American stock markets rallied last Friday on the news that the economy grew at a rate of 3.8% on an annual basis in the third quarter without a rise in inflation. America is now considered a laggard, though, when compared with a global economic growth rate of 4.3% this year, a figure cited by the chief economist of the International Monetary Fund, Raghuram Rajan, on Friday.

Asian economies, particularly China and India, are the ones driving worldwide growth. Between 1987 and 1996, China grew 10% annually. From 1997 through the end of next year, the IMF estimates that China will have grown by 8.4% annually. During the same periods, the IMF estimates growth in America to be at 2.9% and 3.3%. Europe and Japan grew even more slowly. Ironically, the countries that the IMF labels as “advanced economies” are growing much more slowly than the “emerging economies.”

Until the early 1980s, China was hardly growing at all. It was a closed economy, grossly mismanaged by its communist government. As it opened to international trade, investment, and market mechanisms, China’s economy subsequently exploded. These were the very policies that American governments have prescribed since World War II for developing countries. China and other Asian nations have been better at adopting these market-oriented policies.

While China’s economy may be large, it is nowhere near perfect. For example, China might have grown even more rapidly if it had fewer restrictions on capital markets and greater respect for intellectual property protection. China’s one-child policy has led to a substantial demographic imbalance, both of men to women and of a dwindling younger generation to its aging elderly population. But these problems have been dwarfed by the benefits of removing most of the impediments of decades of governmental mismanagement.

Over the past 20 years, China’s economy had grown to a size of about two-thirds of America’s. While many experts disagree over the accuracy and comparability of China’s economic statistics, there is no doubt that China’s economy is indeed large and growing. The same is true for India.

China’s growth potential depends mostly on its large and highly skilled populations. With 1.3 billion people, China’s population is more than four times the size of ours. Even when the overall size of China’s economy matches ours, China’s per capita measures of economic activity will still be less than one-fourth of ours.

No country can sustain growth of nearly double-digit rates. China’s economy will slow as it becomes larger, but it still has a great deal of potential left to grow more rapidly than America for many years. The question is not if but when China will become the largest economy.

Under many plausible scenarios of future growth rates, China will supplant America as the largest economy in the world as soon as 10 to 20 years from now. In the long term, the only other country with the size to rival China is India. Stated slightly differently, no one born today will likely grow up working in a world in which America has the largest economy. Today, we account for 21% of the world’s economic activity, and China accounts for 13%. A few decades from now, those shares may be reversed.

For most of the 20th century, America was the undisputed economic leader of the world. We had the self-confidence to invest in a wide array of endeavors that benefit from economic wherewithal: a strong military, the exploration of scientific frontiers, a higher educational system that is the envy of the world, a currency that has become the international standard, and language and culture that permeated the world by shear osmosis of economic activity.

These advantages will not quickly fade, but nor can they be taken for granted. American prosperity is not tied to being the largest in the world, but more closely to being among the most efficient. Efficiency of the economy ensures that, at least for individuals, the benefits of living in America are greater than elsewhere.This means that in the years ahead we cannot forget the importance of a predictable rule of law, efficient regulation, sound fiscal and monetary policies, and responsible pension policies.

A former FCC commissioner,Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.