Monday, July 07, 2008

Rumours of America's demise have been greatly exaggarated

Lately, it has been fashionable amongst newspaper columnists to contrast China's rise with America's decline. What with the credit crunch followed shortly after by sky high oil prices, the assumption goes that gas guzzling, debt burdened America will be brought to it's knees, whilst a leaner fitter China will overtake it become the world's new economic superpower.

But the oil crisis that's affecting America is just as likely to affect China, only more so. America has a growing service sector that is less affected by oil. It also has a remarkable ability to adjust to change. So as Americans feel the pain of high oil prices, they will make adjustments to their lifestyle such as telecommuting and shopping online instead of driving to the mall. They will also increase their use of renewable resources. China by contrast is a country heavily dependent on low oil prices in order to transport its goods cheaply across continents. If the cost of shipping goods to the West continues to rise, it won't be long till the manufacturing jobs that went to the far East come back to the West.

My money is on India. With its young energetic workforce and a strong emphasis on the service sector, it's in a perfect position to take advantage of globalisation without by stung by the disadvantage of the long distances between between Asia and the West. It also happens to be a democracy, something that has been overlooked by many in the America and Europe.

All those who predict China's inexorable rise should cast their mind back to the 1980s when Japan was the World's rising star. 20 years after its "bubble" economy burst, the Japanese are still waiting for their economy to recover. And moreover, they are facing a population timebomb as an ever shrinking workforce is having to support an ever growing army of elderly people. China of course is facing exactly the same problem. I wouldn't write America off quite yet.