Beckley notes the widespread view that the US is declining relative to China and that this owes largely to the leveling effects of globalisation. He analyses a broad set of economic, technological and military indicators to reach a conclusion which, if true, is as profoundly important as it is unfashionable; far from declining in relative terms, America is now wealthier, more innovative and more militarily powerful compared to China than it was in 1991. Here are some of Beckley's main points:

• Estimates of China's power tend to be exaggerated (and estimates of America's power tend to undershoot) because: GDP correlates poorly with national power (per capita wealth providing a better indicator of surplus wealth available for broader national purposes); conclusions are often based on static single-year snapshots rather than trends over time; and China is often compared with itself (at an earlier time), rather than with America (which is itself not standing still).
• The US is not like Britain and other eclipsed hegemons but holds a unique geopolitical position owing to an unprecedented combination of material advantages; as a result it exercises 'structural power' – an ability going beyond the use of force or coercion to set global agendas and shape the range of choices open to other countries.
• America has its problems, including public debt and a fractious polity, but suggestions of imperial overstretch and decline are premature. Past hegemons succumbed after fighting wars against major powers on multiple fronts and spending anything between 10% and 200% of GDP on defence to do it; by contrast, the US spends a relatively modest 4% on defence and confines itself to knocking off the odd rogue regime or occasional humanitarian interventions.
• Rather than operating neutrally to close the gap, globalisation – and particularly globally networked production – may be an active political process shaped by the US to serve its interests (yes, that's right – the conspiracy theories may be true!).
• Wealth, innovation and (conventional) military capabilities are the most vital elements of power in the contemporary international system.
• Yet, for all China's double-digit economic growth, massive investments in education and research and rapid military modernisation, today the US is wealthier compared to China than it was in 1991, China continues to lag behind America in innovation, and (despite some asymmetric advantages) the US-China military gap is growing, not shrinking.

Not everyone will agree with Beckley's methodology or with all of his conclusions. The relative contributions of wealth, innovation and military capability to national power, for example, are debatable. Nor is it to suggest Australia or the region should be complacent. Even if Beckley is right, misperceptions of the balance of power in Asia – on either side – can be dangerous.

Nonetheless, he has done us a considerable favour by questioning some of the glib assumptions that underpin much of the Australian debate – in particular by cautioning against the idea that raw economic power necessarily translates directly into global clout and by highlighting significant shortfalls in China's ability to innovate (some of which Fareed Zakaria has also documented).

At least one of Beckley's conclusions could almost have been written with Australia's White Paper in mind:

The best that can be done is to make plans for the future on the basis of long-term trends; and the trends suggest that the United States’ economic, technological and military lead over China will be an enduring feature of international relations, not a passing moment in time, but a deeply embedded condition that will persist well into this century.

'Whose century?' indeed.

Photo by Flickr user Jennikokodesu.

But there's a great virtue in parsimony, and given that the simplest measure of wealth we have is GDP, I'm going to claim that comparing GDP and GDP per capita over time should do a pretty good job of capturing much of what's going on in the relative economic positions of the two economies. After all, most of the other potential variables we might consider can be thought of as inputs or contributors to GDP. And as I've noted before, although GDP has a lot of well-known shortcomings, a general dearth of alternatives tends to mean that we end up using it anyway.

That still leaves us with the problem of how best to measure it. Long-standing Interpreter readers will be familiar with the ongoing debate over whether PPP or US dollar GDP is the best choice. Arvind Subramanian discusses this issue in his recent book on China's rise, and goes for the interesting option of weighting the GDP variable in his 'index of economic dominance' half on a PPP basis and half on a US dollar one. 

Below, I try to side-step this issue by charting both the US dollar and the PPP series for GDP and GDP per capita, expressed as a ratio of the Chinese to the US value (all data taken from the latest IMF WEO database, including the latest Fund forecasts out to 2016):

Looking at these two charts, even on the measure that's least favourable to China – GDP per capita measured on a US dollar basis – it's pretty hard to argue that China has gone backwards relative to the US since 1991. On a PPP basis, the degree of catch-up is actually rather impressive. Moreover, it's possible that this still understates China's progress.

Finally, having just made the case for GDP as the appropriate metric for economic comparisons, I'm going to back away from that claim a bit. One recent  approach to measuring national wealth has been pursued by the World Bank, where analysts have constructed an alternative estimate comprising the sum of produced capital (machinery, structures and equipment), natural capital (agricultural land, forests, minerals, energy) and intangible capital (calculated as a residual, but intended to capture human, social and institutional capital including hard-to-measure factors like the rule of law and the quality of governance). 

The idea of this measure is that, unlike GDP, which only captures the value of production, it takes into account both environmental factors and intangibles. The Bank has produced estimates for national wealth for three years (1995, 2000 and 2005), and again I've plotted the ratio of Chinese to US wealth on both a total and a per capita basis.

I'll finish with two points based on this last comparison.

First, both the overall and the per capita wealth ratios are much lower than the comparable ratios for GDP. While this reflects significant gaps across all three measures of wealth — according to the Bank's estimates, natural wealth per capita in China in 2005 was about 30% of US levels, produced capital was about 6% of US levels, and intangible capital less than 1.5% of US levels – the last of these is the standout item for me. This brings us nicely back to my opening point: that there are significant differences between developed and developing/emerging economies. One of those differences is the relative size and quality of the kind of things that make up intangible capital.

Second, even on these measures, China has still made some modest progress in terms of catch-up. This slower progress also suggests (not surprisingly) that closing the gap in human, social and institutional capital is likely to be tougher for emerging markets than closing the gap in machines and factories.

Photo by Flickr user kk+.

Source:  International Monetary Fund World Economic Outlook Database, September 2011. 

The best way to deal with this situation is simply to report both figures: the US is growing more slowly but becoming richer than China. Yet most analyses of US decline, including Thirlwell's, only report growth rates. 

It's not hard to see how defining decline in terms of growth rates produces nonsensical results. Over the past twenty years, more than half the countries in the world grew faster than the US, including such titans as Bangladesh, Pakistan, Uzbekistan, and Rwanda. Moreover, by Thirlwell's definition, the US has been in decline to China since 1968, during the Cultural Revolution and over a decade before Reform and Opening. 

The problem with growth rates is that they compare countries to their former selves. China's growth rates are high in large part because its starting point was low. For this reason, Harvard political scientists Sheena Chestnut and Alistair Iain Johnston contend, 'it strains the concept...to characterize any state with a faster growth rate than the United States as a rising power. This does not fit with a commonsensical notion of rising power.' 

One can argue that comparing growth rates helps account for potential diminishing returns of wealth. For example, Georgetown political scientist Erik Voeten recently asserted 'it is much easier for a country with a GDP per capita of 30K to bully a country with a GDP per capita of 1K than it is for a country with a GDP per capita of 50K to bully a country with a GDP per capita of 15K.'

Perhaps. But one can also imagine the opposite being true. Highly developed countries may get more bang for the buck than less developed countries – that is, every dollar they spend on innovation, military capabilities, international influence, etc. produces greater returns. This idea of increasing returns to wealth fits with the standard conception of economic development as efficiency of production and is supported by studies showing that more developed countries are better able to translate their basic resources, or 'latent power', into actual capabilities (for examples, see here, here, here and here).

Obviously, growth rates should not be ignored. They provide an important data point and allow us to make educated guesses about the future. But neither should they be conflated with total growth nor used to define loaded terms like 'decline' or 'catch-up'.

One last point. China is growing faster but falling behind the US across most indicators. But in terms of GDP, China is growing faster and closing the gap – by most projections, China's GDP will overtake America's sometime in the next decade or two. Most analysts view this impending GDP transition as a looming power transition. And Thirlwell places a great deal of emphasis on GDP in his post.   

To be sure, GDP figures serve a vital function in defining the set of potential major powers – Luxembourg is extremely wealthy in per capita terms, but its small population precludes it from raising an army, let alone entering the ranks of the great powers. But beyond this basic function, GDP figures can mislead more than they illuminate, at least in certain cases. China is one of these cases.

It is often forgotten that China had the largest GDP for the first half of its 'century of humiliation' (1839-1945) when it was torn apart by Western powers and Japan. The UK, on the other hand, ruled a quarter of the globe during the 19th century, but was never, even at its peak, the largest economy in the world. The figures below show GDP and GDP per capita figures for 1870. The data on GDP per capita matches much better with our understanding of which countries were powerful in 1870.

Source:  Maddison, Statistics on World GDP. 

China is obviously not as weak today as it was in 1870. But much of the case for the rise of China and the decline of the US rests on GDP figures, so it's important to recognise that GDP has never been a good proxy for national power or aggregate wealth. GDP is largely a function of population, and people are both assets and a liabilities because they both produce and consume resources. China's 1.3 billion people produce much output, but they also consume most of it immediately, leaving little wealth for national purposes. 

GDP figures help define the potential major powers. But when you're comparing two big contenders like the US and China, GDP per capita becomes a much more important measure because it represents how developed each country's economy is and how much surplus wealth is available for national purposes. By that measure, along with more specific measures of innovative and military capacity, the US is rising relative to China, at least for now.

Photo by Flickr user papalars. 

Obviously, this is only right within limits. As Michael says, Luxembourg hardly ranks as a global power despite high per capita incomes, so overall size counts for something. Intuitively, the primary economic factor determining national power is the total resources that can be applied by the state for national purposes, and that would seem to depend much more on the size of the overall economy than the wealth of individual citizens.

Michael's response to this, again if I understand him correctly, is that per capita income is nonetheless a better index of national power because it correlates with two other factors which counterbalance the effects of sheer GDP size. First, higher per capita income countries have more advanced economies and can harness more advanced technology, therefore using their resources more efficiently, so they get more power for each dollar. But is this true? I'm not sure it is, at least in the military field with which I am most familiar. History suggests that large numbers of simple weapons can often beat smaller numbers of more expensive ones. Quantity has a quality all its own.

Second, I think Michael argues that high per capita income countries have an advantage in power because they can devote a higher share of their overall wealth to national purposes, since a lower proportion is needed for bare necessities. 

Again, it is not clear how far this is true. The proportion of national wealth available for national purposes depends on many other factors apart from per capita income – including how much of the economy the government controls directly, and how willing the people are to surrender what they control to the government. It is not at all clear, for example, that the US Government commands a bigger share of America's wealth than the Chinese Government does of China's. 

So while I agree that GDP is a very imperfect measure of the economic foundations of national power, I think it remains the best we've got.

How big a shift?

As Michael suggests, many people both exaggerate the scale of China's rise, and wrongly believe that America is declining. There are interesting questions about the long-term trajectory of the US economy, but it is simply wrong to say that the shift in relative size of GDP between the US and China is even partly the result of US decline. It is all down to China's growth.

Remarkable as that growth is, I agree with Michael that it is often exaggerated. China is unlikely to 'rule the world'. It has little chance to achieve the preponderant share of global GDP that America has previously enjoyed, partly because of inherent limits to its own trajectory – especially demographic – and partly because there are just too many other big players in the world with (actually or potentially) the combination of big population and high productivity required to generate a huge economy. China may be the biggest for a while, but it will be one of a crowd at the top.   

Nonetheless, China is much bigger economically relative to the US than it was ten or twenty years ago, and much bigger relative to the US than any country has been for over a century. This is a very big shift. And if size of GDP is a correlate of power, it is a very big shift in relative power. 

What does this mean?

Is this shift big enough to make a difference to the way America manages its relationship with China? To be more specific, does it mean that the US should rethink the widespread assumption that continued American strategic primacy is the only acceptable basis for the future relationship? To be even more specific, does it make sense for the US to try to impose its primacy in China, as China's power grows? Well that's a big question, but here are two quick points.

First, this question is not entirely answered by deciding who is stronger. What matters in framing the relationship between the US and China is not just how much power each has, but what they need to do with it. 

There are three key asymmetries in the US-China relationship which all break China's way. China's objectives are focused in Asia, while America's are globally dispersed. The theatre of competition is on China's doorstep, but an ocean away from the US. And in the military sphere, to maintain primacy in Asia, America must maintain sea control, while to prevent that China need only achieve sea denial. Together these asymmetries mean that China does not have to become as strong as America for the balance of costs and risks of sustaining primacy in Asia to grow sharply for America.

Second, the answer does not just depend on what America can do, but on what it wants to do. We might argue about how far China's power has grown, but we cannot doubt that it has grown a great deal. It will therefore cost America a lot more to sustain primacy in future than it has in the past, against China's clear opposition. The big question for America is whether the costs are worth it. That of course depends on what the alternative is. If the only alternative is Chinese hegemony in Asia, maybe they are. But that is not the only alternative.

Photo by Flickr user Silly Little Man.

Britain's economic exhaustion after the second of two world wars in the first half of the century was part of a relative economic decline that was both systemic and perceptible. But, at least looking backwards, people are less inclined to remember the 1967 sterling crisis than the physical withdrawal of British forces east of Suez. Like the failure of Britain's Singapore strategy a generation before, this was a huge, lumpy, change which affected others. It was symbolic of that wider systemic weakness, but that weakness was not enough on its own to guarantee it. It took a political decision: an act of will.

So much of the current debate is about the search for signs of those underlying and slow-moving systemic trends (as if we really can detect them properly) rather than the critical dimension of real decline: the political inability or unwillingness to sustain influence.

Of course, this can happen when material power has run out: the sheer will to use power is not enough if there is not going to be anything to wield. But it can also be caused by a reluctance to influence others even when there is material power there to utilise. And this seems to me to be the big question: not how the US and China measure up materially, but how they measure up politically and psychologically.

This leaves open the possibility of a shock even if our economy-watching is as good as it gets. I think its an open secret that both the US and China will have massive and globally important economies in a generation's time and more. But that only gets us so far. And if it is unwise to extrapolate China's recent growth rates it may be even more hazardous to apply a similar linear logic to Mr Obama's pivot in Asia.

Second, yes, China today has growing interests around the world beyond Asia. But are they strategic interests – by which I mean, are they interests that China values so highly that it would defend them with armed force? I don't think they are. America claims strategic interest in Europe, the Middle East and elsewhere that require it to be able to deploy decisive military power globally, whereas China, like most other countries, does not seek to defend its wider interests with armed force in the same way.

What about energy shipping lanes from the Middle East, you ask? I know this goes against conventional wisdom, but I don't think China has the need or the capacity to defend these, and I see little evidence it is wasting money trying. 

The bottom line is that China does not try to project significant strategic power beyond the Western Pacific, so it can focus its efforts in the Western Pacific. America is trying to maintain a global posture. As many US commentators have said, all the talk of the pivot to Asia overlooks the fact the America still asserts a big role in a lot of other places that haven't gone away.

Photo by Flickr user Luke Redmond.

The second point is by way of defence of the efforts of those trying to assess the balance of relative power in some kind of objective terms despite its inherently subjective nature. I think Rob might be gently hinting that we should save our breath, and wait and see what the great powers choose. From an analytic perspective that's right, but of course we don't just want to understand the world but to influence it. The 'lumps' in power transitions that Schelling talks about are very disruptive indeed, so we ought to try to smooth them out as much as possible.

If Blainey is right, then one of the best ways for us to help manage power transitions and smooth the lumps is to do all we can to understand, and convey to both sides, how power is shifting, thereby minimising the difference of perceptions of power between them. 

Or, to put that more specifically, the US and China are more likely to avoid war if America does not persist in believing it can perpetuate its primacy in Asia over the next few decades in the face of China's power, and if China does not entertain the illusion that it will be able to displace the US from Asia completely. Which is why I think it is a good idea to keep talking about these issues.  

Photo by Flickr user The White House.

So instead, let's look at the ratios. On this metric, while Chinese GDP per capita was just 0.1% of US levels at the start, it has climbed to 99.9% of US levels by the end. This is an extreme (and unlikely) example of catch-up growth that is nevertheless consistent with the US remaining wealthier, and with the absolute gap between the two measures of GDP per capita having increased.

But doesn't using ratios give an exaggerated picture of China's catch-up? (Beckley said in his post that, by my definition, 'the US has been in decline to China since 1968...') Well, not really. The chart below still suggests that the catch-up story only gets going after the start of the reform period*:

I suspect part of the difference in emphasis here is due to conflating the ideas of catch-up and decline. 

From my perspective, the former need not imply the latter. In other words, the Chinese economy can converge on the US economy without the latter declining, since the catch-up growth story is perfectly compatible with a world in which both economies can keep growing and in which the US can also keep getting richer in absolute terms (see my simplistic example above). Note that my original post does not mention US decline once.

The security debate sometimes seems to treat Chinese catch-up as necessarily equivalent to US decline. Perhaps this reflects an important difference between positive-sum-style economic thinking and zero-sum-style strategic thinking, a difference in approach I have highlighted elsewhere.

* In order to graph both series back to 1950, I have used data constructed by the economic historian Angus Maddison. In my original post I used data from the IMF's World Economic Outlook database, so I have included that too, for comparison. I discussed the big difference between the Maddison and IMF data on GDP per capita (and GDP) as measured using PPP rates in this post.