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from
Brookings Website
He was right to be worried.
Russia is now a minor player, and the race seems now to be mainly between the United States and China. But don't count out the European Union just yet.
The EU is still a fifth of the world economy, and it has underappreciated strengths.
China appears to have the edge in the first, the U.S. in the second, and Western Europe in the third.
One out of three won't do, and even two out three will not be enough; whoever does all three best will dominate the rest. We are on the cusp of colossal changes.
But you don't have to take Mr. Putin's word for it, nor mine...
This is what Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy and a serious student of the effects of digital technologies, says:
To understand why this is a special time, we need to know how this wave of technologies is different from the ones that came before and how it is the same.
We need to know what these technologies mean for people and businesses. And we need to know what governments can do and what they've been doing.
With my colleagues,
...I have been trying to whittle the research of scholars such as,
This blog utilizes the work to forecast trends during the next decade.
4 waves, 3 facts
It is useful to think of technical change as having come in four waves since the 1800s, brought about by a sequence of "general purpose technologies" (GPTs).
GPTs are best described by economists as,
The four most important GPTs of the last two centuries were the,
All these GPTs inspired complementary innovations and changes in business processes.
The robust and most relevant facts about technological progress have to do with its pace, prerequisites, and problems:
Technology adoption lags have fallen a lot since the 1800s
Source: Comin and Mestieri (2017)
Big money - Advantage China
Putin is not the first Russian leader to understand the importance of breakthrough general purpose technologies.
A hundred years ago, Vladimir Lenin's Communist Party invented the Five-Year Plan to exploit electric power. Indeed, it wouldn't be an exaggeration to say that modern planning practices originated with Lenin's plan for the electrification of the Soviet Union.
To appreciate the importance of electrification, it is worth reading Lenin's short Report on the Work of the Council of People's Commissars.
Here are extracts from that speech, delivered in 1920 to "stormy and prolonged applause":
China may already be spending more on R&D than the United States
Today, the most serious practitioner of Soviet-style planning is the Chinese Communist Party.
In 2015, it announced the $1.68 trillion Made in China 2025 plan, to do with artificial intelligence what Lenin had done for electric power. The plan is to transform the Chinese economy and dominate global manufacturing by 2030.
China has neither the entrepreneurial nimbleness of America nor the capable public finance systems of Western Europe, but it is putting a lot of money into digital dominance.
The question is whether this will be enough.
The last two decades witnessed the rise of China as an economic power:
For now, President Xi's approach could be summed up much as Lenin's strategy was in 1920:
Business practices: Advantage America
The story goes that in 2018, President Donald Trump complained to President Xi Jinping that Made in China 2025 was insulting to the U.S. because it aimed to make China the global leader in technology.
Since then, there are no official references to it. No point taunting the world's technology leader into doing more, the Chinese government reckons.
But the real advantage of the U.S. is that government exercises a lighter touch than in China or Europe, leading to shorter lags from invention to market and quicker adaptation by businesses so that productivity gains are realized more quickly than in competing countries.
Notice the relatively rapid diffusion of computers - available for use simultaneously in all rich economies - in the U.S., as compared with,
Quicker diffusion of computers in the US than in Canada, Japan, and Western Europe
Sources: Historical Cross-Country Technology Adoption Dataset by Comin and Hobijn (2004) and the Maddison Project Database.
The regulatory, infrastructural, and cultural conditions that lead to quicker business process innovation require tight industry-academic linkages, a welcoming environment for high-skilled immigrants, sound product-market regulations, and sensible hiring and firing rules.
These will be not easy for either China or Europe to institute, and the U.S. will have this edge for a while.
Ameliorative arrangements: Advantage Europe
While the United States is quick to innovate, Western Europe is intrinsically more equal.
Take a look at both the diffusion and penetration of internet use plotted in figure below.
Europe played catch-up between 1990 and 2010, but internet usage has been more widespread in every European country since then.
Greater income inequality in the U.S. surely has something to do with this, but it would be even more worrying if it were also due to more unequal opportunity.
There is growing evidence that this is the case, and growing concerns that these gaps will quickly widen as AI-based technologies spread across the economy.
Quicker diffusion of the Internet in the US, but lower penetration than in Europe
Source: World Bank's 'World Development Indicators' and the Maddison Project Database.
Since technological change will exacerbate inequality both of opportunities and outcomes, efficient redistribution will become more necessary during the next decade than it has been in the past.
Europe would then have a big advantage:
After taxes and transfers, every European economy has a lower Gini coefficient than America's.
European countries have the most redistributive tax and transfer systems
Causa and
Hermansen (2018)
What to watch for
People who make long-term economic forecasts have a tendency to focus on strengths:
But perhaps we should look instead at the willingness of economies to remedy their shortcomings.
So, who's most likely to succeed during the next decade?
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