Economics Entering 2024
In Argentina, newly elected president Javier Milei has committed himself to reviving Argentina’s financial crisis and inflation-ridden economy through radical free-market reforms. Speaking at the World Economic Forum in Davos, Milei declared, “Thirty-five years after we adopted the model of freedom, back in 1860, we became a leading world power. And when we embraced collectivism over the course of the last 100 years, our citizens started to become systematically impoverished, and we dropped to spot number 150 globally.” Milei received a standing ovation.
Entering 2024, the world balance of power is beginning to shift, as China rises, Europe stagnates, and America spreads itself thin between its innumerable commitments. Thus, it would be relevant to examine the relative trajectory of these power-centered regions of the world in terms of their ability to grow their economies and produce the newest technology.
Beginning with the backdrop to the conference in Switzerland, the European economy continues to stagnate as it excessively regulates its economy and effectively thwarts innovation. European regulators are so obsessed with preventing mergers that European companies are simply unable to grow to the extent of American companies that are producing the next generation of technology. For example, economists at the University of Maryland found that Europe’s General Data Protection Regulation reduced European venture capital investment compared to the US. According to a Wall Street Journal article, in 2021, while American artificial-intelligence related venture-capital investment was $69.30 billion, in China it was $24.78 billion, and in Europe it was just $16.73 billion despite having an internal capital market almost as large as the US’s and larger than China’s. According to the same article, American firms invest 80% more capital in research and development and receive a 30% higher return on capital.
Meanwhile, China does not seem to do much better, as it continues to buoy its economy with government spending and easy credit for massive development projects that simply do not have a corresponding demand. Within the Chinese economy, it is essentially impossible to acquire a skilled job with a recent college degree and without years of experience, which is why the government ceased to publish youth unemployment data when it exceeded 25%. According to another Wall Street Journal article, the most startling thing to see in any economy is that private investment in China fell by 0.4% in the last year. In another article, foreign investment in China has hit the lowest level in decades, and foreign companies have extracted approximately $160 billion in earnings. None of this should be surprising as the Chinese government continues to assert more control over the private sector as well as harshly enforce security measures amongst foreign businessmen.
In summary, as the world order seemingly shifts in 2024, one thing has not quite yet changed: “America innovates, China replicates, and Europe regulates.” The outcome of great power competition in this century will continue to be determined by whose government can get out of the way of its people the fastest.