Thoughts in Between

by Matt Clifford

TiB 92: the bear case on China; why this will be a century of secessions; the slowing rate of progress; and more...

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What's the bear case on China?

A frequent Thoughts in Between theme is the rise of China and the challenges its eventual economic and technological superiority might pose to the West. There’s a danger, though, of assuming current trends will continue unabated forever. Given this week’s surprise anti-Beijing election results in Hong Kong, it’s a good moment to consider the bear case on China.

One big risk, which we’ve discussed before, is debt. There are signs that some Chinese State Owned Enterprises are in real trouble and may default on their bonds. Another is China’s ageing population. There were 12% fewer births in China in 2018 than the year before. Even this figure may be worse than it looks. One researcher quoted in the piece believes that the government deliberately manipulates the birth rate statistics to disguise the extent of the challenge.

This brings its own problems. As Martin Gurri argues in his excellent book, when authoritarian regimes attempt total control of the information environment, they damage the feedback loops that allow them to understand what’s actually going on. There are some hints of this in China - from the HK elections, which Beijing apparently expected to win, to previously rare indicators of elite non-conformity, like devastating information leaks and a major spy defection. China remains a juggernaut, but it’s worth keeping an eye on data points that violate the primary narrative. 

The coming century of secessions?

I was recently at a private event where participants were asked Peter Thiel’s favourite question, what important truth do you very few people agree with you on? My answer was that over the next thirty years at least five of the 20 richest countries in the world will see regions or cities secede from the state. 

Coincidentally this week Branko Milanovich published this excellent short piece on the topic and why the "minimum viable state size” is shrinking. Milanovich argues that small states are anti-fragile, in Taleb’s sense of the term: they benefit from disorder because they can specialise in niche activities (including harmful ones, like money laundering or tax evasion). He also notes, as we’ve discussed before, that the economic compact between mega cities and their hinterlands is fraying, which puts pressure on existing states (see also this from Paul Collier and this Twitter thread).

One of my favourite anecdotes on this is that once I was speaking to a very senior Singaporean government figure and commented on Singapore’s strong performance across a range of indicators. He replied, “Ah, but London’s numbers would also look very strong if it could simply re-label the rest of the UK, ‘Malaysia’”. I think about this often. It wouldn’t be so surprising if several megacities succumb to the “re-labelling temptation” in the decades ahead. 

The slowing rate of scientific progress

Tyler Cowen and Ben Southwood have a new paper, “Is the rate of scientific progress slowing down?”, which is a superb short(ish) review of the question. The authors are particularly interested in the impact of science: is scientific progress making us better off? The short answer is “not as quickly as it used to”. Overall, productivity is rising, but its rate of growth has slowed markedly. Understanding why seems an extremely important task (see also Cowen's recent interview with Mark Zuckerberg and Patrick Collison on the topic).

The paper includes a good rebuttal of counter arguments to this view, especially the idea that progress in technology is undercounted in GDP. The authors show that mismeasurement can’t make up the enormous shortfall relative to where the US would be if productivity growth since 2004 had continued its previous trend (a cumulative loss of $2.7 trillion!). The section on how much harder new ideas are becoming to find (citing this paper) is particularly bleak: research productivity may be falling by ~7% a year!

What can we do? For me, the most hopeful idea is that we don’t need new general purpose technologies so much as new mindsets (“the General Purpose Technology was not coal, but innovation itself”). I’m reminded of Dan Wang’s excellent piece on definite optimism and human capital (discussed here): what talented individuals choose to do with their careers matters a lot; elites who make things might be a good start. 

Quick Links

  1. Counting grapes. Fun thread on a quantitative approach to wine investing
  2. Shadows on the wall. Animated version of Plato's allegory of the cave, narrated by Orson Welles(!)
  3. The Jungle Prince of Delhi. Not a quick read, but a really extraordinary story about an apparently impoverished royal family living in an abandoned palace in Delhi.
  4. Here be citations. Beautiful visualisation of the structure of the last 45 years of economic research.
  5. Britain votes... again. Excellent graphic of what's happening in the coming UK general election.

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Until next week,