Americans, in their (our) obsession with “national competitiveness,” too often frame the discussion in a zero-sum manner: if China rises, we fall; if India wins, we lose.
The United States over the next 50 years will experience a relative decline in material living. But in absolute terms, we will not suffer at all. To the contrary, the rise of other countries improves our material well-being.
Alex Tabarrok, in his must-watch econo-optimist TED talk, makes this point well by describing the market for cancer drugs. Suppose you were diagnosed with cancer. Would you rather have a common form of the cancer or a rare one? Common, because common cancers have a larger potential customer market, which means there's greater incentive for companies to invest in research to find a cure. This is what is happening in all sorts of markets when hundreds of millions of Chinese and Indians become middle-class consumers. If China and India were as rich as the U.S., Tabarrok says, the market for cancer drugs would be eight times larger!
More rich countries means more innovation, because of increased demand (larger target market for products like cancer drugs) and increased supply (rich countries have more educated people who can create the new ideas and innovation in the first place). More innovation in country X means more innovation for the world — everyone in the world benefits from new ideas and products, no matter where they originate.
Why, then, do Americans fear the rise of other nations? Isn't it obviously in our self-interest to cheer on poor countries becoming rich?
In the case of China, critics may denounce its anti-democratic values and human rights violations and say to support the economic growth of China is to endorse these values and make their spread more likely. For example, China, in pursuit of oil, has used its economic might to support corrupt African dictatorships while America and Europe have withheld aid in pursuit of regime change. This is a fair critique.
Unfortunately, most reasons have nothing to do with enlightened values (yes – some values are more enlightened than others) and everything to do with a mis-understanding of economics, misguided notions of nationalism, and good ole’ xenophobia. Watch Bill O'Reilly or Lou Dobbs for more on how these concepts hang together in the minds of the stupid.
By the way, it's not just Americans who ought to remember "a rising tide lifts all boats."
When the financial crisis hit, Europeans seemed almost gleeful at American economic woes: Finally the U.S. pays the price for its gluttonous ways and rampant free market culture! Finally their arrogance comes back to hurt the! Yet they soon discovered that in an interconnected world, when one (big) country hurts, all countries hurt. Same thing went down in China: Finally U.S. consumers pay the price for not saving and reckless spending! Followed quickly by, Shit! U.S. consumers – can you binge anew on our exports?
Bottom Line: Other countries are growing richer. Rejoice! Other countries are growing more powerful. Big deal. Americans should support the economic growth of other countries, even if that growth means our political sway and material standard of living are lower in relative terms.