The thought for this article struck when I was writing a blog post on “Consumer of the future”. There I had made an observation on how within just a few decades, the number of household products had a humongous increase until now in 2018. Extrapolating this thought on a global scale and trying to understand what this would mean to the global economy necessitated to look into the growth of world GDP over years. My assumption was that with increase in products at the consumer side, the whole supply chain upstream should have made a profit and thereby the numbers should reflect at not just at the country level, but globally too. One information leading to the other, it led the article to make more focus on what happened to the world after 1950. It looked as if this year was the tipping point to the global increase in consumerism. That this economic rise occurred right after the world wars was a very logical, as world wars facilitated rapid innovation and thereby access to sophisticated technologies. USA, being the forerunner among the allied forces, had the whole situation favorable to it. Combining this technological boost from the world wars to what when humans find a new resource, this article is just a look back on how fast such resources were found and capitalized. More importantly it tries to make focus on understanding the side effects this economic swelling caused and what the world governments have to watch out for human sustenance in the immediate and the far future!
Story of GDP[i]
Gross Domestic Product (GDP) in simple terms is the income of a nation. If the salaries of every person in a nation are combined together, we would get GDP. This is a very simplified statement, but the actual calculation is very complicated. The USA is the most powerful country in the world simply because it has the highest GDP of ~$20000 billion today in 2018. The terminologies like “first world”, “developing world” and “third world” countries are derived with this number as a main input. Usually indicators on life standards, longevity etc. also will be taken into consideration, but for the sake of this discussion, just the GDP factor is considered. To analyze the numbers in detail, USA and China are taken as main examples and and other countries are also touched wherever needed.
The average GDP of the world in 2018 over 211 countries is 360 billion$. With this as the reference number, the USA had a growth from $ 367 billion in 1952 to ~$ 20000 billion in 2018, which is duration of 66 years. That is a year to year average growth rate of 3.3%[ii] from 1950. West considers China as a threat because in a very short amount of time, China’s today’s GDP of $ 12000 billion has grown from the reference value of $ 360 billion in 1990 i.e. it is having a year to year average growth rate of 9.58%[iii]. With this speed, it is expected to surpass the USA by 2026[iv] or sooner!
Speed: $1 to $80 Trillion in 100 years!
Was the USA on the throne forever to be reluctant to give up the seat? Trying to answer this question, the internet had the graph below (Figure 1) which had the answer on who were the world powers over time. Following the green patch on the graph, we can see that the USA had its start in the 18th century. With Independence from Great Britain in 1776, the economic growth within about 100 years overtook that of China and India who were dominating the world trade until then. The rise for the USA was steady, but then something happened around 1950, which this graph is not showing and it was from this time it had a meteoric rise in economy.
But a second graph below (Figure 2) had the answer: The history of world GDP in absolute numbers. Unfortunately the graph had data only from 1967, but the point I wanted to make is visible here too. The actual shift began from 1950. Until 1890s regardless of who had the most percent of GDP share, the total world GDP was under $1 trillion ($ 1000 billion) [vi]. This was also the time period when second industrial revolution had just started (Figure 3). With Industry 2.0 and the drive from the world war, by 1950 the world GDP increased to $ 4000 billion. Then something should have consciously happened in 1950’s, which brought the meteoric rise in the world GDP to today’s value of ~$ 80000 billion. Figure 1 describes GDP share in percent, but it does not give the complete information. 10 cents is 10% of 1 dollar and likewise 8000 billion$ is 10% of 80000 billion $ too. Without the absolute number, percent information does not really show the size of impact as we can see below, the rise of the red lines.
Notes: Figure 1 and the commonly available information on the internet depict GDP in percent. What I needed for my discussion was absolute numbers. Somehow curiously it was very difficult to find this information. It is also important to watch out that the different representations of GDP in this article, the consistency between nominal and real GDP may not be followed through simply because of availability of data. But regardless of whichever GDP parameter is taken, I have given extra attention to attempt the right interpretation for the subject.
What could have triggered this rise of world GDP?
Quoted[viii]: “Global oil production went from about 0.1 billion barrels in 1900 to about 4.2 billion barrels in 1950′ (CounterCurrents, 2009) and since the mid to late 1950’s, oil has become the most important resource available to mankind. In this decade, oil production had just ‘exceeded 500 million tons for the first time’ (Odell, 1963) giving the annual increase in oil production at around about 7%. In 1943, the British controlled 81% of Middle Eastern oil production as compared with 14% under American control. However after World War 2, the United States was dominating oil production by having a significantly greater advance in oil production than anyone else in the world. Combined together the ‘Seven Sisters’ controlled almost 99% of world oil production
Between 1950 and 1960, oil ‘production doubled and proven reserves increased threefold’ (Odell, 1963) showing that even though technological advances were not that significant, different types of drilling were discovered helping exploration and consumption which was rapidly expanding around the world. This was helped by the discovery of the Ghawar Oil Field just before the 1950s in Saudi Arabia which is the world’s largest oil field to date”
USA took the first step and increased production from 1950s which eventually catapulted the status of its wallet. Parallel technological advancement and ability to identify and capitalize on new resources faster favoured the rise of not just USA. Likewise many western countries had “post-war” economic miracles[x] Collectively Figure 5 shows how the use of different resources has gone on the rise.
This growth of the west was lasting into the 2000s till China entered the game and was tagged as a threat, mostly by the west, as it was the first ever country which showed a competition to the west this close after the rise in 1950s. USA is at ~$20000 billion mark at position 1 and China followed up quickly to the second position with ~$12000 billion. European Union can also be a competitor if counted as one entity: then it will have a collective GDP of ~17000 billion $. EU is after all the father of the modern day USA i.e. all the money would be still within the “Western” family. What the west did not expect was the rise of a neighbour China. The USA can tag it as a threat, but in reality China is just another competitor. China has showed intense growth in the last decades. But how can a country decide to increase its GDP and carry it out? If China can rise so fast in 28 years, can all the other countries do so too? The story in the coming section will try to answer that question. It’s is important to understand your/ our role in the system to understand the big picture of GDP.
To be Continued … 2. Case Study: Supply chain of a Television
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