Inertial economic growth and the future wars

 The results of the thorough analysis presented in a series of posts validate the original assumption that the growth rate in the developed counties has been falling according to the inertial growth relationship. The observed decrease in the rate of growth contradicts the expectation of a constant growth rate (i.e., exponential GDP growth) as suggested by the mainstream economic approach. Regular actors of the global economy and financial markets ground their strategies on the assumption of the transient zero-mean fluctuations around the constant growth rate. The gap between the real and expected growth is a potential source of economic, financial, and social problems. 

Among many other parameters, companies, firms, and enterprises base their development plans on the mid- and long-term expected economic growth as the expression of moving balance between potential demand and targeted supply. The decaying rate of economic growth has never been a part of this approach with the mainstream opinion of the long-term exponential growth. When the cumulative gap reaches some critical value the economy makes self-adjustment and returns to the real trajectory of economic growth. This could be expressed as an economic recession. In the past, such gaps were growing at a higher rate because the rate of economic growth was higher and its fall was much faster according to the inertial growth relationship. With the decreasing rate of growth, recessions have to occur less often since the deceleration of the growth rate at the current levels of the real GDP per capita in developed countries is almost negligible.  

In the world of decaying rate of economic growth, and thus, the long-term revenue decrease, financial institutions have to look for the places with higher growth rates where investments provide higher returns (likely with some elevated risk). The profit-generating industries and services are forced to move to these higher-growth-rate places. With time, the growth rate decreases (growing GDPpc lowers the rate) event in these places and the revenue as well. The possibilities to retain the historical revenue level are shrinking. It is not excluded that the new methods to return the financial profit to the desired level are associated with global economic and social redesign expressed in the forced creation of such zones of higher revenue.  

Figure 64. The shares of “Compensation of employees” and “Wages and salaries” in the “Personal income”. 

In developed countries, the abandoned employees of the removed industries and services lose their labor-price-setting power, and thus, the share of personal income related to job. In the USA, the share of “compensation to employees” in the total personal income has been falling from 0.732 (absolute peak in the time series reported by the Bureau of Economic Analysis) in 1969 to 0.609 in 2013 (the COVID-19 fall to 0.535 in not considered). The share of “wages and salaries” in the personal income decreased from 0.649 in 1969 to 0.492 in 2011, i.e. wages and salaries have been falling much faster than the compensation of employees. Figure 64 presents both curves as reported in Table 2.1 “Personal income and its disposition” available from the BEA. The most dramatic fall in both economic variables was observed between 2006 and 2013. Such discouraging falls may result in political turmoil.  

The future economic giants are China and India with the developed countries doomed to degradation and extinction in terms of relative economic power. China and India not only improve the total GDP as the economies with the largest population but also experience a quantitative jump to the level of stationary and sustainable growth in real GDP per capita. This is a qualitative change – they become developed countries with complete economies and corresponding price-setting power. It is not possible to estimate their potential, i.e. the annual GDP per capita increment, in the next few decades but it can reach the current level of the USA as the principal price setter.  The trends are stable and promising. 

Russia is almost in the self-consistent, sustainable, and stationary growth state with an annual GDPpc increment above $600. This value is measured in the 21^st century and is one of the largest worldwide. The future depends on the potential of resistance to the increasing pressure in the field of economic and political cooperation with various actors. There are natural partners and opponents. Brasilia is likely a failed state in an economic sense. It demonstrates a stationary regime (i.e. no economic jump as in Russia, China, and India) since 1960 with the annual GDPpc increment of $183. 

East European countries fully depend on the EU. Their economic performance can be successful only within the EU markets and system. Germany is the EU driver as the country with the highest economic potential and the largest annual GDPpc growth rate. The negative side of this leadership is the progressive decay in the rate of growth in France and Italy. They pay by underperformance for the rise in East Europe. The UK's future is not clear because the configuration of economic cooperation and competition with all possible legal and not-so-legal measures is changing fast. 

Finally, in the world of the rapid growth of the future economic behemoths and stagnation of the most developed countries conflicts are inevitable. Unfair trade restrictions, political pressure, media attacks, propaganda, military aggression, and other dimensions of these conflicts may only rise in amplitude and extent. These conflicts involve new countries in the global clash, which also includes the clash of civilizations as an additional dimension. This is only because the growth in real GDP per capita is a linear function of time. In the exponential economic world, the lead of developed countries would be eternal as they had better start conditions and the exponent provides the increasing economic gap. In the linear economic world, the lead in GDPpc is constant, the chasing countries grow faster and the gap is shrinking in relative terms.