Steven Dunaway makes an excellent counterargument to the doomsayers that insist the China overtake the United States economically some time in the not so distant future.
There are at least three reasons why China may stumble in the period ahead. First, time appears to be running out on the investment-driven, export-led model of economic growth that China has used to develop its economy. With the slow growth in external demand that is likely to prevail over the next decade or so, continued adherence to this model will result in slower growth in China. Second, the rule of law remains underdeveloped; without it, China will find sustainable growth and development difficult to achieve over the long run. The lack of adequate means to enforce contracts and protect property will have an increasingly detrimental impact on growth over time. Third, political arrangements in China may make it difficult to establish the economic conditions needed for the country to maintain rapid growth. Only if China can deal effectively with these challenges will it be able to live up to its economic potential.
Like the climate change alarmists, many of the predictions of Chinese primacy assume current trends will continue ad infinitum, and there will be no changes in the economies that feed China’s growth. Knowing that the economies of the US, Japan, Korea and other developed countries are directed by rational actors, and not mindless automatons, such assumptions are ridiculous.
There’s also a lesson for the United States tucked in Mr. Dunaway’s piece. He writes,
The rule of law is fundamental for sustaining economic growth and development. Individuals and firms need predictability in economic arrangements and assurances that contracts and property rights can and will be effectively enforced.
As the Obama administration continues to issue dictats that undermine private property rights–like seizing private corporations and meddling in corporate governance–investors and entrepreneurs will become more risk averse and economic growth will suffer.