-: Welcome once again as MIT professor Paul Samuelson
discusses the current economic scene.
This series is produced
by Instructional Dynamics Incorporated.
Professor Samuelson, now that the recession is apparently
behind us, what are your thoughts on the longer term
prospects for economic growth worldwide in this century?
-: It's true that the recession of 1974, 1975 does look
to be behind us in the sense that we hit bottom in May,
but the rest of the world still
has to look forward to the end of its recession.
Still, let's take the dangerous road
and try for the occasion
to be a futurologist.
I've been asked by a Brazilian publication
to speculate on what will happen
to the world economy for the rest of this century.
So, here goes.
If we read the writings of the famous Club of Rome studies,
those on limits of growth by Professor Meadows,
and world dynamics by Professor Forrester,
many of them written right here at MIT,
we must regard growth as very soon
to be a thing of the past.
Natural resources are finite,
and hence, according to the new computer version
of the old Malthusian Theory continued population growth
must spell out a decline in the standard of living,
to say nothing of producing an overcrowded
and polluted environment.
Yet, in the year 2000, when economic historians
come to look back on the last quarter of the 20th century
I rather doubt that they will find the facts
in close agreement with the explicit
and implicit predictions and policy recommendations
of the new Malthusians.
To be sure, the natural rate of population growth
will be falling almost everywhere in the world.
Still, world population will then be billions higher
than in 1975, and for the most part,
material living standards can be expected, I think,
to continue their long historical climb.
So let me review the evidence
on which I base these predictions.
That way, any reader can then form his own opinion
and modify my guesses as he thinks best.
What are present global trends?
So far in the 1970s, total world GNP
expressed in real terms after appropriate adjustments are
made for price inflation seems to have been growing
at an average annual rate of perhaps 5%.
In 1973 when the advanced countries were
going into a growth recession, world GNP,
and that's the last year for which we have complete
figures yet, seemed to grow at more than 6%.
It was a year of good crops.
With world population growing in the 1970s
at about 2% per year, this means that
real per capita income in the 1970s has been
averaging out a growth rate of about 3% per year
on the average.
This is in contrast to what was happening
in the decades around 1900, when I suppose it might be said
that capitalism was at its peak,
because it's been estimated that in those years
total world GNP grew only about two or 3% per year
with per capita incomes therefore scarcely
rising at all on the average as population then soared.
Within this global pattern of course we discern
special regional trends.
We discern the decline of the position of the leader
that is the United States.
The United States with only about 6% of world population
now enjoys a bit more than 25% of world GNP.
However, at the end of World War II my guess is
that the U.S. share was almost a half of world GNP.
In the 1950s our share sank to below 40%,
in the 1960s to below 30%.
Now it's about 26%.
If the world develops as it ought to,
by the end of the century the U.S. share
should be below 20%, but not I hasten to add below 6%,
or down to 6%.
As an American patriot and as a citizen of the world,
I rejoice in this salutary trend.
The rest of the world's gain is not our loss.
Now that a typical Swiss and Swede have almost as high
real incomes as my American neighbors,
we in America still get every bit as much pleasure
as we ever did from our increasingly comfortable
standard of life.
What I do regret is the inequality of development,
that the prizes in the growth sweepstakes have been
going not to the underdeveloped world
with its historical poverty, but rather primarily
to the less than most affluent economies of Western Europe,
Australasia, and Japan.
These countries deserve their new sprint towards prosperity,
but I wish that some of that same good luck
could rub off and happen to India and Bangladesh,
to Egypt, Haiti, El Salvador, Ghana, and Argentina.
It's not true that the less developed countries
fail these days to make progress.
What would have been miracles of growth in the old days
of undiluted capitalism have been occurring regularly
over recent decades in Taiwan, Thailand, Mexico,
Singapore, Puerto Rico, Spain,
and some Eastern European socialist economies like Bulgaria.
This is without regard to what the accidental discovery
of rich oil deposits can do for Venezuela,
Nigeria, or your random, run of the mill
Persian Gulf sheikdom.
But alas, the picture is spotty.
A Brazil may flourish where a Chile will stagnate.
Many Asian and African countries,
freed at long last from the fetters of colonialism,
have introduced elaborate plans for socialism,
five year plans, 10 year plans, plans that do not seem
to be worth the paper they're written on.
Well, so far I've been speaking of the present and the past.
What about the future?
Will new rules apply to it?
Is the fourfold increase in oil price,
engineered by the OPEC cartel, merely one sign
that the day of judgment is fast approaching
when scarce natural resources will have been exhausted?
Are repeated Russian grain purchases an omen
that the number of hungry stomachs is finally
outstripping the amount of food
that men's arms can wrest from the soil?
No scholar has the right to be dogmatic about the future.
But let it be noted that the quantum jump in oil prices
is much more a reflection of a newly formed
and newly firmed monopoly than of actual depletion
of known geologic reserves.
If Saudi Arabia and Kuwait threw upon the world
all of the world they were capable of producing
in the same fashions that such countries used to do
we would I am sure many times in the next 10 years
witness sharp drops in world energy prices.
I don't want to be misunderstood.
I'm not one of those economists who are constantly
predicting with great confidence that the OPEC monopoly
will break down or will break down soon.
But I am an economist who believes that
you should call a spade a spade, and a monopoly a monopoly.
Well, similarly let's consider the prospects
for food production.
It is not the case that agriculture experiences
less technological advance than industry.
Historical statistics show otherwise.
Now, it may be the case that world climate
is now going through a new cycle.
Perhaps in two centuries we shall be at a new Ice Age.
Perhaps the Sahara and the Indian Peninsula
are in for an extraordinary frequency of droughts
and disappointing monsoons, and disappointing harvests.
But knowing the difficulties of identifying genuine
rather than spurious statistical cycles,
I should not like to bet that scientists' discovery
of new hybrid grains, pesticides, fertilizers,
and improved farming methods will fall behind
the indicated rise in world population in the years ahead.
What I think one can legitimately fear
is that certain regions will on numerous occasions
in the next quarter century experience disastrous
crop failures and mass starvation.
Hundreds of millions of people will at those times
have to throw themselves on the mercy
of the luckier world powers.
I don't think one has to be a pessimist or a cynic
to have doubts that the philanthropic response
will at such times be fully adequate
to alleviate the human distress and suffering.
One doubts the adequacy of the response.
And I don't think that this rather gloomy,
foreboding in mind will be materially exercised
by any of the various international stockpiling schemes
that I believe possess any realistic feasibility.
Well, what will be the economic pecking order
in the year 2000?
A couple of decades from an observer of the world
from outer space will I suspect at first glance
think that matters have not changed much.
The highest standards of living will still be
in the temperate zones, in Europe, North America,
and regions below the Tropic of Capricorn,
Australia, New Zealand, perhaps,
perhaps Chile, Argentina, Brazil.
The tropics and the polar regions will still offer
the greatest challenges to longevity
and a comfortable life.
But at a second glance, I think that observer will see
some notable changes.
Although Japan's miraculous growth spurt
of the 1950s and 1960s must in all likelihood
abate somewhat, still I suspect she should be able
to maintain a positive growth differential
over the other advanced nations of at least
a couple of percent per annum.
Small differences like this accumulate at compound interest,
and they should serve to bring the Japanese standard of life
to the top of the pack by the end of the century.
Can one extrapolate for a country like say Brazil
a continuation of her recent spectacular progress?
In terms of size, resources, and cultural mix
of her population, Brazil could be on the brink
of a long term takeoff.
Temporarily, by virtue of her strong governmental structure,
Brazil has avoided some of the turmoil and disorganization
that results in modern democracies as the electorates
are subject to a wave of so-called rising expectations
and rising insistence on entitlements.
However, the history in many countries of strong
governments, whose early economic successes do not last,
makes it hazardous for the social prophet
to extrapolate over the long run
will growth rates in the neighborhood of 10% per annum,
such as Brazil has in many recent years been experiencing.
Still, if even 6% real growth could be achieved
over the long pull that would bring Brazil
to preeminent economic position in Latin America
and into the general range of affluence of Great Britain.
For a semi-tropical country with a diverse
ethnic background, this would indeed
be a notable achievement for Brazil.
Still more dangerous it is to guess on the future
of mainland China.
Its stability and the degree of equality in which it shares
what we must remember is still a very low standard
of living, these are impressive.
But one has to remember how promising looked
the future of Soviet growth in the early 1930s,
and how many have been the vicissitudes
in the years since then.
Beyond guessing that China will do better than India
in the rest of the century, one must reserve judgment.
It's interesting to speculate on what is going to happen
to those Persian Gulf countries
born with the equivalent of a golden spoon in their mouth,
namely with rich oil resources.
These certainly provide the wherewithal that could make
for a rapid increase in the general standard of life.
At first, it will be rational for these countries
to use much of the surplus funds which they earn
because of the new higher price of oil
on foreign investment, letting the money grow
at a compound rate of return.
Not all of the funds, of course, can prudently be
invested in this direction.
Much should be invested in domestic development at home.
But there is a limit to the absorption capacity
that those countries in the present state
of their sophistication can in the short run invest at home.
Increasingly if the initial developmental programs
at home turn out to be successful,
the foreign kitty built up by investment abroad
should be drawn down on to turn the desert sands
into industrial gold.
However, one does not find in history
very many cases where, let us say, impoverished peasants,
hillbillies have had lightning strike
in the form of lottery winnings,
or oil strikes and gold strikes in which those peoples
have move rapidly ahead into the ranks of the affluent.
The Navajo Indians may well have benefited
from domestic oil lease lands in the United States,
but we do not consider the average Navajo today as,
free of oil, having a sustaining income base
equivalent to that of the average Episcopalian
or average Presbyterian just to mention two
of the more affluent sects of,
of churches upon which statistics have been collected.
The shah of Iran may be correct that
his country will by the next decade
be moving to the standard of life
of a typical Western European country,
Belgium, Holland,
Ireland, the UK.
But knowing how low is the base from which they start
and knowing how vulnerable to error
and corruption and to political turnover
are the planning agencies of countries at that stage
of development, I would not like to make book at long odds
that history will record that the shah of Iran
is correct in his prediction.
And the same can be said for Saudi Arabia
and Iraq and Libya, even though as we now look
at real incomes dividing the total
of the annual increment to wealth in those countries
by the total of the population we find
that they no longer belong among
the underdeveloped countries, but had to be moved
in with the United States.
Whether, when the oil gives out in Kuwait,
and in Iraq and Libya, it'll be a longer time
before that event happens in Saudi Arabia.
But when that event happens,
will the oil that has come out of the ground have been
transmuted by the alchemy of prudent investment
into industrial plant and equipment which can maintain
those high standards of living and a trend
parallel with that of the development
of the most advanced countries?
It is a possibility, but I think that
I would still say that the issue is moot.
Let me think aloud and say a few words about
the relative prospects of the totalitarian planned
socialist, communist countries in comparison
with the rest of the mixed economies.
At first blush, one might think that
a controlled economy dedicated to the eradication
of poverty and to growth could out-perform
a market economy, which depends upon the day to day
saving decisions of individuals,
individuals who are being bombarded
by television performances which dangle
before them attractive ways of spending
on current consumption, so that even if you live
in a poor state of the union, like Mississippi,
you hanker after the same sleek automobiles
and the same luxuries of food
as the more affluent people from California
and from the Northern industrial states.
Well, the same thing happens on a international scale.
The more austere controlled economies can,
you would think, presumably, by fiat hold down
the level of current consumption.
This is a straight capitalistic reasoning
that I'm giving as applied to real capital,
but not to privately owned capital.
They convert current consumption into new capital formation
in a larger percentage than do the market economies,
and so they can be expected to grow more,
so, might run the argument.
I have even heard it said,
it's now perhaps two decades ago,
by Professor Peter Wiles of the London School of Economics,
an expert on the Soviet Union, an Oxford trained economist,
trained around World War II, that the socialist,
communist societies are less efficient
at any stage of the game than the market economies.
So, they do not arrange the elements of the vector
of what can be produced in as, in an efficient way,
as efficiently as the market economies.
But since they grow at a more rapid percentage rate
than the market economies, even an inefficiently arranged
vector of elements which continually grows at 8%
will ultimately in every element of the vector
outstrip the efficient market economy
which grows at only five or 6%.
If you had acted upon the Wiles prediction
these last 20 years you would have been in for a surprise,
because it turns out that those
controlled economies do not grow in all the elements
of the vector at 8%.
On the contrary, Professor Bergson who is our foremost
American authority on the Soviet system
in many recent publications, most notably
in the (mumbles) lectures he gave a year ago May,
no, a year ago this summer I guess, in Stockholm
has shown that it's extremely unlikely that
the Soviet economy will in the 1970s
and 1980s be able to maintain the growth rate of the 1950s.
That growth rate was premised upon both the recovery
from wartime devastation.
We always know that such growth can be rapid,
but also it was very heavily capital using,
and it will be very hard to maintain the same incremental
deepening of capital in the years ahead
for purely arithmetical reasons.
It looks as if the Chinese system
has done better in meeting the problem of agricultural
advance an agricultural reform.
China, in a good year now, is, the experts tell us,
almost self-sufficient in grains.
She is using good hybrid seed,
some of it developed by the Rockefeller Foundation
in Mexico, but some of it developed in China itself.
She is spreading the knowledge of this technology.
She doesn't have as much inorganic fertilizer.
There is a apparent unity,
you might call it a docility if you like,
of the Chinese people which perhaps augers well
for their kind of controlled system.
But we have to remember that they do start
from a very, very low base.
I might mention a very interesting comparison
that I've seen out of Ann Arbor,
the group survey center there,
done by an emeritus professor
at the University of Bridgeport
which compares Bulgaria and Greece.
On another occasion I'll go into the details
of that comparison.
Well, my time is almost up.
One cannot conclude a discussion of long range forecasting
without emphasizing that precision
in long run forecasting is a myth.
Surprise should never surprise the futurologist.
Karl Marx, Oswald Spengler, Thorstein Veblen,
Arnold Toynbee, Joseph Schumpeter,
they are like poets, not like scientists.
They aren't even like historians.
The world as it is today was predicted by nobody,
not by Marx, or Engels, or Lenin,
not by Vilfredo Pareto, or Friedrich von Hayek,
not by Henry Adams or de Tocqueville,
not by John Maynard Keynes, though he did come
remarkably close in his 1930 article
on economics for our grandchildren.
But then even a random archer must by chance alone
some time come close.
Nevertheless, the future is not a matter of sheer chance.
It grows organically out of the present and the past.
The analyst must peer into a glass darkly
as best he can to appraise the likelihood
and finally if he's honest he must warn against
the imprecision of even his best guesses or visions.
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