China Wealthy? That's Rich!

It was big news around the world: China has "overtaken" Japan as the world's second-richest economy.

Except, well, it's not really news, it's not really big, and it's not entirely true.

Let's take the last part first. Yes, technically, China's gross domestic product is now slightly ahead of Japan's.

But GDP is a gross statistic. It doesn't tell you nearly as much as you might think. In a very real way, China is still poorer than Japan. It's also poorer than Tunisia, Ecuador, Gabon, Kazakhstan, and Namibia.

Last quarter Japan produced about $1.28 trillion of economic output, or about $10,085 for each of the 127 million Japanese people. China's output was $1.337 trillion for the quarter. But China has 1.3 billion people, so that's about $1,000 for each Chinese person.

Yes, 1.3 billion poor Chinese people are collectively more productive than 127 million rich Japanese people, but I can guarantee that most sane people would rather be poor by Japanese standards than middle class by Chinese standards.

When I graduated from high school in 1987, historian Paul Kennedy published The Rise and Fall of the Great Powers. The original cover depicted the Japanese about to seize center stage, while Uncle Sam was stepping down (and Winston Churchill was already walking off to historical oblivion). That cover looks pretty stupid now.

Starting from the abject poverty only doctrinaire communism and feudalism can create, [China] has imposed market-based reforms, lifting hundreds of millions out of economic squalor.

At the time, the book was a sensation, taken as gospel by a whole class of liberal economists, journalists, and intellectuals. Indeed, Kennedy was simply synthesizing the consensus at the time. Which is why he could confidently predict the inevitability of Japanese world dominance, but completely miss the demise of the Soviet Union, which was right around the corner.

Regardless, the idea that Japan was going to supplant America as the dominant world power was one of those things "everybody knows."

James Fallows of The Atlantic insisted that America had to emulate Japan's policies while pursuing a policy of "containing" Japan, lest we be run over by it. Chalmers Johnson insisted that the Cold War was over and "Japan won." He also argued that the failure of free-market economics was so complete that, "If America were a well-run country, neoclassical economists would be hanging from the Capitol dome."

Today we hear similar stuff about China. Indeed, when it comes to China, New York Times columnist Thomas Friedman often seems like one of the hypnotized acolytes of the snake god Thulsa Doom from the movie Conan the Barbarian.

In fairness, China's rulers haven't hanged their free-market economists from the politburo's balcony (at least not recently). In fact, they've listened to them. China has, however, murdered tens of millions of its own people, a fact that doesn't seem to bother Friedman much at all. Indeed, he speaks often of his "envy" for China's ability to pursue "optimal policies," whereas because of America's inefficient democracy, we can only pursue "sub-optimal" ones.

What is remarkable, however, is what unites China and Japan. As the editors of the Wall Street Journal (who've been shellacking Japanophiles for 30 years in these debates) recently noted, Japan's economic rise coincided with a small government sector, and its economic fall has coincided with the growth of government. In 1984, in terms of spending and taxing, Japan had just about the smallest government of the top 23 developed countries. Since the early 1990s, when its "lost decade" began, it has pursued a massive Keynesian spending spree and the government has grown to European levels.

China followed the opposite path. Starting from the abject poverty only doctrinaire communism and feudalism can create, it has imposed market-based reforms, lifting hundreds of millions out of economic squalor. And yet the Friedman and Fallows crowd looks at both examples and bizarrely concludes that the secret to success is more statism, and the source of failure is more freedom.

China still has enormous problems, many of which aren't reflected in its GDP growth rates, and since it lacks democracy, a free press, and the rule of law, we can't know what all of the problems are until they explode (and neither can the Chinese).

But all of this misses the most important point. Economic "competitiveness" is a con. It assumes that when other countries prosper, America loses. That's nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States. Conversely, if China's economy imploded tomorrow, we would "gain" competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them.

Jonah Goldberg is a visiting fellow at AEI.

Photo Credit: iStockphoto/Hsing-Wen Hs

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