What Germany and China Have in Common

Here’s a ranking of per capita GDP (PPP)

Notice that 14 of the 22 richest countries are in Europe.  Western Europe to be more specific. Northwestern Europe to be even more specific.  (I define “north” as “most people live north of the Alps,” but if you drop France, nothing much changes.)  Northwestern Europe is relatively rich. No surprise. What might be a surprise is that Germany is not relatively rich for a northern European country.  There’s actually nothing at all particularly notable about the German economy.  Even its current account surplus is not very large (in per capita terms) by northern European standards.

The only reason why Germany attracts so much attention is because it has a big population.  But even that factor is overstated.  As the following table shows it’s population is larger that that of other European countries, but not dramatically larger.

If the German states became independent countries, essentially nothing would change in Europe.  Affluent Baden-Wurttemberg (home of Mercedes) borders France and Switzerland, two countries with vastly different income levels.  Baden-Wurttemberg’s per capita income is about midway in between the two. Even wealthier Bavaria (home of BMW) borders Austria and Switzerland, and is richer than Austria but poorer than Switzerland. Eastern Germany is richer than Poland but poorer than West Germany, etc, etc. For some reason northwestern Europe is richer than average, and for some odd reason the region just north of the Alps is the richest part of Northern Europe, despite being on the southwestern edge of that region.

China differs from Germany in that it is relatively poor.  But in terms of size it stands out even more.  Just as the Nordics don’t get criticized for their huge CA surpluses, the smaller East Asian states are ignored. Germany and China are the villains.  And although Thailand is about as rich as China, no one pays any attention to how much aid Thailand sends to the Philippines.  But they do pay attention to how much aid China sends.

If you squint your eyes and look at the world a certain way then national boundaries don’t matter, or I should say they matter less and less (as China catches up to the rest of East Asian countries with similar cultures.  They still matter a lot in “Korea”)  But national borders are how the media and most economists organize information.  I share that weakness, often talking about “China” or “Germany” when I really ought to be talking about “Guangdong province” or “Bavaria” on the one hand, or “East Asia” and “Northwestern Europe” on the other hand.  Most articles talking about “Germany” are actually talking about the Nordic/Teutonic region, they just don’t know it.

PS.  A few technical points.  The richest part of Europe is actually Norway, not the region just north of the Alps, but oil affects that result. Bavaria is actually not the richest part of Germany–two small city states and the region containing Frankfurt are wealthier.

PPS.  In a recent post I argued that the China of 2043 will be very different from the China of today, in ways the current government has no control over.  This article hints at the speed of cultural change:

In Beijing’s suburban Daxing district, where several garment factories are located, young workers now flaunt smartphones and sport embroidered jeans, permed hair, and painted fingernails—a far cry from the standard work wear of a decade ago, when many strolled around factories in slippers and pajamas. 21-year-old garment worker He Xiaoje, who resembles a heavily moussed-up young John Travolta and earns 3,000 yuan ($485) per month, seems incredulous that anyone was ever content with just a dumb phone. “If it’s not a smartphone, who will use it?” Like many of China’s migrant workers born after 1980, he has higher aspirations than his predecessors.

“The first generation of migrant workers generally had no chance to get a good education; they didn’t have adequate knowledge or skills to seek better jobs,” says Huang Leping, director of the Beijing Yilian Legal Aid Center, which often assists migrant workers. “But those born after 1980 are different: they have a strong desire to be integrated into city life, and they focus on whether their career can provide social security and other benefits to root them in the cities.” In short, they expect more.

Gone are the days when simply posting a job notice on a bulletin board could bring a wave of fresh applicants to a factory gate. John Liu, the owner of Harderson International, a Dongguan factory that applies paint and decals to glass and ceramics, says he understands why assembly-line work has lost its appeal. “Living conditions in China have improved quickly. Young people now don’t have to work so hard to earn a living, and many have parents who will support them.” As China’s service sector has grown, a range of new employment opportunities have opened up, affording more choices. “A lot of those born in the 1990s can’t stand this kind of repetitive [factory] work, so they choose to stay home or do very simple cashier work,” says Liu. “It’s getting harder to find workers.”

In another 20 years the next younger generation will pity the living conditions of this generation, who pity the living conditions of the workers of 1993.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

1 Comment on What Germany and China Have in Common

  1. Why do you use PPP when you really should be using Nominal per capita instead? PPP is very misleading in terms of the actual developmental level of a country.

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