Of course, history has shown that the Soviet economic threat was never as great as feared. Nevertheless, we often feel a need to outline economic threats to our economic welfare no matter how credible they might be. Perhaps it is all part of being human. The latest iteration of the fear of economic eclipse is of course the contention that China and India are on their way to becoming the world’s largest economies and that China in particular is becoming preeminent and will soon surpass the United States. The total size of the Chinese economy as measured by GDP is expected to exceed the United States in the near future if it has not already done so. Official statistics can be a lagging indicator of economic power.
As Angus Maddison has shown with his GDP data (See Figure), the rise of the West is an economic phenomenon coinciding with industrialization. If we go back to 1500, Asian economies accounted for 60 percent of world output but by 1950 it was the West that accounted for 60 percent of world output with Asia's share below 20 percent. With the diffusion of technology and economic activity, a more multi-polar economic world is to be expected and by 2001, the share of the West had declined to 50 percent and Asia grown to 30 percent.
However, I also think one has to step back a bit and think about output in per capita terms (See Figure). If one plots per capita GDP in nominal US dollars one gets a somewhat different picture of where China and India stand in terms of more developed economies such as Canada and the United States. True, these are not purchasing power parity estimates but the point I’m trying to make should still stand. In terms of sheer economic mass because of their large populations, China and India are going to soon be the largest economies in the world but their per capita GDP is still quite low compared to Europe and North America. Moreover, it will be a good many years before their per capita incomes and by extension per capita welfare approaches North American levels. After all, as China and India grow it is not as if the rest of the world is going to stand still.