National Dominance, or Global Prosperity?

Has nationalistic dominance become seemingly more important, than global prosperity? Despite this tendency, we may be entering a historical phase when national strategies for "getting ahead", aren't quite the viable means of economic dynamism that they may appear.

Instead of worrying about who gets what size of the pie, why can't governments grow the pie, by focusing on the wealth creation potential of their own citizens? Isn't this a better option, than losing sleep over national image as contrast with the wealth or student testing levels of other nations? Miles Kimball recently highlighted an article from Ken Rogoff, which explores some international comparisons. In "Will China Really Supplant US Economic Hegemony?" Rogoff observes:

Everyone in the West is worrying about the future of work, but in many ways it is a bigger problem for the Chinese development model than for the American one. The US needs to struggle with the problem of how to distribute income internally...But for China, there is the additional problem of how to extend its franchise as export superpower into the machine age.

It's reasonable to assume that today's (largely) centralized models should work fairly well in the short term. For China, such strategies could suffice for the medium term as well. In particular, China should still realize tremendous gains from its tradable sector activity, with fewer cost frictions than what many nations experience. Since so much of their infrastructure is essentially new, China should also have plenty of discretionary budget room, before infrastructure maintenance costs begin to affect other budgetary demands. While its services sector activity is developing, with a little luck, it need not contribute to the extensive budgetary burdens which have accrued elsewhere.

Nevertheless, a delicate balance is involved, as any nation begins to move towards service sector dominance. How far will they go? Accumulating Baumol effects tend to exacerbate debt formation, while increasing organizational costs and decreasing velocity at the same time. We need decentralized means of ensuring that non tradable sector activity can create sustainable organizational patterns, so as to contribute to wealth, instead of functioning as a fiscal burden. What's more: Once policy makers become overly focused on redistribution struggles, it's all the more difficult to pursue organizational reforms which make it possible for citizens to assume more meaningful workplace roles.

Consider Rogoff's assertion that better internal income distribution is needed in the U.S. Importantly, it's no easy matter to redistribute revenue proceeds accruing from personal services in which economic value is essentially time based. Instead of attempting to "distribute income internally", why not begin a broader internal distribution of applied knowledge along a full spectrum of skill levels, so that all citizens can create meaningful employment via their own means. Utilizing time value as wealth creation, could eventually go a long way to alleviate budgetary burdens.

For now, China is fortunate, in that it's capable of dynamic status quo wealth creation a bit longer than many of us, especially given the fact they got a late start. In the meantime - as Ricardo Hausmann noted - the West has more immediate structural concerns to face, than does China.