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Catching Up Is Hard to Do

By Matthew Yglesias on October 4, 2010 at 8:31 am

"Catching Up Is Hard to Do"

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With so much generally declinist notions in the air lately, it’s worth sharpening a point Ryan Avent alluded to last week namely that we shouldn’t underestimate how extraordinarily difficult it will be for big developed countries to overtake the United States’ level of prosperity. Indeed, I find it striking that if you go back to the beginning of America’s emergence as the wealthiest society in earth that in all this time really only Norway and tiny Luxembourg have ever been able to clearly surpass us. I’m a Europhile so I’d happily make the case for the Switzerland, Netherlands, and Denmark as well. But still it adds up to a relatively small number of countries, with not that much in the way of total population, and they’re generally wrestling with a lot of the same kinds of problems we have.

When you look at the large population third world juggernauts, you see something else happening. You look at the pace of progress they’re making, and it’s frustrating to see us making progress so much more slowly. And we should be frustrated with the slow pace of progress. But we’re moving forward slower largely because we’re dealing with tougher problems.

Given a giant country full of poor people, one way you can make the country less poor is to take technologies and techniques developed elsewhere and then apply them in your country where labor costs are lower. And good for them. But there are real limits to this process. We obviously can’t become richer than we currently are by undercutting our own real wage levels. And we’re having difficulty figuring out how to produce a more skilled population than our current one in part because there’s really not much in the way of examples we can follow. But what we do know is that if China were to somehow manage to become as rich as Croatia or Trinidad & Tobago that’d involve the creation of trillions and trillions and trillions of dollars worth of additional wealth every year. The primary beneficiaries of that would, of course, be the Chinese. But Americans would be among the secondary beneficiaries—we’d have tons of new business opportunities. That’s one of the things that makes catch-up so difficult. When poorer countries do better, it gets easier for us to do better. That’s a good thing for the world, but it means that absolute decline in the face of rising powers is a very unlikely scenario.

Most generally, whenever you read articles about growth “miracles” or America’s fading competitiveness it’s worth revisiting Paul Krugman’s old article about the Soviet growth miracle as a cautionary tale.

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