Sunday, December 26, 2004

For America, these may be the good old days

Scott Burns, The Seattle Times

It helps to have historical perspective.

Unfortunately, getting one isn't easy. In the newspaper business, we publish every day. History isn't our long suit. We tend to treat events breathlessly, inflating the importance of the statistic of the moment or the deal of the day. Nowhere is our lack of historical perspective more visible than the unending stories about China. The question is whether China will eat our lunch.

The answer is, yes, it probably will. Not this week. Not next year. But over some period of time longer than we normally consider, like a generation.

When I interviewed John Templeton last month, he had real historical perspective.

I asked the 92-year-old investment master this: "Junius Morgan once advised his son, J. Pierpont Morgan, that one could never go wrong being bullish about America. Given some of the current concerns, especially the idea that the West's historic advantages may be waning, do you agree with Junius today?"

Templeton answered: "Throughout history, all major nations have eventually had a weaker competitive position; and therefore the Morgan family was shortsighted in thinking that nations of Asia cannot become stronger competitors than the USA."

If you want to see the sweep of history, pick up a copy of Samuel Huntington's "The Clash of Civilizations and the Remaking of World Order" (Simon & Schuster, $15). Turn to Page 86.

On that page you will find a table showing "Shares of World Manufacturing Output by Civilization or Country, 1750-1980."

You'll see that the Western nations produced only 18.2 percent of output in 1750. In the same year China turned out 32.8 percent. India/Pakistan turned out 24.5 percent. Between them, the two areas of the East were responsible for 57.3 percent of global manufacturing. Japan was barely on the map, with only 3.8 percent.

By 1830 — the decade widely cited as the beginning of the agricultural revolution in America and the exodus from farm to city — Western manufacturing output, at 31.1 percent, had surpassed China's 29.8 percent. The eclipse of the East had begun.

By 1880, manufacturing in the West accounted for an amazing 68.8 percent of global production. China had collapsed to 12.5 percent. India/Pakistan had imploded to only 2.8 percent. Basically, superior technology and investment in the West had de-industrialized the East.

Believe it or not, Western dominance was not complete. By 1928, Western manufacturing output accounted for 84.2 percent of global production. China was down to 3.4 percent. India/Pakistan was down to 1.9 percent. From producing three times as much as the West in 1750, they were producing only one-sixteenth as much.

The year 1928, however, was when the Western share of manufacturing output peaked. And that was 76 years ago. By 1980, the Western share of manufacturing output had declined to 57.8 percent. China had risen to 5 percent, and India/Pakistan had recovered to 2.3 percent. Both nations, combined, trailed the 9 percent share held by Japan.

And that was 1980, nearly 25 years ago.

Huntington concludes: "It appears probable that for most of history, China had the world's largest economy. The diffusion of technology and the economic development of non-Western societies in the second half of the 20th century are now producing a return to the historical pattern. This will be a slow process, but by the middle of the 21st century, if not before, the distribution of economic product and manufacturing output among the leading civilizations is likely to resemble that of 1800. The 200-year Western 'blip' on the world economy will be over."


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