The Chinese leader Deng Xiaoping said, “It doesn’t matter what color a cat is as long as it catches mice.” Explained in the Teaching Company’s “Why Economies Rise or Fall,” Deng cared about results more than economic ideology as he propelled the Chinese economy toward capitalism.
Through Deng’s leadership, China allowed farmers to keep and sell excess crops, productivity swiftly rose, and agricultural markets evolved. Then, as infrastructure emerged to connect these markets with factories, and education and technology developed, “Made in China” became a household term in the U.S. Throw in currency control, low wages, and you get a country whose economy is now #2 in the world.
Ranked by GDP, the U.S is #1 (close to $15 trillion), China is #2 (close to $5 trillion), and Japan is #3 (close to $5 trillion but less than China). Completing a list of the top 10, then we have Germany, France, the U.K., Italy, Brazil, Canada, and Russia.
If China continues to grow at a 10% rate while the U.S. growth rate remains close to 3%, then China will be #1 in 2 to 3 decades. However, the Chinese per capita GDP and average standard of living will still be far behind most of the world’s largest economies.
The Economic Lesson
It can be tough to compare economies. Even if GDP comparisons use the same components (consumer spending, business investment, government spending, and exports minus imports), still we have to remember that purchasing power differs. Also, we can use per capita (per person) comparisons and other indiviudal standard of living yardsticks.