Economic History of the World

06.26.12

Why China > Soviet Union

trade-warrior
Members of the Guards of Honour of the Three Services of the Chinese People's Liberation Army march during a training session at a barracks in Beijing on July 21, 2011 (LIU JIN / AFP / Getty Images)

This week Michael Cembalest, chairman of market and investment strategy at JP Morgan, published a research letter with a graph showing the history of the world by GDP. It inspired Derek Thompson at The Atlantic to write a great series of posts. The charts show that population was the primary determinant of prosperity in pre-industrial society, but after the 1800s, productivity became significantly more important:

Before the Industrial Revolution, there wasn't really any such thing as lasting income growth from productivity. In the thousands of years before the Industrial Revolution, civilization was stuck in the Malthusian Trap. If lots of people died, incomes tended to go up, as fewer workers benefited from a stable supply of crops. If lots of people were born, however, incomes would fall, which often led to more deaths. That explains the "trap," and it also explains why populations so closely approximated GDP around the world.

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The first question I had when I first graphed the data is, How do India and China account for between 50% and 60% of the world economy for the first 1500 years AD? Until about 1800 when the Industrial Revolution sent productivity skyrocketing at an unprecedented pace, income growth was slow and and relatively even around the world. As a result, the regions with the biggest economies were basically just the regions with the biggest populations.

Even from just a cursory look at Cembalest's original chart, another interesting trend is visible:

history of world gdp

Russia, which has a population approximately half of the U.S. (140 million), never rivaled U.S. GDP throughout the Cold War. China today boasts a greater share of world GDP than the Soviets ever did at their 1950s peak. And the Chinese share only shows signs of growing ever more.

Two important differences in the emerging U.S.-China rivalry as compared to the U.S.-Soviet one. 1.) The Chinese population is more than three times the U.S. population, while ours was double that of Russia. 2.) Chinese GDP is now booming as Soviet GDP never did.