Remember when Japan was predicted to overtake America?
Back in the 1980s, Japan was the coming country. Japan’s economy had enjoyed decades of rapid growth. Her exports where everywhere, and with inventions like the Sony Walkman, it looked as though Japan was the technological future, too. America looked like a power in decline. Forty years ago, many traditional US industries were failing. Crime seemed out of control. By the mid 1990s, Japan’s GDP was 71 percent that of the US - and the gap looked to be closing. One “expert”, Herman Kahn predicted that Japan would surpass America as the world’s largest economy by 2000. Today? Japan’s economy is a quarter the size of America’s. Japan hasn’t produced much innovation since the Tamagotchi (Don’t ask). Despite all the talk about Japanese electronic wizardry, the great digital innovations of the past few decades have happened on this side of the Pacific. Today, of course, we’re told that the great ascending power is not Japan, but China. China’s economic growth over the past 40 years has been phenomenal. In industry after industry, Chinese exports have crushed the competition. China, unlike Japan, is not just an economic competitor but a strategic rival to the United States, pursuing an aggressively expansionist policy in the Pacific, south Asia and parts of Africa. By 2021, China’s GDP was almost 80 percent that of the US and the experts were telling us China would overtake America within a couple of decades.
But look at what has happened since. China’s economy seems to have peaked as a percentage of US output. China has even more debt-induced malinvestment than Japan had during the 80s asset bubble. Chinese demographics (current Total Fertility Rate 1.02) are in an even worse shape than Japan’s (TFR 1.30). And China’s fiscal position is unlikely to improve with all of President Xi’s imperial ambitions to fund. As recently as 2008, Europe’s economy was about the same size as the United States’. Today, America’s economy is twice the size of Europe’s. Looking at the number of large companies established over the past 50 years on either side of the Atlantic. Home Depot, a single US company, eclipses all the new businesses created in the European Union since 1974. So why are Japan, China and Europe all in their different ways underperforming America? Because each are, in their different ways, reverting back to a type of political economic tradition far less successful than America’s. Japan, superficially Western in so many ways since 1945, has behind that façade a strongly corporatist political economy. A handful of well-connected conglomerates are able to dominate markets, but shielded from internal competition, they don’t innovate. (To appreciate how stifling this is, try to imagine what America might be like, for example, if IBM was the only computer company, with all the competitors kept out.) China, after a brief move towards market liberalization begun by Deng Xiaoping, is reverting to what you might think of as a Ming tradition. Dissent is stamped on. A bureaucratic elite micromanages and controls. The sclerotic effects are already being felt. Europe, repeated rescued from an indigenous form of autocracy by the Anglosphere powers (1704, 1815, 1914, 1944, Cold War), is tragically reverting to type. Today, a courtly elite enthroned in Brussels attempts to regulate and control ever more aspects of social and economic life across the Continent, destroying it in the process (Mercifully, Britain escaped from this in 2016 and might yet return to a more Atlantic tradition). To flourish, the United States needs to stay true to the political and economic model envisaged by the Founders; limited government, lower taxes and liberty. The good news is that with the new administration in Washington, this may well be about to happen. Elon Musk is determined not only to cut federal spending (something America urgently needs to do to avoid bankruptcy). He is looking to turbo charge productivity growth, moving people from the public to the private sector, and radically cut red tape. Reports of America’s relative decline seem to me to be wildly exaggerated. If Musk and co deliver half of what they are promising, we might just be on the cusp of an extraordinary period of progress and innovation in America. The divergence between America and the rest of the world is only going to accelerate. I feel an overwhelming sense of privilege to be onboard! Douglas Carswell is the President and CEO of the Mississippi Center for Public Policy. He was previously a Member of the British Parliament for 12 years. MCPP sponsored this post.
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