By 2050, China will be the world’s largest economy, followed by India, and the U.S. in third place.
That’s according to a recent PwC report, which predicts that China will account for 20 percent of the world economy, with India at 15 percent and USA at 12 percent. That’s a big change from 2016, when the US was beating both China and India by a big margin—see table.
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World Economy Share in 2016 (%) |
World Economy Share In 2050 (%) |
USA 24.32 |
China 20 |
China14.84 |
India 15 |
India 2.83 |
USA 12 |
Source: PwC and World Economic Forum
Projections, however, should be viewed with extreme caution; they rarely come true. Especially when they are made far into a future which holds many surprises for the true believer.
Like the prediction back in the 1960 that Japan would continue to grow at a fast pace and go on to become the largest economy in the world—ahead of the U.S.
Japan grew, indeed, for a couple of more decades to become the world’s second largest economy. But then it slid into a prolonged stagnation that pushed it to third place, behind China.
Meanwhile, the U.S. continued to grow at steady rates, maintaining its status as the world’s largest economy.
What went wrong with this projection?
The projection was based on the false premise that what differentiates economies from each other was growth rates rather than the “regime” of the institutions and policies that accommodate economic growth.
Apparently, Japan didn’t have the right “regime” to make economic growth sustainable, as is the case with America.
Over the course of its history, America has developed and maintained a good (if not ideal) combination of free markets and government, with each institution deployed in areas of society it excels – free markets in allocating economic resources efficiently and effectively in the production of private goods and services, and government in creating a “general equality of condition among the people,” as graphically described in Alexis De Tocqueville Democracy in America.
The government protects civil liberties and economic freedoms, and takes care of the “commons,” sectors of the economy where free markets are inadequate or fail altogether: the provision of public and semi-public goods, and the protection of the public from health, traffic, occupational, and environmental hazards.
So far neither China and India have managed to develop such institutions, as discussed in previous pieces here.
That’s why it isn’t a good idea to bet on the prospect of the economies of China and India beating America’s by 2050.