Best Guessing the Future of India and China

It seems that everyone who is anyone these days has been busy posting about the recent Goldman Sachs study on the so-called BRICs (Brazil, Russia, India, China). Matt, for example, over at Fistful of Euros, Reuben at Zoo Station and, of course Brad over at Semi Daily Journal. I think everybody I've mentioned agrees that this paper contains something important, or at least something which is obvious but which needed making explicit. India and China are set to become the biggest players in the global economy, and this is inevitable simply from the demographics. Brad takes issue with the inclusion of Brazil and Russia, while Reuben no-no's Russia. I think Reuben is right. Russia's demography mean it's GDP is more likely to shrink than to grow, but Brazil is a different case. It may not be as big a thing as China and India, but it is arriving at the good moment, and it will make it's presence felt, especially in Latin America. In fact I would probably strip out Russia from the list and add-on Turkey, but here we are talking of a different order of magnitude completely (although Turkey will possibly overtake Russia). How could GS get this bit so wrong, I think because they look principally at dependency ratios and not especially closely at absolute numbers. Russia's situation is possibly even worse than it appears to be, since in addition to the fact, as Reuben points out, that it isn't immigrant friendly, it is actually experiencing emigration. This will only make the position with its working age population worse.

So back to the good news. It is now 'official': India and China are on the way up. But again, another quibble. What GS state is really pretty obvious. What is rather less obvious is the value of trying to make economic, not demographic, projections about all this. We are still arguing about what will be end of year GDP numbers for 2003, we have only vague guesses about what the numbers might be for 2004, and from there on out we are just plain guessing. The orders of magnitude of errors in projections forward over 50 years are just mind blowing. So I think it is a serious error to try and give a kind of 'pseudo scientific' veneer to all this by printing out long pages of numbers. This is quackery.

But since we are guessing, let me make my guess. Reuben says he thinks that numbers offered by GS may in fact be unduly pessimistic. I agree completely, here's my reasoning. The only thing we have to go on really is the technical change and the demography. Now what if the demography means the OECD world hits protracted deflation. This possibility isn't even considered by GS. But it must be one of the alternatives, and if we do have deflation (and I think we will) then the GDP's of the OECD countries may well reduce, Japan style. At the same time if we move out of the zone of the economists and into that of the technologists, we find something even more interesting: Ray Kurzweil's 'law of accelerating returns', or as Edward puts it 'things are getting faster, faster'.

The differences between Europe and India/China have as we know built-up over only 200 years. Now if we look for a minute at the macro-structure of change we find it took 10,000 years from the agricultural revolution to the industrial one, but only 200 years to get from the industrial to the information one. What I am trying to say is that what took 200 years to accumulate will take a lot less to reverse, in my view, at the pace we are going a lot less than 50, although clearly I don't know just how long. This, as I said, is only a guess, but it is an educated one, and it seems to me to be as valid as the GS version.