{"id":16587,"date":"2014-10-27T12:15:28","date_gmt":"2014-10-27T01:15:28","guid":{"rendered":"http:\/\/www.aspistrategist.ru\/?p=16587"},"modified":"2014-10-28T08:40:45","modified_gmt":"2014-10-27T21:40:45","slug":"will-china-regress-to-the-mean","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/will-china-regress-to-the-mean\/","title":{"rendered":"Will China regress to the mean?"},"content":{"rendered":"
\"Shanghai<\/a>Fans of English Premier League soccer may be aware of the phenomenon known as the \u2018Manager of the Month\u2019 effect. According to that, a team\u2019s performance tends to drop the month after its coach has been given the \u2018Manager of the Month\u2019 award. Some say it\u2019s because the winner grows overconfident and slips up. However, as the London Times<\/em> sports columnist Danny Finkelstein points out, it\u2019s actually just a reflection of a statistical phenomenon known as \u2018regression to the mean\u2019. A month is a short period in soccer and so it\u2019s likely that a manager who did well in such a time frame is simply lucky and all that happened is that the following month his (it\u2019s always \u2018his\u2019 in the EPL) luck ran out<\/a>.<\/p>\n

Now what does this have to do with China? Well, former US Treasury Secretary Larry Summers and fellow Harvard economist Lant Pritchett have just written a paper<\/a>\u2014described by Marginal Revolution\u2019s Tyler Cowen as \u2018one of the best and most important economics papers I\u2019ve seen all year<\/a>\u2019\u2014suggesting that regression to the mean is exactly what\u2019s most likely to happen to the Chinese economy. Analysing decades of statistical evidence on economic growth, they note that the best predictor of how much a country will grow in future isn\u2019t its current growth rate, rather the global average growth rate. Expansions as rapid and as sustained as China\u2019s are historically rare. Most countries which are highly developed today got there by posting solid and moderate but sustained economic growth over a long time frame (the US, Britain, Denmark). Many lower income countries by contrast have hosted spectacular booms over a couple of decades, followed by busts which undo many of the gains (Brazil being one example).<\/p>\n

Economic predictions, don\u2019t have a great track record (though I argue they\u2019re getting better<\/a> and Summers himself is better than most<\/a>). Moreover, even the best predictions are probabilistic rather than deterministic. Maybe there\u2019s something about China that our growth models aren\u2019t capturing which will allow it to keep on expanding at a rapid clip. Summers and Pritchett limit themselves to concluding that the \u2018burden of proof\u2019 should lie with those who believe it\u2019ll continue to post the current spectacular growth rates and not those who forecast a more modest trajectory.<\/p>\n

But as far as I\u2019m aware, the main \u2018China-specific\u2019 factors are also pointing in a bearish direction. The ageing population is one well known factor<\/a>, as is the possibility of radical political change (more of which below). What could be even more important though is the lack of strong property rights (a point also made<\/a> by MIT\u2019s economists Daron Acemoglu and James Robinson). Property rights are increasingly being seen as the key to long-term economic growth in the developing world because they give entrepreneurs the assurance that their hard work, innovation and risk taking will be appropriately rewarded. Unfortunately, China currently falls down rather badly on that score.<\/p>\n

Summers and Pritchett\u2019s argument is convincing. If China\u2019s growth does revert to the mean, what might the consequences be for Asia-Pacific security? Pessimists such as my dissertation chair Peter Feaver argue<\/a> that \u2018a weak China could be just as vexing as a strong China\u2019. The CCP could, for instance, engage in overseas adventurism to bolster its flagging popularity. However, the empirical evidence that such \u2018diversionary wars\u2019 happen isn\u2019t strong<\/a>. More likely, a China which reverted to the mean global growth rate, while bad for the global economy, could be good for global security. It would give its neighbours fewer incentives to engage in arms build-ups. Moreover, if China also transitions towards democracy (which Summers and Pritchett suggest as a likely reason why its growth could slow), then it would be still more reassuring to outsiders.<\/p>\n

A future which includes a slower growing, democratic mainland China may be less prosperous and more banal, but also less insecure. Perhaps we\u2019re not cursed to live in interesting times after all.<\/p>\n

Charles Miller is a lecturer at ANU\u2019s Strategic and Defence Studies Centre. Image courtesy of Flickr user\u00a0\u8721\u7b14 MR<\/a>.<\/em><\/p>\n

<\/a><\/figure>\n

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Fans of English Premier League soccer may be aware of the phenomenon known as the \u2018Manager of the Month\u2019 effect. 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