Listener: 24 July, 2010

Keywords: Globalisation & Trade;

For most of the world’s history, economic activity was determined by population. Inequality between regions did not happen much, because any rise in incomes was checked by a Malthusian expansion of population. But the spectacular 19th-century industrialisation of Europe and North America concentrated economic activity there and led to much greater differences.

Japan joined them in the 20th century. By its end, the rest of East and South Asia seemed to be tracking the same path. Economic activity now appears to be returning to its more traditional pattern of occurring where the population is, although it may take a century and more to get there.

Since over half the world’s population is in Asia, we must expect much industry to relocate there. Forecasting such trends is an art, subject to large margins of error. When the projections in the 1980s said the rapidly growing Japanese economy would overtake America’s, there was much angst about a world in which Japan was the superpower. But shortly after, when Japan got to income levels similar to other rich economies, it stopped growing so quickly. Now we are wondering about When China Rules the World – as a recent book by Martin Jacques has it.

There is no question that China’s economy has been rapidly growing. It is now about as big as the US’s and the European Union’s (each is a little under a fifth of the world total) and may soon surpass them. But will it be the superpower? In per capita terms, its income is well below that of the rich economies, so China has not got as much discretionary income.

What is unquestionable, however, is that it is an increasingly big player in the world economy. Yet I think the approach of Jacques (and others) is fundamentally misconceived – although it is a very useful book if you discount the title.

There have been two hegemonic (dominant) world powers in the globalisation era: the United Kingdom in the 19th century and the United States in the 20th. But that does not mean a hegemon is an essential part of the globalised world. There may well be up to five major economies – the US, the EU, China, India and Japan. None will be powerful enough to dominate the rest in the way that the UK did and the US (almost) still does.

In economic terms, a market with a dominant monopolist is relatively easy to understand, but we don’t have any comprehensive analysis for when there are five big players; the outcome can be chaotic.

Moreover, we may know a fair amount about the internal politics of Europe and the US, but what China is up to is unclear. It says it wants international harmony. Instructively, it is working with India to improve relations, despite their border differences.

Sometimes we misread China; it was too easy to blame it for the breakdown of negotiations to restrict global warming at Copenhagen – yet Shanghai is vulnerable to rising sea levels, and the magnificent avenues of trees in Chinese cities are partly there as carbon sinks.

Assessing Chinese intentions risks two mistakes. One is to say that they are exactly like us; they are not. The other is that they totally unlike us. Sure, they have a different history, different needs and different approaches, but they are not that different. Consider this: “In the event of widespread discontent, the ruler may be deemed to forfeit the mandate to govern and may be overthrown.” John Locke, the British political philosopher? No, a translation of Confucius almost 2000 years earlier.

Confucianism emphasised the importance of the family, something one can still charmingly see in the Chinese in public. But as society becomes more mobile and dynamic, family institutions will change, as they have for those from a Christian heritage.

China’s leaders are cautious about the country’s evolving international role. They will approach it from their own perspectives and preoccupations – just like we do. I am far more fearful of five major economic powers than a world in which there is a hegemon, even if it is China.

This column is part of an occasional series that arose out of a trip funded by the NZIER-NBR Economist of the Year Award.