The world is in crisis and that is good for the economy

The war in Ukraine, the economic and social turmoil caused by China’s zero-Covid policy, the European Union’s collective security and defense awakening, and the polarization of American politics have all combined to fuel global economic pessimism. But none of these factors will stagnate long-term global growth. They will accelerate it, driven by the increasing global commitment to invest in technology and innovation.

Not work, not capital, but technology has been the single greatest driver of economic growth since the Industrial Revolution. The creative power of technology has triumphed over all of humanity’s disruptive weaknesses. Almost all of the world’s wealth has been created since the rise of industry. Explosive growth since the beginning of the 20th century has been accentuated by two world wars, the rise and fall of industrialized hegemons, the Great Depression, the Great Recession and even the Covid-19 pandemic.

Global gross domestic product in 1900 was $3.4 trillion (in 2011 international dollars). In 2020, it was $112.7 trillion. During the same 120-year period, the world population grew from 1.6 billion to 7.8 billion. Fewer than five times as many people produced more than 33 times as much output.

The world seems to be headed for a second cold war between democracies and autocracies. It is therefore worth understanding the economic impact of the original Cold War. At its peak, huge investments in innovation put people on the moon. Technology destined for defense created the internet and fiber optics, both fortuitous but essential to 21st century innovation. Without the all-out tech race to win the Cold War, the world might not have entered the information age after the fall of the Berlin Wall.

We get a glimpse of future global warfare with the horrors unfolding in Ukraine – and it looks promising for the free world. Strong forces defending freedom include satellite company Starlink, chipmaker Taiwan Semiconductor Manufacturing co

and the US dollar. Unlike Starlink, Huawei’s 5G base stations can be completely disabled in a combat situation. Compared with TSMC, which is capable of producing 3-nanometer chips, China’s best chance for full semiconductor production is 28-nanometer chips, six generations behind. Without advanced chips, the most sophisticated missiles can go blind. China aims to launch the world’s first major sovereign digital currency. But crowding out the US dollar would require major commitments to financial reforms, including floating the exchange rate and allowing free flow and full convertibility of capital accounts. These are high demands for a communist state.

Were it not for the challenges posed by China and by the rise of populism and autocracy elsewhere, the US would not have focused so much on a state-of-the-art approach to supporting digital infrastructure, moving chip manufacturing capabilities to shore, and developing other technologies with the goal of victory the 21st century.

Meanwhile, China realizes that its model for creating derivative applications based on Western research is featherweight. The country is now diving into basic research, attracting top talent and biding its time to compete for the next global technological frontier. Its efforts to globalize capital through the Belt and Road initiative have already shown signs of savings.

China’s pursuit of artificial intelligence will fuel the global AI race. China could be the first country in the world to launch flying autonomous electric vehicles. Thanks to its massive role in global renewable energy supply chains, it can accelerate the innovation cycle in wind, solar and hydrogen energy.

If we do indeed enter a second Cold War, global conditions should lead to incentives and outcomes similar to those of the first. A global arms race has become inevitable, but it will not necessarily make the world any less peaceful.

Germany said it would increase its defense budget to 2% of GDP in light of the Russian invasion of Ukraine. The projected US defense budget reached a record $800 billion. China increased its declared defense budget to 1.3% of GDP. The Republic of Korea can request a second Thaad missile defense system. Indonesia, Malaysia and the Philippines reinforced the Indo-Pacific Trilateral Cooperation Pact to ward off threats in the Pacific. Australia is nuclear submarine capable and part of Aukus and the Quad. Sweden and Finland are expected to join the North Atlantic Treaty Organization. Africa joins security balancing act with Chinese submarine sighted in Djibouti.

Driven by the global tech race, our children will inherit a future that is vastly more digital, sustainable, AI-infused, and space-focused. They will be significantly wealthier than previous generations. Technology will change the structure of the world economy, political order, capitalism and even our biological being.

In 2022, we are closer to the next technology revolution than we have been since the Cold War. The rise of China and the war in Ukraine have accelerated the global push to the next frontier of innovation.

The long trend of exponential global growth fueled by technology will inevitably continue, on one condition: that we do not resort to civilization-destroying weapons.

Ms. Yu is a Senior Fellow at Harvard Kennedy School.

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