The trajectories of China and India, two of the world’s fastest-growing economies, are both fascinated and grossly misunderstood. In light of the fact that in both cases, the destinies and production capacity of over one billion individuals are involved, two important questions arise: how the two nations ended up reaching their current GDP growth rates on the one hand and whether or not their economic ascension can grind to a halt on the other.
Economist Andrei Polgar, the founder of One Minute Economics as well as managing partner of China Fund Dot Com, believes (distant) economic history provides more than clear guidance. If we are to only look at the past century, our macroeconomic perception risks being incomplete at best, believes Polgar. If however we were to analyze databases which revolve around the more distant past, for example the Angus Maddison database which puts data pertaining to two millennia on the table, we end up realizing that China and India aren’t dealing with explosive economic growth as a fluke.
On the contrary, the two nations belong in the spotlight and have been in the spotlight for most of our known economic history, with the share of the global GDP represented by their combined Gross Domestic Product exceeding 50% for most of the past 2,000 years.
Andrei Polgar does point out, however, that when it comes to the distant past (events prior to the Industrial Revolutions), the GDP of a nation was for the most part a function of its population in light of the fact that there weren’t all that major productivity differences between countries.
When it comes to today’s China and India, Polgar states that it is no longer the case. Indeed, we need only look at individual-level metrics such as the GDP per capita of the two countries to understand that both China and India still lag strongly behind the world’s top economic superpowers and even the developed world in general. However, in light of how globalization almost inevitably leads to such gaps being gradually narrowed by phenomenon types such as technology transfer and wage arbitrage, even arguments that appear to be against China and India such as this one are actually in favor of long-term economic growth scenarios.
To put it differently, Andrei Polgar of ChinaFund.com believes that once the productive capacity of two gargantuan nations such as China and India has been even remotely unleashed, reversing course is highly unlikely.
Is it impossible? No, believes Polgar. In his view, there are most certainly a wide range of both endogenous and exogenous factors which could lead to major setbacks. Even the United States had its share of civil unrest, economic issues and downright humanitarian situations before becoming the world’s number one economic superpower, with two-thirds of the global gold reserves after World War II.
The same will most likely be true when it comes to China and India but despite in some cases even seemingly trajectory-altering setbacks, Polgar is of the firm opinion that these two nations are on a generational upward mega-trend which should not be ignored.
As such, while the impressive economic ascension of China and India might and occasionally will at least temporarily grind to a halt, Andrei Polgar points out that positioning yourself on the bearish side of a secular mega-trend is perhaps not the wisest of approaches.