crushes the incentive to leave stable jobs to go work at a new venture. 

2) Tortuous Immigration Process : Any list of the most successful people in the history of Silicon Valley will quickly reveal that at least one third of them were born outside of the US.  In response, America has chosen to make it much harder for more such people to come here, even as the quality of life in their home countries is rising. 

While politicians pander to illegal immigrants with minimal education, they somehow refuse to make immigration easier for legal, highly-skilled immigrants who start new ventures in America.  This is significant given the fact that about half of Silicon Valley's skilled workforce is Indian or Chinese.  Many are choosing to return to their home countries in exasperation, and are advising their younger relatives that the US immigration process is so tedious that it is better to pursue their careers at home, working for Indian or Chinese branches of HP or Microsoft. 

Under current procedures, an engineer from India or China has to be on an H1-B visa for 6 years before he can get a greencard.  If he changes employers during that period, he has to start the clock again.  The immigrant's spouse cannot work during this period.  Even after the greencard, it takes 5 more years to become a US citizen.  Unsurprisingly, the best and brightest are deciding that this 11-year limbo is not worth it, and return to their home countries (eventually starting companies there rather than in Silicon Valley).  In the 1990s, Americans had not even heard of Bangalore or Suzhou. 

I have written up a detailed solution to this problem over here. 

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If these two factors weren't bad enough, two more negatives are about to be piled on. 

3) California State Income Taxes are Set to Rise : The budget shortfalls and underfunded pensions in California are a ticking time bomb.  CalPERS, which invests in many of the top venture capital funds that nurture the growth of start-ups in Silicon Valley, is in a shambolic state, and has to add $80 billion in assets just to meet present obligations.  The top income bracket in California is already taxed at 9.3%, and this is set to rise.  Sales taxes are also set to rise.  Due to this horrendous mismanagement worthy of a banana republic, California will soon reach a tipping point where taxes are so high as to destroy California's private sector, which until now has been the envy of the world.  It would, of course, be better to reduce CA state expenditures, but government officials have made it clear that raising taxes is their preferred course of action. 

Victor Davis Hanson explains California's black hole in more detail. 

4) Federal Income Taxes are Set to Rise : If the Bush tax cuts are allowed to expire, then from 2011 onwards, the top income bracket will be taxed at 39.6% rather than the current 35%.  Here, too, the concept of reducing expenditures is not palatable to Washington decision-makers.  While this does affect the entire US equally, when this is combined with the increase in California Sate tax, the combined marginal tax rate in California rises several percentage points, and possibly rises well above 50%.

The danger here is that each of these factors by themselves are not life-threatening.  But all four of them in cumulative combination are deadly.  So on top of the difficulty of conducting an IPO, and the brain drain out of Silicon Valley back to Asia, if the financial windfall that a worker receives after his startup makes a successful exit is taxed at a grand total of 50-55%, fewer and fewer people will aspire to toil away for years in a startup.  As a result, fewer startups will form in Silicon Valley, and instead will form in Bangalore, Shanghai, and Taipei. 

Furthermore, after these forces have been in effect for a few years a simple reversal of the higher tax rates, dysfunctional immigration policy, and Sarbanes Oxley will not simply restore Silicon Valley to its prior grandeur.  The technology centers in Asia will have achieved critical mass by then, and Silicon Valley will have permanently lost its exclusivity.  It would never recover the dominance it once had. 

Silicon Valley will be reduced to a location that still hosts the headquarters of HP, Intel, Cisco, and Google, but 90% of the employees of these corporations will be overseas, and startups will be rare.  Silicon Valley will effectively become like Cleveland or Pittsburgh, which even today host the headquarters of more than 20 Fortune 500 corporations each, but still have a lower population than they each had in 1960, and cannot attract new young people to come and live there.  Cleveland and Pittsburgh are still functioning societies, of course, but their economic vibrancy is irretrievably dead. 

This bleak outlook can certainly be reversed if prompt action is taken now.  Sadly, the current path is one that is set to have a smothering effect on Silicon Valley. 

(crossposted on Techsector)

A Future Timeline for Economics

The accelerating rate of change in many fields of technology all manifest themselves in terms of human development, some of which can be accurately tracked within economic data.  Contrary to what the media may peddle and despite periodic setbacks, average human prosperity is rising at a rate faster than any other time in human history.  I have described this in great detail in prior articles, and I continue to be amazed at how little attention is devoted to the important subject of accelerating economic growth, even by other futurists.

The time has thus come for making specific predictions about the details of future economic advancement.  I hereby present a speculative future timeline of economic events and milestones, which is a sibling article to Economic Growth is Exponential and Accelerating, v2.0. 

2008-09 : A severe US recession and global slowdown still results in global PPP economic growth staying positive in calendar 2008 and 2009.  Negative growth for world GDP, which has not happened since 1973, is not a serious possibility, even though the US and Europe experience GDP contraction in this period.  The world GDP growth rate trendline resides at growth of 4.5% a year.

2010 : World GDP growth rebounds strongly to 5% a year.  More than 3 billion people now live in emerging economies growing at over 6% a year.  More than 80 countries, including China, have achieved a Human Development Index of 0.800 or higher, classifying them as developed countries. 

2011 : Economic mismanagement in the US leads to a tax increase at the start of 2011, combined with higher interest rates on account of the budget deficit.  This leads to a near-recession or even a full recession in the US, despite the recovery out of the 2008-09 recession still being young. 

2012 : Over 2 billion people have access to unlimited broadband Internet service at speeds greater than 1 mbps, a majority of them receiving it through their wireless phone/handheld device. 

2013 : Many single-family homes in the US, particularly in California, are still priced below the levels they reached at the peak in 2006, as predicted in early 2006 on The Futurist.  If one adjusts for cost of capital over this period, many California homes have corrected their valuations by as much as 50%. 

2014 : The positive deflationary economic forces introduced by the Impact of Computing are now large and pervasive enough to generate mainstream attention.  The semiconductor and storage industries combined exceed $800 Billion in size, up from $450 Billion in 2008.  The typical US household is now spending $2500 a year on semiconductors, storage, and other items with rapidly deflating prices per fixed performance.  Of course, the items puchased for $2500 in 2014 can be purchased for $1600 in 2015, $1000 in 2016, $600 in 2017, etc. 

2015 : As predicted in early 2006 on The Futurist, a 4-door sedan with a 240 hp engine, yet costing only 5 cents/mile to operate (the equivalent of 60 mpg of gasoline), is widely available for $35,000 (which is within the middle-class price band by 2015). This is the result of combined advances in energy, lighter nanomaterials, and computerized systems.

2016 : Medical Tourism introduces $100B/year of net deflationary benefit to healthcare costs in the US economy.  Healthcare inflation is slowed, except for the most advanced technologies for life extension. 

2017 : China's per-capita GDP on a PPP basis converges with the world average, resulting in a rise in the Yuan exchange rate.  This is neither good nor bad, but very confusing for trade calculations.  A recession ensues while all the adjustments are sorted out. 

2018 : Among new cars sold, gasoline-only vehicles are now a minority.  Millions of vehicles are electrically charged through solar panels on a daily basis, relieving those consumers of a fuel expenditure that was as high as $3000 a year in 2008.  Some electrical vehicles cost as little as 1 cent/mile to operate. 

2019 : The Dow Jones Industrial Average surpasses 25,000.  The Nasdaq exceeds 5000, finally surpassing the record set 19 years prior in early 2000. 

2020 : World GDP per capita surpasses $15,000 in 2008 dollars (up from $8000 in 2008).  Over 100 of the world's nations have achieved a Human Development Index of 0.800 or higher, with the only major concentrations of poverty being in Africa and South Asia.  The basic necessities of food, clothing, literacy, electricity, and shelter are available to over 90% of the human race. 

Trade between India and the US touches $400 Billion a year, up from only $32 Billion in 2006. 

2022 : Several millon people worldwide are each earning over $50,000 a year through web-based activities.  These activities include blogging, barter trading, video production, web-based retail ventures, and economic activites within virtual worlds.  Some of these people are under the age of 16.  Headlines will be made when a child known to be perpetually glued to his video game one day surprises his parents by disclosing that he has accumulated a legitimate fortune of more than $1 million. 

2024 : The typical US household is now spending over $5000 a year on products and services that are affected by the Impact of Computing, where value received per dollar spent rises dramatically each year.  These include electronic, biotechnology, software, and nanotechnology products.  Even cars are sometimes 'upgraded' in a PC-like manner in order to receive better technology, long before they experience mechanical failure.  Of course, the products and services purchased for this $5000 in 2024 can be obtained for $3200 in 2025, $2000 in 2026, $1300 in 2027, etc. 

2025 : The printing of solid objects through 3-D printers is inexpensive enough for such printers to be common in upper-middle-class homes.  This disrupts the economics of manufacturing, and revamps most manufacturing business models. 

2027 : 90% of humans are now living in nations with a UN Human Development Index greater than 0.800 (the 2008 definition of a 'developed country', approximately that of the US in 1960).  Many Asian nations have achieved per capita income parity with Europe.  Only Africa contains a major concentration of poverty. 

2030 : The United States still has the largest nominal GDP among the world's nations, in excess of $50 Trillion in 2030 dollars.  China's economy is a close second to the US in size.  No other country surpasses even half the size of either of the two twin giants. 

The world GDP growth rate trendline has now surpassed 5% a year.  As the per capita gap has reduced from what it was in 2000, the US now grows at 4% a year, while China grows at 6% a year. 

10,000 billionaires now exist worldwide, causing the term to lose some exclusivity. 

2032 : At least 2 TeraWatts of photovoltaic capacity is in operation worldwide, generating 8% of all energy consumed by society.  Vast solar farms covering several square miles are in operation in North Africa, the Middle East, India, and Australia.  These farms are visible from space. 

2034 : The typical US household is now spending over $10,000 a year on products and services that are affected by the Impact of Computing.  These include electronic, biotech, software, and nanotechnology products.  Of course, the products and services purchased for this $10,000 in 2034 can be obtained for $6400 in 2035, $4000 in 2036, $2500 in 2037, etc. 

2040 : Rapidly accelerating GDP growth is creating astonishing abundance that was unimaginable at the start of the 21st century.  Inequality continues to be high, but this is balanced by the fact that many individual fortunes are created in extremely short times.  The basic tools to produce wealth are available to at least 80% of all humans. 

Greatly increased lifespans are distorting economics, mostly for the better, as active careers last well past the age of 80. 

Tourism into space is affordable for upper middle class people, and is widely undertaken. 

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I believe that this timeline represents a median forecast for economic growth from many major sources, and will be perceived as too optimistic or too pessimistic by an equal number of readers.  Let's see how closely reality tracks this timeline.

Why the US Will Still be the Only Superpower in 2030, v2.0

One of the most popular dinner party conversation topics is the possibility that the United States will be joined or even surpassed as a superpower by another nation, such as China.  Let us assess the what makes a superpower, and what it would take for China to match the US on each pillar of superpowerdom.  Two years ago, in May 2006, I wrote the first version of this article, and it became the most heavily viewed article ever written on The Futurist.  The comments section brought a wide spectrum of critiques of various points in the article, which led me to do further research, which in turn strengthened the case in some areas while weakening it others.  Thus, it is time for a tune-up on the article. 

A genuine superpower does not merely have military and political influence, but also must be at the top of the economic, scientific, and cultural pyramids.  Thus, the Soviet Union was only a partial superpower, and the most recent genuine superpower before the United States was the British Empire.  Many Europeans like to point out that the EU has a larger economy than the US, but the EU is a collection of 27 countries that does not share a common leader, a common military, a uniform foreign policy, or even a common currency.  The EU simply is not a country, any more than the US + Canada comprise a single country. 

The only realistic candidate for joining the US in superpower status by 2030 is China.  China has a population over 4 times the size of the US, has the fastest growing economy of any large country, and is mastering sophisticated technologies.  But to match the US by 2030, China would have to : 

1) Have an economy that matches the US economy in size.  If the US grows by 3% a year for the next 22 years, it will be $30 trillion in 2008 dollars by then.  Note that this is a modest assumption for the US, given the accelerating nature of economic growth, but also note that world GDP presently grows at a trend of 4.5% a year, and this might at most be 6% a year by 2030.  China, with an economy of $3.2 trillion in nominal (not PPP) terms, would have to grow at 11% a year for the next 22 years straight to achieve the same size, which is already faster than its current 9-10% rate, if even that can be sustained for so long (no country, let alone a large one, has grown at more than 8% over such a long period).  In other words, the progress that the US economy would make from 1945 to 2030 (85 years) would have to be achieved by China in just the 22 years from 2008 to 2030.  Even then, this is just the total GDP, not per capita GDP, which would still be merely a fourth of America's. 

The subject of PPP GDP arises in such discussions, where China's economy is measured to a larger number.  However, this metric is inaccurate, as international trade is conducted in nominal, not PPP terms.  PPP is useful for measuring per capita prosperity, where bag of rice in China costs less than in the US.  But it tells us nothing of the size of the total economy, which could be more accurately measured in commodities like oil or gold.  Nonetheless, in per capita GDP, the US surpasses any other country that has more than 10 million people (and is thus too large to rely solely on being a tax haven or tourist destination for GDP generation).  From the GDP per capita chart, we can see that many countries catch up to the US, but none really can equal, let alone surpass, the US.  An EU study recently estimated that the EU is 22 years behind the US in economic development.  The European Chamber of Commerce estimated that the gap between the EU and US was widening further, and that it would take 75 years for the EU to catch up to the US.  Again, these are official EU studies, and are thus not 'rigged by America'.         

  The weak dollar leads some who suddenly fancy themselves as currency experts to believe/hope that the US will lose economic dominance.  However, we see from this chart that the US dollar comprises a dominant 65% of global currency reserves (an even greater share than it commanded in 1995), while the second highest share is that of the Euro (itself the combined currency of 21 separate countries) at just 25%.  Furthermore, the Euro is not rising as a percentage of total reserves, despite the EU and Eurozone adding many new member nations after 2001.  Which currency has any chance of overtaking the US, particularly a currency that is associated with a single sovereign nation?  The Chinese Yuan represents under 2% of world reserves, and China itself stockpiles US dollars.  Clearly, US dominance in this metric is enormous, and is not dwindling in the forseeable future. 

2) Have a military capable of waging wars anywhere in the globe (even if it does not actually wage any).  Part of the opposition that anti-Americans have to the US wars in Afghanistan and Iraq is the envy arising from the US being the only country with the means to invade multiple medium-sized countries in other continents and still sustain very few casualties.  No other country currently is even near having the ability to project military power with such force and range, despite military spending being only 3% of US GDP - a lower proportion than many other countries.  Mere nuclear weapons are no substitute for this.  The inability of the rest of the world to do anything to halt genocide in Darfur or other atrocities in Burma or Zimbabwe is evidence of how such problems can only get addressed if and when America addresses them.

3) Create original consumer brands that are household names everywhere in the world (including in America), such as Coca-Cola, Nike, McDonalds, Citigroup, Xerox, Microsoft, or Google.  Europe and Japan have created a few brands in a few select industries, but China currently has almost none.  Observing how many American brand logos have populated billboards and sporting events in developing nations over just the last 15 years, one might argue that US cultural and economic dominance has even increased by this measure.

4) Have major universities that are household names, that many of the worlds top students aspire to attend.  17 of the world's top 20 universities are in the US.  Until top students in Europe, India, and even the US are filling out an application for a Chinese university alongside those of Harvard, Stanford, MIT, or Cambridge, China is not going to match the US in the knowledge economy.  This also represents the obstacles China has to overcome to successfully conduct impactful scientific research. 

5) Become the center of gravity for all types of scientific research.  The US conducted 32% of all research expenditures in 2007, which was twice as much as China, and more than the 27 combined countries of the EU.  But it is not just in the laboratory where the US is dominant, but in the process to deliver innovations from the laboratory to the global marketplace.  To displace the US, China would have to become the nation that produces the new inventions and corporations that are adopted by the mass market into their daily lives.  From the telephone and airplane over a century ago, America has been the engine of almost all technological progress.  Despite the fears of innovation going overseas, the big new technologies and influential applications continue to emerge from companies headquartered in the United States.  Just in the last four years, Google emerged as the next super-lucrative company (before eBay and Yahoo slightly earlier), and the American-dominated 'blogosphere' emerged as a powerful force of information and media.  Even after Google, a new batch of technology companies, this time in alternative energy, have rapidly accumulated tens of billions of dollars in market value.  It is this dominance across the whole process of university excellence to scientific research to creating new companies to bring technologies to market that makes the US innovation engine virtually impossible for any country to surpass. 

6) Attract the best and brightest to immigrate into China, where they can expect to live a good life in Chinese society.  The US effectively receives a 'education import' estimated to be above $200 billion a year, as people educated at the expense of another nation immigrate here and promptly participate in the workforce.  As smart as people within China are, unless they can attract non-Chinese talent that is otherwise migrating to the US, and even talented Americans, they will not have the same intellectual and psychological cross-pollination, and hence miss out on those economic benefits.  The small matter of people not wanting to move into a country that is not a democracy also has to be resolved.  The true measure of a country is the net difference between how many people seek to enter, and how many people seek to leave.  The US has a net inflow of immigrants (constrained by quotas and thus a small fraction of the unconstrained number of people who would like to enter), while China has a net outflow of native-born Chinese.  Click on the map to enlarge it, and see the immigration rate to America from the world (which itself is constrained by quotas in the US and forcible restrictions on fleeing the country in places like Cuba and North Korea). 

7) Be the leader in entertainment and culture, which is the true driver of societal psychology.  China's film industry greatly lags India's, let alone America's.  We hear about piracy of American music and films in China, which tells us exactly what the world order is.  When American teenagers are actively pirating music and movies made in China, only then will the US have been surpassed in this area.  Take a moment to think how distant this scenario is from current reality.  Which country can claim the title of #2 in entertainment and cultural influence?  That such a question cannot easily be answered itself shows how total US dominance in this dimension really is. 

8) Be the nation that engineers many of the greatest moments of human accomplishment.  The USSR was ahead of the US in the space race at first, until President Kennedy decided in 1961 to put a man on the moon by 1969.  While this mission initially seemed to be unnecessary and expensive, the optimism and pride brought to anti-Communist people worldwide was so inspirational that it accelerated many other forms of technological progress and brought economic growth to free-market countries.  This eventually led to a global exodus from socialism altogether, as the pessimism necessary for socialism to exist became harder to enforce.  People from many nations still feel pride from humanity having set foot on the Moon, something which America made possible.

China currently has plans to put a man on the moon by 2024.  While being only the second country to achieve this would certainly be prestigious, it would still be 55 years after the United States achieved the same thing.  That is not quite the trajectory it would take to approach the superpowerdom of the US by 2030.  If China puts a man on Mars or has permanent Moon bases before the US, I may change my opinion on this point, but the odds of that happening are not high. 

9) Be the nation expected to thanklessly use its own resources to solve many of the world's problems.  It is certainly not a requirement for a superpower to be benevolent, but it does make the path to superpower ascension easier, as a malevolent superpower will receive even more opposition from the world than a benevolent one, which itself is already substantial.  If the US donates $15 billion in aid to Africa, the first reaction from critics is that the US did not donate enough.  On the other hand, few even consider asking China to donate aid to Africa.  After the 2004 Indian Ocean tsunami and the 2008 cyclone in Burma, the fashionable question was why the US did not donate even more and sooner, rather than why China did not donate more, despite being geographically much closer.  Ask yourself this - if an asteroid were on a collision course with the Earth, which country's technology and money would the world depend on to detect it, and then destroy or divert it?  Until China is relied upon to an equal degree in such situations, China is not in the same league. 

10) Adapt to the underappreciated burden of superpowerdom - the huge double standards that a benign superpower must withstand in that role.  America is still condemned for slavery that ended 140 years ago, even by nations that have done far worse things more recently than that.  America's success in bringing democracy to Afghanistan and Iraq, and defending local populations from terrorists, is condemned more than the UN's inaction in preventing genocide and slavery.  Is China prepared to apologize for Tianenmen Square, the genocide in Tibet, the 30 million who perished during the Great Leap Forward, and the suppression of news about SARS, every day for the next century?  Is China remotely prepared for being blamed for inaction towards genocide in Darfur while simultaneously being condemned for non-deadly prison abuse in a time of war against opponents who follow no rules of engagement?  The upcoming 2008 Olympics will be an event where political demonstrations are going to grab headlines perhaps to a greater degree than the sports themselves, and the Chinese leadership will be tested on how they deal with simmering domestic discontent under the scrutiny of the world media.  The amount of unfairness China would have to withstand to truly achieve political parity with America might be prohibitive given China's history over the last 60 years. 

Economically, is China prepared to withstand the pressures that the US presently bears?  How long before the environmental movement (at least the fraction of it that is actually concerned about the environment) recognizes that China is a bigger polluter of the atmosphere than the US is, and that the road to pollution reduction leads straight to China?  How long before China is pressured to donate aid to Africa in the manner that the US does?  What happens when poorer nations benefit from Chinese R&D expenditures, particularly if those are neighboring countries that China is not friendly with? 

Furthermore, China being held to the superpower standard would simultaneously reduce the burden that the US currently bears alone, allowing the US to operate with less opposition and more equitable treatment than it experiences today.  Is China prepared to take on the heat?  Arguably, there is evidence that the Chinese public has not even begun to think that far. 

Of the ten points above, Britain, France, Germany, and Japan have tried for decades, and have only achieved parity with the US on maybe two of these dimensions at most.  China will surpass European countries and Japan by 2030 by achieving perhaps two or possibly even three out of these ten points, but attaining all ten is something I am willing to confidently bet against.  The dream of anti-Americans who relish the prospect of any nation, even a non-democratic one, surpassing the US is still a very distant one. 

A point that many bring up is that empires have always risen and fallen throughout history.  This is partly true, but note that the Roman Empire lasted for over 1000 years after its peak.  Also note that the British Empire never actually collapsed since Britain is still one of the most successful countries in the world today, and the English language is the most widely spoken in the world.  Britain was merely surpassed by its descendant, with whom it shares a symbiotic relationship.  The US can expect the same sort of very long tail if it is finally surpassed, at some point much later than 2030 and probably not before the Technological Singularity, estimated for around 2050, which would make the debate moot.   

That writing this article is even worthwhile is a tribute to how far China has come and how much it might achieve.  I would not bother to write such an article about, say, India or Germany (the largest of the 27 EU countries).  Nonetheless, there is no other country that will be a superpower on par with the US by 2030.  This is one of the safest predictions The Futurist can make. 

More on American Exceptionalism by Tunku Varadarajan at Forbes. 

Related :

The Winds of War, the Sands of Time

Who Hates America?

Who Does America View Favorably?

The Age of Democracy

The Culture of Success

 

Why I Want Oil to Hit $120 per Barrel

Here on The Futurist, we have a long tradition of seeking permanent independence from oil-drunk dictatorships and theocracies, with the pursuit of long-term gains taking precendence over the avoidance of short-term pain.  I refer you to :

Why $70/barrel Oil is Good for America (February 1, 2006).

$70+/Barrel Oil, the Non-Crisis (April 25, 2006).

Terrorism, Oil, Globalization, and the Impact of Computing (August 22, 2006).

When oil first hit $70/barrel nearly two years ago, there were widespread fears of the US economy tipping into recession.  I pointed out that a much smaller piece of the US economy has exposure to oil than was the case in 1974 or 1981, which were the last times such high prices were seen (in inflation-adjusted terms).  Google, Oracle, and VMWare are far less vulnerable to oil prices than General Motors and Federal Express.  Sure enough, after 2 years of oil prices hovering around $70, the US economy has successfully adapted to it.  The specter of the $70 barrier is behind us, permanently.  This chart from the Bureau of Labor Statistics shows the annualized rate of oil price inflation over the last few years. 

Notice how the rise from $20 to $80 led to import price inflation (the blue line) touching 10% for three years.  However, that rise is now behind us, with the settled price of $70/barrel or more no longer causing further inflation in the price of imported products.  Even more striking is the shrinkage in the US trade deficit.  Despite oil imports being as much as one third of the US trade deficit of about $60 Billion/month, the trade deficit has actually shrunk since the peak of 2006, contributing positively to GDP growth for the first time in over a decade (chart from BusinessWeek).  That the US economy can now take $70 and even $80 oil in stride is the biggest story that no one has noticed yet. 

However, $70 oil also fattens the coffers of the world's notorious 'Petrotyrants'.  From Iran to Venezuela to Saudi Arabia to Russia, one can note that there is a rather close corelation between an economy being heavily dependent on oil exports and the leaders of that country resisting or even rescinding democracy. 

Thomas Friedman has many interesting articles on the subject, such as his 'Fill 'Er Up With Dictators' :

But as oil has moved to $60 to $70 a barrel, it has fostered a counterwave — a wave of authoritarian leaders who are not only able to ensconce themselves in power because of huge oil profits but also to use their oil wealth to poison the global system — to get it to look the other way at genocide, or ignore an Iranian leader who says from one side of his mouth that the Holocaust is a myth and from the other that Iran would never dream of developing nuclear weapons, or to indulge a buffoon like Chávez, who uses Venezuela’s oil riches to try to sway democratic elections in Latin America and promote an economic populism that will eventually lead his country into a ditch.

But Mr. Friedman is a bit self-contradictory on which outcome he wants, as evidenced across his New York Times columns.

Over here, he says :

In short, the best tool we have for curbing Iran’s influence is not containment or engagement, but getting the price of oil down

And here, he says :

So here’s my prediction: You tell me the price of oil, and I’ll tell you what kind of Russia you’ll have. If the price stays at $60 a barrel, it’s going to be more like Venezuela, because its leaders will have plenty of money to indulge their worst instincts, with too few checks and balances. If the price falls to $30, it will be more like Norway. If the price falls to $15 a barrel, it could become more like America

Yet over here he says :

Either tax gasoline by another 50 cents to $1 a gallon at the pump, or set a $50 floor price per barrel of oil sold in America. Once energy entrepreneurs know they will never again be undercut by cheap oil, you’ll see an explosion of innovation in alternatives.

As well as over here :

And by not setting a hard floor price for oil to promote alternative energy, we are only helping to subsidize bad governance by Arab leaders toward their people and bad behavior by Americans toward the climate.

All of these articles were written within a 4-month period in early 2007.  Both philosophies are true by themselves, but they are mutually exclusive.  Mr. Friedman, what do you want?  Higher oil prices or lower oil prices?

But forget about Mr. Friedman wanting it both ways.  Instead, I am going to go with the second choice, that of higher oil prices.  I see this as a golden opportunity for permanent, far-reaching, multifaceted geopolitical change.  The US economy has successfully adapted to a permanent $70/barrel oil price with almost no real pain, and thus it is the time to take the bull by the horns, and lure the Petrotyrants into the ultimate irreversible trap. 

It is time to hope that the price of oil rises to $120/barrel by 2010, and stays above that level permanently. 

Why, you may ask?  Won't such a high price make Iran, Venezuela, Saudi Arabia, Russia, Nigeria, Sudan, Kazakhstan, and others even wealthier, without them having done anything to earn it?  Won't it make Sudan more genocidal, and Iran more able to equip terrorists?  Won't Saudi Arabia be able to fund even more Madrasas across the world? 

Sure it will, for a time.  But consider the perils of burning the candle at both ends.

But won't this also cause economic suffering in the US?  For a time, yes.  Gasoline will be at $5/gallon, and the trade deficit will temporarily widen.  I claim the possible recession will be brief, if there even is one at all, as the run-up from the present price of $80/barrel up to $120/barrel is already less of a shock than the jump from $20 to $80 that we already have successfully sustained.  I say all of this is worthwhile short-term pain, for when the quietly toiling engine of technological innovation emerges from its chrysalis, it will be gigantic. 

The technological climate of 2007 is very different from that of 1974 or 1981.  There is so much breadth and depth in energy innovation right now, even at the present $70-$80/barrel, that $120/barrel will move the technology and economics of alternative energy into fast-forward.  Currently, the petroleum market is shielded from exposure to both the electricity market and the agricultural market.  However, upcoming electric and plug-in hybrid automobile technologies consume electricity at an equivalent cost of just $1/gallon.  Furthermore, electricity can be generated from multiple sources that exist in almost every country, eliminating the weak position that oil importers are in relative to oil exporting nations.  With gasoline at $5/gallon, consumers will migrate towards hybrids, plug-in hybrids, and electric vehicles so rapidly that the auto manufacturers will start engaging in aggressive competition to lower prices and accelerate innovation.  This will greatly widen the fronts at which the oil market is exposed to the far cheaper and decentralized electricity market.  This spells trouble for oil producers who have to compete with electricity that is 3-5X cheaper in providing the same transportation. 

Simultaneously, cellulostic and algae-derived ethanol research efforts will get supercharged, greatly increasing the probability of a breakthrough that enables the attractive math of cellulose or algae to replace the unimpressive economics of corn ethanol.  If ethanol from switchgrass or algae is more compelling than oil at $120/barrel, oil has yet another enemy in addition to electricity.  The combination of electric vehicle and cellulose/algae ethanol technologies will act as a 1-2 punch to slash the consumption of oil across both the US and China permanently within just a few short years. 

Then, the fun begins.  The terrorists and despots who got lured into profligate spending under $120 oil will eventually find that the demand for their exports is plummeting.  Furthermore, the thing about subsidies such as those that Iran doles out is that they are self-propagating.  Note that in 2005, Iran exported $44 billion in oil, but spent $25 billion in subsidies, meaning that if oil fell to $30/barrel, Iran's export revenue would effectively become zero if the same level of subsidies are maintained.  34 cent/gallon gasoline leads to more car purchases and hence more demand for gasoline, increasing the cost of maintaining the subsidies, and hence the oil price floor at which Iran's export revenues would shrink to zero.  At $120/barrel, the subsidy obligation will be so burdensome that even a drop back down to $70/barrel would lead to a revenue falling behind expenses.  At the same time, China will have no choice but to aid in the hastening of these technological advances, as they will have to shift their priorities from locking up oil contracts to reducing the crushing cost of oil imports at $120/barrel. 

On the other hand, if oil stays at or below $70/barrel for the long term, Petrotyrants will survive to continue their nefarious activities for at least another 20 years to come.  China, too, will continue their current stance of propping up Petrotyrants. 

Thus, I say bring $120 on.  We outspent the Soviet Union on defense, and we can outspend the Petrotyrants while setting them up for an inevitable cornering and collapse.  Give me $120/barrel oil by 2010, and I will give you the demise of Petrotyranny in Russia, Iran, and Venezuela by 2015.  Count on it. 

Update (10/19/07) : We're up to $90/barrel already!  While there will be ups and downs in the traded daily price, and the gloomy media coverage might appear frightening, be patient and disciplined.  The short-term pain will lead to permanent long-term gain. 

Update (5/22/08) : Oil has crossed $120/barrel, and is currently as high as $133.  Such a rapid rise usually is followed by a precipitous drop, and we need the price to stay above $120 for an extended period to realize the benefits described in the article.  I might do a v 2.0 in 2008 itself if the price stays high. 

Related :

A Future Timeline for Automobiles

A Future Timeline for Energy

Terrorism, Oil, Globalization, and the Impact of Computing

 

 

 

 

 

 

An Inconvenient Truth

As you may have heard by now, in 2007, China is set to surpass the US in the emission of greenhouse gases.  This has many implications for the concept of environmentalism, and for the geopolitical landscape.

China takes 4.3 times as much energy as the US to produce each dollar of GDP.  Thus, China, with an economy less than a fourth the size of the US, already emits more.  It is true that China's per capita emissions are much lower than the US due to China's much greater population.  However, the US is not the highest in per capita emissions either.  Small nations like Canada and Norway top that list. 

Now consider the implications of this for the near future.  By 2012, China's emissions will be a clear 20% higher than the US, which is a delta too large to ignore.  The environmental movement has some people (like Thomas Friedman) who genuinely care about reducing pollution.  However, a large subset are merely anti-US, anti-capitalism radicals who seek to mask their agenda within the altruism of environmental concerns.  A beloved non-Western, undemocratic nation being a bigger polluter than the US is simply too inconvenient of a reality for their agenda.  This will split the environmental group into two opposing factions - those who truly seek to curb emissions worldwide, and those who are merely driven by anti-Americanism and anti-capitalism.  This civil war will be interesting, to say the least, and the purging of the phonies could just be the best thing to happen to the environmental movement, making it palatable enough for greater participation from mainstream people. 

Furthermore, this is an example of point 10) in my essay on Why the US Will Still be the Only Superpower in 2030.  China is not prepared for the burdens of being the primary recipient for blame on a major global issue.  As the heat on the US reduces at China's expense, China will find that the upper rungs on the ladder to superpowerdom bring the attachment of heavy weights that make each subsequent rung increasingly difficult to scale.  Getting to the top is just not as easy as it may seem, as China will continue to discover.

World and Asian Semiconductor Revenue Growth

I stumbled upon something while reading the Asian Development Bank's report on the world economy.  No big surprises here, but one tiny chart stood out.  The column chart of WW and Asian semiconductor sales from 2001 to 2006 indicates that while Asia accounted for just one third of semiconductor sales in 2001, they comprise half of it today. 

This encompasses a number of the main topics I discuss on The Futurist.  From The Impact of Computing (which is thus higher in Asia than in the rest of the world) to the accelerating rate of GDP growth (which necessitates so many large Asian countries, totaling 3 billion people, to all grow at 6% or more per year, just to keep total world GDP at its trendline).  From cellphone dispersion to PC adoption to enterprise server and router usage, semiconductor sales are just about the best indicator of economic and technological progress. 

Let's see how big of a share of world seminconductor revenues Asia can ultimately consume before the relative maturity of the US market is emulated. 

Related :

Are You Acceleration Aware?

Economic Growth is Exponential and Accelerating

America, in Relation to Peers

Do you feel that America is having a bad time?  That economically, politically, and culturally, we are in a rut?  Do you even wish that America had something that some other nation or region currently has?

Be careful what you wish for.

A European study has estimated that the EU economy is only as developed as the US was 22 years ago.  This does not even include the newest, poorer members of the EU like Romania and Bulgaria, which would drag down the EU stats even further.  Furthermore, the EU has a growth rate slower than that of the US, guaranteeing that the gap will continue to widen. 

Related : More on the Decline of Europe.

But China has a rapid economic growth rate, that enables it to catch up with the US, does it not?  With China's huge population, it needs to merely achieve a per-capita GDP that is one fourth that of the US in order to surpass the total size of the US economy.  That should be relatively easy, no?

China is not permitting new Internet cafes to open in 2007.  So much for free-market supply/demand, or supercharging economic growth through participation in the information age.  It appears that the question of how high prosperity can rise before the demand for personal freedoms directly forces the PRC to curb progress has been answered.  The PRC will continue to face more direct tradeoffs between economic growth and the restriction of personal freedoms.  It will be interesting to see which area they choose to make concessions in over the coming years.

How about India, then?  India will never restrict Internet access for the public, and has a young, growing population that Europe lacks.  GDP growth topping 8% certainly qualifies as enviable.  Surely, India has potential.

And it will always have potential.  If Europe is 22 years behind the US in economic growth, it would be impossible to calculate how far behind India is by that metric, as the US is only 231 years old (and has never been as poor as India is today).  India's infrastructure is so shabby that highways have an average speed of 20 mph, and large cities have to resort to restricting electricity availability to six days a week in order to ease grid overloads.  On the UN Human Development Index, India ranks a miserable 127th, even lower than many dictatorships and communist states.  India's per capita GDP is just $700 a year, a number which, by American standards, seems scarcely higher than zero.  8% annual GDP growth for the next 30 years will still only bring prosperity in India to where Mexico is today.

But, despite India being the poorest entity in this article, all Americans should note that India is the only entity here that is pro-US, and actually wants to emulate the US, rather than create an alternative model like the EU and China have attempted.  India deserves pity, but also encouragement from America. 

So there we have the state of three other regions that America is often compared to.  I will also throw in this chart of per capita GDP on a PPP basis, over the last 60 years.  The biggest takeaway from here is that basic growth appears easy, as a developing nation merely has to copy what was done by advanced nations before, but once a certain ceiling is reached, incremental growth becomes harder.  No large country of over 50 Million people and a per capita GDP greater than $20,000 a year has managed to sustain a growth rate higher than the world average (currently 4.5%) for an extended period.  Thus, China's rapid growth will moderate long before high per-capita GDP is reached, just as Japan's and South Korea's has.  Also note that India was richer than China all the way until 1991, and was probably at parity with South Korea and even near Japan in 1950, until India foolishly allowed itself to fall behind. 

Remember, the true measure of a country is the net of how many people want to get in, and how many want to get out.  This metric appears to rank America right on top. 

Related : Why the US Will Still be the Only Superpower in 2030. 

India-China Growth Rate Comparison

The Economist has a cover story on India's recent acceleration in economic growth, and how irrational exuberance among excitable Indians has led to an unsustainable overheating and the risk of a correction. 

One chart that I have sought for years is a comparison of the historical growth rates between India and China.  This article had that chart, going back to 1974.  Both nations had pathetic growth between 1950 and 1970 (and were indeed even poorer than most African nations at the time).  Since 1980, however, China's lead over India has ranged from large to enormous, with India only (maybe) breaking away from the the 6% trendline now.  As a result, China has gone from being poorer than India in the 1970s to having over twice the per capita income today.  Even now, the narrowing of the gap is questionable at best, as India is amazingly unable to fully cash in on the democratic system that China lacks.   

What prevents India from making common-sense reforms and infrastructure upgrades that the rest of the world has been telling them about for decades?  India's cultural limitations are the primary reason - most of India's key politicians are over the age of 70 and hail from an era and ideology that produced little other than poverty, embarassment, and misery.  Their passing will remove the ideological glass ceiling that prevents further reforms in India.  When any country achieves faster economic growth, it is not just wealth that rises, but intellectual maturity, the quality and diversity of entertainment options, and safety rise as well.  People even become taller and better looking after a generation of economic growth.  I will write a much more colorful article on this subject in the future. 

Update : CNNMoney has an article that is somewhat harsher, but some of the author's statements are poorly reasoned.  Statements 'India has more HIV infected people than any other country' are meaningless unless taken as a percentage of the total population, in which India does not appear anywhere near the top of the list. 

Update 2 : BusinessWeek also has an article.

Related :

World GDP Grew 4.3% in 2005

The Biggest Event of the Last 15 Years : The Stunning Defeat of Socialism

New UN Human Development Data Released

The Culture of Success

This is going to be an article riddled with violations of 'political correctness'.  As a result, we have an opportunity to think about a subject in an informative and unique context, two characteristics that 'political correctness' preclude. 

First, let us put the United States aside for a moment, and look at the recent Human Development Index map :

The first question we can ask is why Australia and New Zealand are wealthy, while Haiti and Liberia are among the world's poorest.  All four are countries that are inhabited and governed by people who have been there for under 200 years.  Let me also provide the disclaimer that the reason is not because of the skin color of the inhabitants of those countries. 

So why is the outcome of the two populations of African origin so incredibly worse than that of the two populations of Anglo-Saxon Protestant origin?

One word : Culture.

Cultures of specific ethnic groups are formed over the the course of centuries, not just decades.  The early inhabitants of Australia and New Zealand (and Canada) were already conditioned with centuries of Anglo-Saxon Protestant culture, wherein the necessary ingredients of democracy, industry, and rule of law were already internalized.  Hence, Australia, New Zealand, and Canada, despite being on separate paths for two centuries, still have produced remarkably similar outcomes.  At the other end of the scale, Haiti gained independence in 1804, yet is still the only country in the Western Hemisphere with African levels of poverty - even Mexico is a paradise by comparison.  Liberia is a country created for freed US slaves to return to in order to create a new home in Africa, with a constitution modeled off of the US constitution, and with ongoing benefits of US financial aid and mentorship.  Nonetheless, Liberia is no more advanced that the traditional African countries that surround it.  This leads to a conclusion that most sub-Saharan African cultures, over the course of centuries, never developed the intellectual or philosophical foundations of science, legal institutions, or productivity.  Being separated from African society for two centuries is not sufficient to undo the millennia of anti-advancement conditioning that generations of people received in Africa, and hence the outcomes are still inevitably similar. 

Ponder that for a moment, and then let us return to the United States.

Today, African-Americans in the United States have lower incomes than whites, even decades after the Civil Rights Movement and 140 years after the last slaves were freed.  In 2006, average annual household income for whites is $49,000 while for African-Americans is just $30,134.  It is true that institutionalized discrimination, segregation, and the forced separation of families are all sad chapters in the history of how African Americans were treated in the US.  At the same time, they have received benefits like affirmative action, special scholarships, and other programs to help undo the damage previously inflicted upon them, and do have dominance in lucrative fields such as sports and music.  The examples of Australia, New Zealand, Canada, Haiti, Liberia, and Africa in general make it illogical to view the US as a microcosm, and the logical conclusion becomes that African-Americans still are within the partial clutches of African cultural traits that make economic advancement difficult.  Centuries of life in the US have undone a portion of this, resulting in African Americans being far wealthier than blacks anywhere else in the world.  However, it will still take a long time for them to fully gain economic parity with whites, in the US or in any other country in the world.  The accelerating rate of change may help compress what would have previously taken centuries into mere decades, but the sheer enormity of the process of cultural transformation should not be underestimated. 

Here is an article with more details on what cultural factors result in societal failure, and much of this can be seen in African societies.

Again, this has nothing to do with skin color, and there will be many individual exceptions to the majority.  A black infant adopted by a Jewish or WASP family will achieve the same success as others of those groups, provided his childhood interactions are predominantly with others of his adoptive parents' ethnicity, rather than with poorer blacks.

Thus, the notion of 'racism' in the US is no longer an accurate one, and the concept of 'culturism' provides a better assessment of why income disparities exist between whites and blacks across and within dozens of nations today.  The evidence is overwhelming, but discussion of culturism may also become a societal taboo. 

But this concept is not complete without mention of the third type of culture that exists in the modern world : the Wheelbarrow cultures. 

When using a wheelbarrow, a person can move greater weight than without the wheelbarrow.  But when the person stops pushing it, the wheelbarrow cannot move at all.  If a person were analogous to a wheelbarrow, such a person would be capable of greatness if guided by the right people, but would achieve nothing without such mentorship.  This characteristic can even be seen in entire cultures. 

India and China are countries that as recently as the 1970s, were just as poor as most African nations.  At the same time, Indians and Chinese are the two wealthiest ethnic groups in the US, with an average educational level and household income substantially higher (greater than 1.5X) than that of whites.  This is also true of Indian and Chinese communities in Britain and Australia.  Even after adjusting for educational levels, the natural question arises about why India and China themselves are so poor despite the remarkable consistency with which their emigrants outperform the members of their new host countries. 

It appears that Indians and Chinese often succeed in corelation to the quality of their surroundings.  Speaking from direct experience, Indians tend to be people who are driven to do well when they feel they are guests in another country, and greatly fear the prospect of appearing unimpressive to non-Indians.  The subconscious need to gain the approval of white people is very important to many Indians, and I suspect the same is true for many Chinese.  When Indians are in India, on the other hand, they often default back to unsophisticated and unproductive habits, often with little interest in self-improvement or the betterment of Indian society.  Leading Indian entrepreneur Kanwal Rekhi once said, "Indians are a first-rate people in a third-rate country.  We compete with the best and brightest everywhere, but fail collectively."

Other examples abound.  Countries like Taiwan, Hong Kong, and Singapore speeded ahead of the PRC in economic growth, despite having the same Han Chinese population, due to each having active American/British economic mentorship.  The same can even be observed in North and South Korea, where the economic disparity between the two can be described as one group of wheelbarrows being successfully pushed by the US while the other got no suitable mentorship, and thus remains Communist (a byproduct of wheelbarrows not being pushed by the right people). 

This, therefore, brings us to the final concept of this treatise, which is the "Double Wheelbarrow Effect". 

For a society with untapped wheelbarrow potential to achieve prosperity within the confines of its own culture, it becomes necessary to see examples of members of their culture doing well en masse.  This permits traditional inferiority complexes vis-a-vis whites to vanish and permit previously disenfranchised people to gather the courage to ask "Why not us?".  The prosperity of the first few wheelbarrows can then be multiplied.  This can also be called 'globalization'.

Taiwan and Hong Kong were extremely poor in the 1950s, but rapid wheelbarrow-driven growth leading to prosperity by the 1980s, combined with the Chinese-American community in the US reaching critical mass around the same time, created an army of ethnic Chinese with the knowledge and skills to rapidly expand business ties with the PRC.  So the former wheelbarrows themselves are now enabling mainland Chinese to achieve their full wheelbarrow potential.  Hence, the rapid growth of the PRC became possible when it did, and the double-wheelbarrow growth is going strong even after 20 years. 

India, unlike China, does not have the equivalent of Taiwan, Hong Kong, and Singapore where the wheelbarrow effect could begin 20 years prior due to Chinese seeing other Chinese attaining wealth, so India had to wait for the Indian community in the US (and to a lesser degree in the UK) to achieve critical mass and visible wheelbarrow maturity.  This did not happen until the 2000s, and so the Double Wheelbarrow Effect could not benefit India until recently.  Now, India is finally growing rapidly as US corporations open divisions in India and teach Indian workers about American corporate practices, which long ago had origins in Anglo-Protestant value systems.  This Double Wheelbarrow education results in India being widely discussed in business magazines that just 10 years ago scarcely found any reasons to mention India. 

In other words :

Step 1 : Indian engineer comes to US in late 1960s/1970s, gets job, feels xenophobic, but does well in career.  Bonds with other Indians he would normally not be friends with in India. 

Step 2 : He and his friends rise to senior management or start companies, and by the 2000s, are multimillionaires. 

Step 3 : He helps his company start divisions in India, teaching Indians how productive businesses are run in America, what habits are good to develop and what traditional Indian practices should be jettisoned in the interest of producing something of value.  He meanwhile teaches white American colleagues how many opportunities exist by using what India has to offer and persuades them to invest further.

Thus, the Double Wheelbarrow Effect is what is responsible for the rise of China starting in the 1980s and India starting in the 2000s.  The conventional wisdom credits China's 1979 reforms and India's 1991 reforms, but those merely represent the locks being taken off the wheelbarrows.  The actual pushing could only have happened when it did, not sooner, due to the need of the first diaspora wheelbarrows to achieve critical mass.  But now, the double wheelbarrow tide is so strong that India and China are even devising ambitious space programs. 

I'm going to give this subject a bit more thought and make some tweaks to the article (I, too, am a wheelbarrow).  There is more to be done on this subject.

New UN Human Development Data Released

The UN has released Human Development Data for 2004 (it usually lags by about 2 years).  The changes per year are not large, but the website has added a new feature by which the Human Development Index (HDI) of a country can be graphed and compared to other regions of the world.

Currently, if the world is divided into three categories of human development (high, medium, and low), the distribution is as follows (from Wikipedia).  The immediate observation is that outside of Africa, extreme poverty is a rare occurance in the modern world. 

 

The older 2003 data is divided into finer segments to provide greater precision :

Upon examination of the data by country, a few other points present themselves :

Only 20 countries had a score greater than 0.800 in 1975, but by 2004, 63 countries had crossed that barrier.  This can be linked entirely to the diffusion of technology, spread of globalization, and the emergence of the United States as the dominant economic model in the world, creating win-win trade arrangements with many other countries.  The progress in HDI across the world thus mirrors a corresponding rise in democracy, which I have argued has led to a drop in warfare. 

Ireland used to be significantly behind Britain, France, and Germany, but has now overtaken them.  Guess what Ireland's tax rates are compared to those of the other three?

For all the media gloom about the US falling behind other countries, it has been ahead of the composite average of OECD countries by about the same margin for the last 30 years.  The US economic growth rate continues to be higher than the average for OECD nations. 

Mexico is considered to be a poor country, with a reputation for having citizens who seek to escape to the United States.  However, it is still better off than most of the countries in the Eastern Hemisphere, including Russia and Saudi Arabia. 

China will soon overtake Russia, which is still at a lower level than it was at in 1990.  The rapid improvements in China have greatly reduced the total number of the world's people living in extreme poverty.  Russia, on the other hand has been overtaken by at least 25 other countries over just the last 15 years. 

Related :

These Are The Best of Times

The Winds of War, the Sands of Time

Why the US Will Still be the Only Superpower in 2030

The Age of Democracy

Economic Growth is Exponential and Accelerating

The Biggest Event of the Last 15 Years : The Stunning Defeat of Socialism

Stock Market Capitalization in Developing Countries

An interesting table in The Economist compared the market capitalizations of stock markets in developing nations.  The first surprise is that the top seven stock markets are so close to each other in size.  The next observation is that stock market capitalization has less to do with the GDP of the country than one would expect.  China, which has the largest economy by far among countries on this list, has a smaller market cap than India or Russia.  That Hong Kong and Taiwan approach China in size despite vastly smaller populations makes China look even more surprising.  The large and wealthy diasporas of India and Han Chinese of Taiwan and Hong Kong are also a reason why these countries have market caps larger than their GDPs would suggest. 

In any event, these numbers are dwarfed by the United States, which has a total stock market capitalization of $20 Trillion, or 30 times greater than that of South Korea, India, or China.  One company, General Electric, if placed on this list, would be between Taiwan and Mexico to take 9th place.  And the US market cap grows at 8% a year (without assuming acceleration), which would bring it to $130 Trillion by 2030.  If China or India want to match the US market cap in size by 2030, that means they have to grow at 25% a year for the next 24 years straight. 

This tells you how far any other country is from surpassing the US as an economic superpower.  This will be worth visiting again when one of the countries above crosses $5 Trillion. 

Related :

The Stock Market is Exponential and Accelerating

Why the US Will Still be the Only Superpower in 2030

Why the US Will Still be the Only Superpower in 2030

Version 2.0 of this article is posted here. 

One of the most popular dinner party conversation topics is the possibility that the United States will be joined or even surpassed as a superpower by another nation, such as China.  China has some very smart people, a vast land area, and over four times the population of the US, so it should catch up easily, right?  Let's assess the what makes a superpower, and what it would take for China to match the US on each pillar of superpowerdom. 

A genuine superpower does not merely have military and political influence, but also must be at the top of the economic, scientific, and cultural pyramids.  Thus, the Soviet Union was only a partial superpower, and the most recent genuine superpower before the United States was the British Empire. 

To match the US by 2030, China would have to :

1)  Have an economy near the size of the US economy.  If the US grows by 3.5% a year for the next 25 years, it will be $30 trillion in 2006 dollars by then.  Note that this is a modest assumption for the US, given the accelerating nature of economic growth, but also note that world GDP only grows about 4% a year, and this might at most be 5% a year by 2030.  China, with an economy of $2.2 trillion in nominal (not PPP) terms, would have to grow at 12% a year for the next 25 years straight to achieve the same size, which is already faster than its current 9-10% rate, if even that can be sustained for so long (no country, let alone a large one, has grown at more than 8% over such a long period).  In other words, the progress that the US economy would make from 1945 to 2030 (85 years) would have to be achieved by China in just the 25 years from 2005 to 2030.  Even then, this is just the total GDP, not per capita GDP, which would still be merely a fourth of America's. 

2)  Create original consumer brands that are household names everywhere in the world (including in America), such as Coca-Cola, Nike, McDonalds, Citigroup, Xerox, Microsoft, or Google.  Europe and Japan have created a few brands in a few select industries, but China currently has none.  Observing how many American brand logos have populated billboards and sporting events in developing nations over just the last 15 years, one might argue that US dominance has even increased by this measure. 

3)  Have a military capable of waging wars anywhere in the globe (even if it does not actually wage any).  Part of the opposition that anti-Americans have to the US wars in Afghanistan and Iraq is the envy arising from the US being the only country with the means to invade multiple medium-size countries in other continents and still sustain very few casualties.  No other country currently is even near having the ability to project military power with such force and range.  Mere nuclear weapons are no substitute for this.  The inability of the rest of the world to do anything to halt genocide in Darfur is evidence of how such problems can only get addressed if and when America addresses them.

4)  Have major universities that are household names, that many of the worlds top students aspire to attend.  17 of the world's top 20 universities are in the US.  Until top students in Europe, India, and even the US are filling out an application for a Chinese university alongside those of Harvard, Stanford, MIT, or Cambridge, China is not going to match the US in the knowledge economy.  This also represents the obstacles China has to overcome to successfully conduct impactful scientific research. 

5)  Attract the best and brightest to immigrate into China, where they can expect to live a good life in Chinese society.  The US effectively receives a subsidy of $100 to $200 billion a year, as people educated at the expense of another nation immigrate here and promptly participate in the workforce.  As smart as people within China are, unless they can attract non-Chinese talent that is otherwise going to the US, and even talented Americans, they will not have the same intellectual and psychological cross-pollination, and hence miss out on those economic benefits.  The small matter of people not wanting to move into a country that is not a democracy also has to be resolved. 

6)  Become the nation that produces the new inventions and corporations that are adopted by the mass market into their daily lives.  From the telephone and airplane over a century ago, America has been the engine of almost all technological progress.  Despite the fears of innovation going overseas, the big new technologies and influential applications continue to emerge from companies headquartered in the United States.  Just in the last two years, Google emerged as the next super-lucrative company (before eBay and Yahoo slightly earlier), and the American-dominated 'blogosphere' emerged as a powerful force of information and media. 

7)  Be the leader in entertainment and culture.  China's film industry greatly lags India's, let alone America's.  We hear about piracy of American music and films in China, which tells us exactly what the world order is.  When American teenagers are actively pirating music and movies made in China, only then will the US have been surpassed in this area.  Take a moment to think how distant this scenario is from current reality. 

8)  Be the nation that engineers many of the greatest moments of human accomplishment.  The USSR was ahead of the US in the space race at first, until President Kennedy decided in 1961 to put a man on the moon by 1969.  While this mission initially seemed to be unnecessary and expensive, the optimism and pride brought to anti-Communist people worldwide was so inspirational that it accelerated many other forms of technological progress and brought economic growth to free-market countries.  This eventually led to a global exodus from socialism altogether, as the pessimism necessary for socialism to exist became harder to enforce.  People from many nations still feel pride from humanity having set foot on the Moon, something which America made possible. 

China currently has plans to put a man on the moon by 2024.  While being only the second country to achieve this would certainly be prestigious, it would still be 55 years after the United States achieved the same thing.  That is not quite the trajectory it would take to approach the superpowerdom of the US by 2030.  If China puts a man on Mars before the US, I may change my opinion on this point, but the odds of that happening are not high. 

9)  Be the nation expected to thanklessly use its own resources to solve many of the world's problems.  If the US donates $15 billion in aid to Africa, the first reaction from critics is that the US did not donate enough.  On the other hand, few even consider asking China to donate aid to Africa.  After the 2004 Indian Ocean tsunami, the fashionable question was why the US did not donate even more and sooner, rather than why China did not donate more, despite being geographically much closer.  Ask yourself this - if an asteroid were on a collision course with the Earth, which country's technology would the world depend on to detect it, and then destroy or divert it?  Until China is relied upon to an equal degree, it is not in the same league. 

10)  Adapt to the underappreciated burden of superpowerdom - the huge double standards that a benign superpower must withstand in that role.  America is still condemned for slavery that ended 140 years ago, even by nations that have done far worse things more recently than that.  Is China prepared to apologize for Tianenmen Square, the genocide in Tibet, the 30 million who perished during the Great Leap Forward, and the suppression of news about SARS,every day for the next century?  Is China remotely prepared for being blamed for inaction towards genocide in Darfur while simultaneously being condemned for non-deadly prison abuse in a time of war against opponents who follow no rules of engagement?  The amount of unfairness China would have to withstand to truly achieve political parity with America might be prohibitive given China's history over the last 60 years.  Furthermore, China being held to the superpower standard would simultaneously reduce the burden that the US currently bears alone, allowing the US to operate with less opposition than it experiences today. 

Of the ten points above, Europe and Japan have tried for decades, and have only achieved parity with the US on maybe two of these dimensions at most.  China will surpass Europe and Japan by 2030 by achieving perhaps two or possibly even three out of these ten points, but attaining all ten is something I am willing to confidently bet against.  The dream of anti-Americans who relish the prospect of any nation, even a non-democratic one, surpassing the US is still a very distant one. 

A point that many bring up is that empires have always risen and fallen throughout history.  This is partly true, but note that the Roman Empire lasted for over 1000 years after its peak.  Also note that the British Empire never actually collapsed since Britain is still one of the the top seven countries in the world today, and the English language is the most widely spoken in the world.  Britain was merely surpassed by its descendant, with whom it shares a symbiotic relationship.  The US can expect the same if it is finally surpassed, at some point much later than 2030 and probably not before the Technological Singularity, which would make the debate moot.   

That writing this article is even worthwhile is a tribute to how far China has come and how much it might achieve, but nonetheless, there is no other country that will be a superpower on par with the US by 2030.  This is one of the safest predictions The Futurist can make. 

China's Economy grew 9.9% in 2005

China was once again the fastest-growing large country in the world, with 9.9% growth in 2005 on top of 10.1% growth in 2004.

This incredible surge, which began in 1979 or 1991, depending on how you look at it, has lifted over 400 million Chinese out of poverty, helped China rise greatly in almost all meaures of human development, and kept the world economy growing at a higher rate than that of the United States.  At the current rate, China will become a developed country (a country with a Human Development Index score greater than 0.800) by 2010, putting China roughly at the level of human development the United States had in 1960. 

However, I also submit that China will have to evolve into a genuine democracy to advance their society beyond that level in the decade following 2010.  I submit that to truly become a wealthy nation, China will have to foster innovation, creativity, and self-determination at the grassroots level, and cannot achieve this as long as the Chinese Communist Party controls Chinese society this tightly. 

A bit of perspective is in order. 

Consider that America is still condemned heavily for slavery that ended in the 1860s (sometimes even from countries that had slavery until well past that period), yet China is criticized relatively less than that for their invasion of Tibet during the 1950s and their Tiananmen Square massacre of 1989, just 17 years ago. 

Consider that when there is a tsunami in the Indian Ocean or an earthquake in Pakistan, America is criticized for not providing enough aid soon enough.  Few voices are even asking the supposedly emerging superpower on the same continent for aid.

America is criticized for not proving enough humanitarian aid to Africa, despite the billions already provided.  How often do you hear anyone suggest that China should also donate aid to Africa?

As the world's lone superpower, America carries a heavy burden.  Being held to a standard that no other country is held to, and being criticized for solving only a few, rather than all of the problems in the world, is something Americans have grown accustomed to.  Those who are so quick to conclude that China will achieve parity with or even surpass America have to consider just how many burdens China has to be prepared to carry before it can occupy the same echelon.