GDP 4: The chocolate river: on how the first world is having withdrawal symptoms!

Continued from: GDP 3: Rise of consumerism

Imagine 210 houses on a long road along a river of chocolate and one house on the opposite side of the river. There was one person living in each. A truck has to supply chocolate to all the houses. The first person who gets hold of the hose was the guy in the lonely house on the other side of the river. He does not let it go and begins to fill every nook and corner of the house and drinks as much as he could before he would pass it to the houses on the other side of the river. But the truck was never passed and the guy made a clever deal that instead of passing the truck, he offered chocolate as commission to whomever who will work to maintain his house. Having the truck under his control and living far away, the first person could easily ignore any protests from other people. Seeing the truck is not coming to them, one by people tried to build their own truck to get access to the river. People who knew how to build a hose got it by themselves in the sizes they could make, but their sizes were nothing comparable to the first truck. Despite their small hose sizes, if one would throw a hose to the river, the other would protest and complain that the former is taking too much chocolate. Some said that they will not live in their own home and move to the home of the guy with a bigger hose. Some established partnerships and did teamwork to extract as much chocolate. Years went by. The person at the first house where the truck did not move becomes so obese and laggard. He could neither move to lift the hose nor carry the items to maintain the truck.

Due to his incapability, he starts to demand more work from the other people, but for the same amount of commission. With growing obesity, he even needed assistance every time if he wanted to just eat a chocolate. For extra support, he hires a person from house 11*. The guy was willing to help, but he too wanted a chocolate commission if he should help the obese guy. The obese guy accepted and lets the guy do the work. Seeing that the person 11 is working for cheap, he gives more work to this guy so that he could save more chocolate. The guy from house 11 becomes skilled overtime that on top of serving the house 1, he builds his own truck which is modern and easy to maintain. At some point Person 11 announces to the obese guy that he does not want to work anymore for him. Person 11 quitting contract made him devastated as he found it difficult to get the job done by himself. He had lost his skills, as he did not keep in touch with the work. All the time he was just watching TV, eating lots of chocolate and letting the others do the work. Now he couldn’t even move and get to his truck. Moreover his truck needed a repair as it has become old. Person 11 at a point of time decided to invite the other house mates to his house for work and for a better commission. Person 11’s modern truck got so much attention, that the other people couldn’t stop speculating on how he could have built this. Although they were happy that were promised better pay, some were questioning if the truck was just painted modern on the outside and that he is just offering to pay more to cut the work at house 1. In any case, the better pay starts to talk and one by one the housemates start to call quit with the house 1 and started to move to Person 11. Person 11 becomes rich soon. Now the obese guy is screaming from the other side of the river that person 11 is useless and that he was a better owner and he had a better truck. People turned and laughed at him, but their legs were moving towards person 11’s house*.

The United States of America is the representation of the first house and Trump is a perfect and literal representative of the obese child in the story! I don’t blame and make fun of Trump for what he is! He is simply an obvious output of such an obese economy! This does not make Obama or any other American president any good. They with a conservative mask were simply fuelling the consumerist attitude over time. Once the signs of losing the truck started to arise, it is just natural that an aggressive person, who would fight to get back the truck, would be chosen by the people. Real problem is the economic source: when it goes away, the problem reflects in terms of nationalist identity as to who really belongs to the house and who not. Dwindling resources simply ensure a fight for the remaining share. World over, this story of obesity is what the first world countries are going through now and the surge of right wings are just an indication of their withdrawal symptoms of letting the truck moving to a different house! With Trump leading the rise, the right wing party AfD is gaining so much popularity in Germany, Brazil has chosen its recent right wing president, Austria has its youngest right wing chancellor and this list is just showing signs of increasing in the west. Right winged parties does not necessarily mean that it’s doomsday. If the new party in power should insist on consumerism i.e. work for the same obese share of chocolate that they were demanding till today, they are set to fall on their face. At the time when they are obese and costly, creating jobs in the country without reducing the lifestyle will most probably backfire. As an alternative, if they should opt for a sharing or minimal economic model, than a consumerist model, they can survive. Also whether it’s a right wing or a left wing, any party taking the mantle will have the following three biggest threats to tackle.

To be continued.. GDP 5: Three biggest threats

* China was at position 11 in world GDP list in 1990’s. Now it’s at number 2. China found its chocolate source. Given the fact that it was pumping it to the limit, only time can say how long this growth can last. Resources are finite after all.

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GDP: 1. A look into World’s GDP until now

Abstract

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.

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Figure 1[v]

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.

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Figure 2[vii]

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.

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Figure 3

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”

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Figure 4[ix]

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.

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Figure 5[xi]

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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References:

[i]https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

[ii]https://www.thebalance.com/us-gdp-by-year-3305543

[iii]https://tradingeconomics.com/china/gdp-growth-annual?continent=africa#calendar-table

[iv]https://www.bloomberg.com/graphics/2016-us-vs-china-economy/

[v]https://www.theatlantic.com/business/archive/2012/06/the-economic-history-of-the-last-2-000-years-in-1-little-graph/258676/

[vi]https://en.wikipedia.org/wiki/Gross_world_product

[vii]https://datainvent.org/category/microsoft-power-bi/

[viii]https://sites.google.com/site/globaloilproduction12/1950-s-oil-production

[ix]https://alternativeenergy.procon.org/view.timeline.php?timelineID=000015#1951-1999

[x]https://en.wikipedia.org/wiki/Economic_miracle

[xi]https://ourfiniteworld.com/2012/03/12/world-energy-consumption-since-1820-in-charts/