USA, China And India

A Tri-Polar World:

Arvind Virmani
(views are personal)

Introduction
Index of Power: Economic, Overall Review of Our Past projections
Globalization: Major driving Force

New Developments
Effect of Global Crisis

Revised estimates: Changes Transition: Multi-polar or Bi Polar Peace: Asian Balance of Power
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Nations Power
Traditional: Industry, Population, Fiscal-Debt, Economy(Kennedy), Technology, Military, Navy, Nuclear. Complex Models: Tellis(2000) Simple model: Two level index-VIP
Foundation/base: Economy
Basic modern economics -> VIP2 Apply all countries, over millennia

Upper level: Strategic Assets/Tech

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Economic Foundations of Power

Growth Theory and Experience
Convergence (PcGdp):Intra AE only LDCs: Divergence, Shooting stars HGEs: Gr. persistence, Catch-up Growth

Globalization and Reform

Asia (Japan;NICs,Asean;China,India,Vietnam)

Global Technology Frontier Shares in world (GDP- Population)

Europe, Japan, USA=>China, India, Indonesia
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 Sustained high growth over decades rare. Inter-decadal growth persistence (correlation) low (0.18) Complete mean reversion in three decades (0.06) Exceptions: Asian high growth economies (Japan, NIEs, ASEAN, China, India, Vietnam) GrPcGdp > 7.5% for 30 (20) years: 2% (4.5%) ctry Per Capita GDP: Corellogram of Average decadal growth rates
1950s 1960s 1970s 1980's 1990s Countries 66 89 127 129 Note: No of countries varies because of data availability Data: Penn World Tables, ver 6.2; Chain index, const price
26/10/0711 11 April, 2007April, 2007 AV

Global Growth Experience

1950s 1.0

1960s 0.26 1.0

1970s 0.07 0.34 1.0

1980's 0.02 0.12 0.15 1.0

1990s -0.04 0.06 0.21 0.18 1.0 182

Indices of Power: VIP2, VIP

Size of Economy (GDP)
Gdp = Population * Per capita Gdp Population(demography) Quantity Comparison: PPP

Economic Power : Index(VIPP/VIP2)

General Technological capability: Prod Fn. (K/L, Hs/L, A(t)) = Per capita Gdp

Overall Power: Index (VIP)

Strategic Technology and Assets
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Uni- Polar to Bi Polar

US NIC
(Dec 2004)
Based on Goldman Sachs October 2003 Chinas GDP(US$) could be 2nd largest by 2020

Indias GDP(US$) could be 3rd largest by 2035

2004 Paper

(ICRIER WP150)

China and India rise faster than projected

Demographic decline (Russia, Japan, Ger, Itly, Fra) Kissinger(94): US,EU,Russia,Japan,China,India(?)

Bi Polar Transition
China: GDP at PPP equals USA by 2015 Power potential 70% of USA by 2035
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Bi Polar to Tri Polar

2005 Paper
Rise of India:
Third largest economy 2015, Real GDP=USA by 2040 Power potential 80% of US by 2050. (ICRIER, WP160, Mar. 2005)

Chinas Power potential = US 2030-35 Bi-polar world by 2025, Tri-polar by 2050 Association of States(EU): Virtual State (USSR)

2006 Book

(Academic Foundation)

Weakness and threats to China, Indias growth

China: Mercantilist Export-FDI/PSU investment led growth India: Governance/Public Goods e.g. Rule of Law (Police, legal system)

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US NIC: November 2008

The eight largest economies in 2025 will be, in descending order: the US China, India, Japan.. By 2025 China will have the worlds second largest economy and will be a leading military power.
A global multi polar system is emerging with the rise of China, India, and others The development of a globalized economy in which China and India play major roles
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New Developments: 2008-10

Oil, Energy Price Boom
Russias comeback, Brazil

New PPP estimates from ADB-WB

India, China: -36%/40%

US-EU Crisis
Differential Impact on economies
Domestic vs. Export oriented Fiscally constrained vs. non-FC

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Fiscal Impact
Fiscal Deficits: USA, EU (Japan)
Foreign Aid, Military expenditures

China: Fiscal Surplus, CAS Global rebalancing(US CAD)? China

Domestic caution (Ec-tech): Financial External Assertion(Pol-Mil nationalists) S China Sea, Arunachal-Kashmir

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Impact on Exports
Global GDP & Import slowdown
Export oriented => Export neutral Development strategy, Growth model
E, S E Asia: FDI-Export or Public Investment-Export led growth model

India: Domestic Entrepreneur led gr

Export Neutrality, Investment neutrality Continue Policy, Institutional Reform

Mid-decade Gr. Rt.: China<India

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1a Economic Size (GdpPpp)

1.6 USA
Japan

Rleative Size of Economy: GDP PPP

China
Germany

1.4

India
Russia

1.2
Brazil 1.0

0.8

0.6

0.4

0.2

0.0

2009

2010

2012

2013

2015

2017

2018

2020

2022

2023

2025

2026

2011

2014

2016

2019

2021

2024

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2027

Difference: 2010 from 2004-5

Impact
Lower Gdp Ppp estimates Offset by faster growth

China: GdpPpp = US in 2017(+2 yrs) India 3rd largest in 2012

Equals USA in 2034 (-6 yrs)

Indias (trend) growth rate faster than Chinas by mid-decade.

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1b Economic Size (GdpPpp)

0.6 USA 0.5
Japan Brazil Germany UK Russia

Rleative Size of Economy: GDP PPP

China India

0.4

0.3

0.2

0.1

0.0

2009

2010

2012

2013

2015

2017

2018

2020

2022

2023

2025

2026

2011

2014

2016

2019

2021

2024

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2027

Difference: 2010 from 2004-5

Russia
Overtake Germany by 2020 5th in Size and Power Potential Reason - Oil/Gas prices: Faster growth
Non-market power of energy cartel Actual Power higher: Strategic Technology

Brazil
Overtake France and UK by 2012.
Positive effect of natural resource endowment
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Difference: 2010 from 2004-5

Power Potential (VIP2) China VIP2 =USA 2027 India: VIP2 80% of USA in 2040
10 yrs earlier than in first prediction

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Long Term Evolution: Power Potential VIP2

1.0
0.9 0.8 USA

Power Potential: VIPP

China Japan

Germany India

UK Russia

France

0.7 0.6 0.5 0.4

0.3 0.2

0.1 0.0

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042

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Global System: Long Term

Global Power: VIP2 > 25%
China 2010, India 2025 (Japan -09)

Super Power: VIP2 = 40% - 50%

China 2015-18 India 2031-34

Uni-polar: US Sole super-power

Peak 1999 (1990-2010)

Bi-Polar: 2020, Tri polar: 2035

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Long Term Evolution:

Power Potential VIP2
USA 1.4 China India Japan Germany 1.8 1.6

1.2

1.0

0.8

0.6

0.4

0.2

0.0 2010 2020 2035

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Quadri-Polar: Unlikely
Virtual State: Unified decision making w.r.t external relations
Comecon/E block (USSR+ E Europe)

EU is not Virtual State(VS)

Move in opposite direction: Referenda Only in Trade (WTO) does it act as one Financial crisis: Mixed signals Politically and Militarily: Nil
No EU seat in Multilateral organizations
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Multi-Polar Transition
Multiple descriptions: Competitive fringe
Pluri-polar, Multi-polar, A-polar, US and Rest

Globalisation
Change in relative importance of Economic, military, social elements of power

Economic, social(?) Multi-polarity

USSR disintegration 1990=> Russia Ec. decline of allies: Large, increasing Gap with 2nd rank Japan, 3rd rank Germany etc Ec. rise: Non-allies China, Brazil, India Formation of Euro, expansion of EU
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Overall Power
Actual Power: VIP=(VIP2,Strategic Assets)
Strategic-military technology/assets/capability
USA even more dominant Russia: Legacy strategic assets immobilised

Overall: US pre-dominant power

Monopoly with Competitive Fringe

Future: Strategic assets

Russia: Gradual depreciation China: Systematic build of strategic capability! India: Political Will to build, exercise power?
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0.8

Transition: Power Potential Power Potential: VIPP VIP2

USA China Japan

0.7

Germany 0.6 India

UK Russia

France

0.5

0.4

0.3

0.2

0.1

0.0

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042

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Net Assessment: Preliminary

S1 Uni-polar Multi polar
G20; G9(1+1+3+1+3)?

S2 Bipolar (USA-China)
S2a(Jelly spine) Action(appeasement)-Reaction China (declining respect/fear) expands strategic space in Asia.
G2 => Matrix (India-Asean-Japan-Korea; Medium powers, G6)

S2b(Velvet glove-iron fist) China-hard Realism(SCs core nat int) US reacts(Open seas, alliances, dvlp partners)

S3 Tri polar
S3a Jelly Spine: G2 USA-China S3b Velvet Glove: Key role of USA-India Partnership S3c China-India (Buddhist): => G3 or G4 (+EU) S3d Independent(all): Un-stable disequilibrium, danger
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Velvet Glove Scenario:

US-India Partnership

Dangerous Decade(2025-35)=> S3b Partnership: Globalization-multifaceted

interaction (Economic, military, social)

Global Economic Organizations

Legitimacy, credibility and governance Fair democratic rules that will last IMF: Bop support/ST Loans
Crises: Macro imbalances=>Macro mgt. European Institution, Power base

WB: Aid/social: India (7)

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Initiatives: Economic
Positive Levers: Traditional Polity Fiscal constraints on USA
Indian Aid Organization R&D & Joint Production
Health care costs (US) Energy: Thorium breeder, non-conventional sources; Use efficiency (Bldgs, AC, Refrig) Cyber Security (Indian IT)

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Initiatives: International Security

Fiscal Def =>Vacation of strategic space =>Strategic partnership (Asia) Freedom of Asian Seas Initiative
Suez to South China sea Naval co-operation: broaden, deepen

UNSC: Permanent member with veto Technology access: Membership of

NSG, MTCR, Wassanar, Australia Group
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Initiatives: International Security

Global Anti-terror Strategy
Create consensus in UN and other forums
Travel, financial ban on Intelligence agents, military officers (rogue?) involved with terrorists

Definition of Aggression and Self defense Irregular/Guerilla warfare from territory

Elimination of Terrorist networks

Arms embargo on countries sheltering terrorists

Counter-terror expertise
Deterrence capability: Pariah State, Non-State actor, state sponsored; finance source/channel
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Medium Term: Geo-Political Rules

New Rules for an era of globalization Economic: Macro decision making
Quadri polar? G4 (US, China, EU, India)

Social: Democracy Initiative (G6)

Independent body: Degree of democracy (index) to adjust 1 person 1 vote

Security: Institutions (rules):

Vote proportional to power Economic(VIP2) or Ec + Strategic (VIP)
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References 1
From Uni-polar to Tri polar World: Multi polar Transition Paradox, Academic Foundation, New Delhi, 2009. Propelling India from Socialist Stagnation to Global Power: Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, 2006.
A Tripolar World, India, China & US, Lecture delivered at India

Habitat Centre on May 18, 2005. Economic Performance, Power Potential and Global Governance: Towards a New International Order, Working Paper No. 150, ICRIER, December 2004. (http://www.icrier.org/page.asp?MenuID=24&SubCatId=175&SubSubC atId=233). A Tripolar Century: USA, China and India, Working Paper No. 160, ICRIER, March, 2005. (http://www.icrier.org/page.asp?MenuID=24&SubCatId=175&SubSubC atId=233). Chinas Socialist Market Economy: Lessons Of Success, ICRIER Occasional Policy Paper, April, 2005 (http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm). VIP2: A Simple Measure of Nations (Natural) Global Power, ICRIER Occasional Paper, July, 2005(). CarnegieEIP:av

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References 2
Chinas Socialist Market Economy: Lessons Of Success, Working Paper No. 178, ICRIER, December 2005. Global Power From The 18th To 21st Century: Power Potential (VIP2), Strategic Assets & Actual Power (VIP), Working Paper No. 175, ICRIER, November 2005.
http://www.icrier.org/page.asp?MenuID=24&SubCatId=175 &SubSubCatId=233. World Economy, Geopolitics and Global Strategy: Indo-US Relations in the 21st Century, Economic and Political Weekly, Vol. XLI No. 43-44, November 4-10, 2006, pp. 4601-4612 (http://www.epw.org.in/showArticles.php?root=2006&leaf =11&filename=10717&filetype=pdf ). Trilateral Nuclear Proliferation: Pakistans Euro-Chinese Bomb, IDSA Monograph Series No. 1, Institute of Defence Studies and Analysis, New Delhi, December 2006.

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References 3
The Economic Foundations of National Power: From Multi polar to Tri-Polar World? in V. R. Raghavan (Editor), Economic Growth & National Security, Centre for Security Analysis, Chennai, 2008. Future Economic Contours of the Asia-Pacific and South Asian Region and Thier Impact on Global Security Architecture, USI National Security Lecture, 2006, in National Security, Global Strategic Architecture and Information Security, National Security Series, 2006, KW Publishers Pvt Ltd, New Delhi, 2007. Evolution of World economy and Global Power: From Unipolar to Tripolar World in Economic Diplomacy, Editor I. P. Khosla, Konarak Publishers, 2006.

Globalisation, Economic Growth and National Security chapter in, Comprehensive Security for an Emerging India, Editor AVM Kapil Kak, CAPS 2010 The Sudoku of Indias Growth, BS Books, New Delhi, 2009.
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