The Top 5 economies
and what we can learn about them.
Economics — is at root, a study of human behavior — and definitely tends to be messy. We are witnessing different phases of economic cycles, and the Global economic landscape is rapidly transforming.
The engines of growth — China, Japan, Germany & India, will soon command the majority of the global wealth. The United States, however, currently is the largest economy in the world with a nominal GDP forecast to exceed USD 20 trillion in 2018.
It is interesting to see that the U.S doesn’t budge easily from the position it holds.With about 20% of the global output, the U. S holds more than 1/5th companies on Fortune 500.Dominated by service oriented companies (finance, healthcare & Retail), the economy features highly-developed technologically-advanced services sector — that is 80% of its output. A decade ago, it’s economy was the envy of the world. It faced the dot-com bust, after which followed the weakest economic expansion extending to financial crisis and deepest recession. If only a country would spend a little more time focusing on ‘actual economic’ problems, rather than too often occupied with distractions( is the most definite lesson to be learnt!) When closely observed, it seems like the country has effectively decided that because it is the richest, most successful country in the world, it is guaranteed to remain so.
Sometimes, it is necessary to take a step back, because economics is messier & it needs to be understood that it can be tempting to think that all uncertainty is equal and that we don’t really know anything. The U.S knows that a market economy with significant government role is the only proven model of success. The United States has outgrown Europe because of greater comfort with market forces. This country spends vastly more on health care than any other country, without getting vastly better results. The waste in the medical system offers the best chance to reduce the deficit without harming their living standards.
The Massive Giant!
In 1950, China was rebuilding the economy after a long period of war and unrest. It plunged into the chaotic and destructive Cultural Revolution and took the Great Leap Forward. By 1978, it was an economy going nowhere with a bloated population and great poverty; after which it opened up -inviting foreign capital, promoting its coastal areas for investment, freeing agriculture from state control, & introducing a one-child policy and investing in infrastructure.
Lesson to be learnt: China first focused on investment in labour-intensive industries to create jobs for its huge labour force like in textiles, garments, toys, light engineering and assembly, electronics, etc. It created special economic zones, whole districts next to the coast with different laws for business. The massive increase in employment created the resources from increased consumption and taxes to invest in infrastructure. It enabled the growth of large firms which could invest. Its banks lent freely to state-owned enterprises, too. China invested massively in skill development and in her universities. It created very many new cities, promoted urbanization and benefited immensely. Today, it is a $12.5-trillion economy, the second largest in the world, and at $22.5 trillion in PPP, the largest economy.
Quick facts, CHINA:
To dominate global trade, China used a sophisticated supply-chain through Hong Kong; shifted 400 million people from the farm in villages to the city, into factories.
Economic reforms of 1978, has made China the world’s manufacturing hub.The secondary sector -comprising industry and construction represents the largest share of GDP.
To avoid overheating the economy, authorities are conducting a managed slowdown, which has seen growth gradually slow year after year since 2010.
SAKOKU and JAPAN
(Sakoku — period of isolation , during which its economy enjoyed stability and mild progress)
1990s was the Lost Decade for Japan, due to the burst of the Japanese asset price bubble. Authorities ran massive budget deficits to finance large public works projects, however, this did not seem to get the economy out of its rut.
It has long been an economic axiom that debt is a large impediment to the growth of an economy, and this is proved even truer when you look at Japan. And yet, Japan is the third largest economy in the world with a GDP of $4.87 trillion in 2017. The economy is expected to cross the $5 trillion mark in 2018. Its economy is bound to get stimulus with the 2020 Olympics which keep the investment flow strong which is backed by a lax monetary policy by the Bank of Japan. The nominal GDP of Japan is $4.87 trillion which is expected to move up to $5.16 trillion in 2018.
Grosswirtschaftsraum (“greater economic area”) GERMANY
In the good times, the German consumer saved as much as the U.S. consumer over-spent!
If we had saved more like the Germans, we wouldn’t be underwater and we’d be spending more of our new income of dryers instead of than debt. Germany follow — “work sharing,” and here’s how it works — Let’s say you’re a company with 100 employees and you want to cut 10 percent of your payroll. In the U.S., you might fire 10 workers.
In Germany, if you fire nobody but instead reduce every worker’s hours by 10 percent, the government will pay the rest of their wages. In short, you “share” your workers with the government.
Germany spends half as much as the United States per capita on care. That’s key because in the United States, the burden of paying for health care often falls on the employer. That makes U.S. workers increasingly expensive for reasons that have nothing to do with the quality of their work or experience. Like the United States, Germany is a high-wage, high-tax, relatively high-regulation country, but it’s not an astronomically costly health care country, and that makes workers easier to afford, and add.
It’ll keep its spot at 4th on the list of largest economies with a nominal GDP of USD 4.0 trillion according to our forecasts for 2018. Growth forecast of 2.1%.
Mixed Economy INDIA
neither completely socialist nor capitalist
India is projected to overtake both the UK and French economies in 2018 to become the fifth largest economy in the world with a nominal GDP of USD 2.9 trillion.
India has turned its back on its long history of capitalism and adopted a socialist economic model with state control. It grew only around 3.5% per year — with a population growing at 2.5% — unable to tackle challenges while it watched the miracle growth of Japan, Germany and South East India. With government control, increasing corruption and increasing civil dissatisfaction, it too was going nowhere. India opened up in 1991 after an economic crisis, grew impressively in $ terms at 8.8% per annum and is today a $2.5 trillion economy, way behind China. Change on that scale requires difficult policy choices.
The controversial Prime Minister has pushed through tough reforms like demonetization (the sudden removal from circulation of high denomination banknotes) and GST harmonization (the introduction of a unified national goods and services tax).
These kinds of economic reform may be good for growth, but they’re not responsible for making India the world’s fifth-largest economy.
India started the decade behind the UK, France, Italy, and Brazil but under Modi it has passed all of them. Soon it will trail only Germany and the “big three” of the US, China, and Japan.
Thank you for taking time out to read.
