Opinion The folly of Fogel’s numbers
Robert Fogel's piece in Foreign Policy (8 February 2010) has had headline-grabbing impact.
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Robert Fogel’s piece in Foreign Policy (8 February 2010) has had headline-grabbing impact. In 2040,the Chinese economy will be US $123 trillion,with a per capita income of $ 85,000. China’s share of the global GDP will be 40%,the US share will be 14%,and the EU share 5%. These are official exchange numbers,not PPP (purchasing power parity) ones.
The Fogel arguments are based on increases in labour productivity (investments in education,even in rural areas),consumer expenditure and investments in infrastructure. Just so that we have the number perspective,in 2008,the global economy was US $60.59 trillion (these are World Bank numbers). The pecking order had US at the top with $14.2 trillion,followed by the Eurozone ($13.6 trillion),Japan ($4.9 trillion) and China ($ 4.3 trillion). Subsequently,early in 2010,China overtook Japan,though this is yet to be formally vetted.
India was 12th,with $1.2 trillion. That China and India will grow,and grow fast,is known and accepted. It is also known and accepted that their shares in the global GDP will increase,and this will become more marked with PPP numbers. Ever since the first Goldman Sachs BRIC report,we know numbers look more impressive if one extrapolates beyond 2030.
But having said this,and having accepted the strength of the Fogel arguments,those Fogel numbers still look hopelessly out of line. Forget India. Earlier Chinese projections had a nominal GDP of around US$ 45 trillion in 2040,and per capita nominal GDP of around $31,000 for the same year. These numbers were impressive,but nowhere near as impressive as Fogel’s numbers.
As far as one can make out,there is no model Fogel has used for his projections. All that has been done is a straightforward and mechanical application of growth of almost 11% (actually 10.8%) for thirty years. There are reasons (not just greying population) why China will find it impossible (and not just difficult) to sustain growth on that scale. In fact,Chinese greying is now expected to occur ten years before it was originally expected,because birth rates were over-estimated.
This is not to suggest that labour productivity cannot neutralize aging. However,it cannot neutralize the entire impact of greying. And there are other factors (drop in savings rates,environmental concerns) that are concerns too.
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