Economic power : 19th C. Europe vs 21st C. Asia

Historical memories and perspectives are short, so when the power dynamics of Asia today – a large, continental rising power – the analogy most often invoked is Germany’s rise in the 19th century. There are of course a number of dynamics at play here, but in the modern era “rises” are very often considered in terms of economic weight. So, using Angus Maddison’s historical data, together with some long-term forecasts, I ran some analyses and pulled together the following charts. This page presents the visuals, and some notes to them, while posts on the main page will draw out high-level insights.

First, let’s look at what happens to the relative shares of Asia’s major powers over the period 1990 – 2030, at market exchange rates:

Forecast changes in economic power in Asia

Forecast changes in economic power in Asia

Let’s look at the same thing, but using PPP weights:

Forecast changes in economic power (PPP weights)

Forecast changes in economic power (PPP weights)

Pretty much the same story, except India gets bigger than Japan by the end (and see methodology note 1 for the story on long-term PPP rates). Now let’s turn to Europe in the 19th Century. First, we look at the continental Great Powers:

The European shift in power in the 19th Century

The European shift in power in the 19th Century

I have kept the scale the same on purpose. You’ll see the change is way way less dramatic, and over a time period twice as long. Moreover, you’ll see that Germany crosses France pretty much exactly in 1870 – right before the Franco-Prussian War. That doesn’t prove much, particularly since Prussia didn’t have command of Germany’s GDP. However the chart does indicate that the key change in Germany was not so much an increase in output dramatically faster than others (though France does get left behind), as a dramatic increase in its ability to convert that output into political and especially military power.  This is a fundamentally different dynamic to today’s changes in Asia.

In addition, here are the actual numbers in 1913:

Germany – 24%; Russia – 23%; UK – 23%; France – 14%; Austria – 16%

Again, there are wide discrepancies in the ability to turn that output into power, e.g., the Russians were very bad at that, whereas the British were quite good. I’m also not entirely sure how much the respective Empires contributed, particularly the British. Still, the important point is that France and Russia together overmatch Germany. Hence Germany needed the alliance with Austria, the alliance that was in the end the proximate cause of war.  This does not apply to China.  In a few decades it will equal its continental rivals – Japan, India, Korea – put together, and as such may not need to turn to an alliance, depending on how it perceives US intent. There is both good and bad in that.

Talking of the US, the next chart is very interesting – it’s what happens if you include the US in the above:

Europe and the US in the 19th century

Europe and the US in the 19th century

It’s quite startling, and makes clear that the real rise of the 19th Century was that of the US, not Germany. Indeed, the gradient in this graph looks somewhat similar to the first one; if we put them together:

Comparison of the rise of the US and China

Comparison of the rise of the US and China

Again, there are caveats : the time periods differ by a factor of two, there are the usual PPP vs market issues, and if there’s anything I’ve taken away from this analysis it’s that GDP is not the be-all and end-all. Still, it’s worth remembering that the US began that period with colonial powers all over the Americas and a century later had broken Spanish and pushed out British power in its hemisphere.

Methodological notes :

1. Since the IMF as far as I know forecasts PPP-rates out to 2013 only, I flatlined the ratio between PPP and exchange rate after that. I know in theory PPP trends to exchange rate, but looking at the historical series shows little evidence of that. Besides, PPP is such an incredibly flawed concept there are going to be issues

2. I have taken Austria and the ‘7 European States’ that roughly correspond to the Austro-Hungarian Empire and labelled the collective as “Austria” in the charts.

3. Maddison uses 1990 Geary-Khamis International Dollars to capture PPP.

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