Saturday, December 1, 2018

China and America Compete for World Dominance

You may not think it was his finest hour, but in June of 1989 President George H. W. Bush was faced with a major diplomatic crisis. The Chinese government, led by economic reformer Deng Xiaoping had broken up a student pro-democracy protest by running down the students and their encampment… with tanks.

We do not know how many young people died, but many certainly did. Bush sent his National Security Advisor, Brent Scowcroft to Beijing, apparently to find out what happened, and to ensure that the events, however horrific, did not damage America’s relationship with China.

Diplomatic Realpolitik ruled. You will draw your own conclusions about the success or failure of the policy.

While the world is mourning the death of George H. W. Bush, we should note that today’s holier-than-thou chorus, from the left and the right, wants to punish Saudi Arabia for the murder of journalist Jamal Khashoggi. As for the balance of powers in the Middle East and the need to form a diplomatic alliance against Iran, these sanctimonious chest-beaters have nothing to say.

Tonight, President Trump will be meeting with Chinese President Xi Jinping to discuss trade and other matters. Thanks in large part to the Trump administration, Americans seem to be waking up to the rising importance of China in world politics.

In the largest sense, the issue is the competition between American liberal democracy and Chinese authoritarian capitalism. The greatest threat to liberal democracy, Ivan Krastev wrote in The New York Times, comes from China. Not so much because war is imminent, but because the Chinese system seems to be working. And because American liberal democracy seems increasingly to be getting bogged down in decadent and frivolous debates. As we will see, these issues are highly debatable, so I want today merely to present some of the issues.

I will mention in passing, because no one else does, that the two great Communist dictatorships, the Soviet Union and China took two different paths to reform and rehabilitation. Deng Xiaoping was opening markets and allowing more peasants to own their own land, but he refused to allow any of the basic liberal freedoms we associate with the First Amendment. No elections; no free expression; no dissent was allowed. Deng wanted the Chinese to get rich and to become an economic power. He wagered that it could not be done by beginning with democratic liberalization.

At the same time Mikhail Gorbachev promoted Glasnost and Perestroika, openness and political freedom. How did that one work out?

If you are saying that China and America are adversaries, this tells us that, as an economic power, China is a far more important competitor than is Russia.

Krastev argues as follows:

Republicans and Democrats disagree on almost everything today, but one area where there seems to be effective bipartisanship is that America must change its policy toward China. Only a few lost souls in Washington continue to believe that China’s economic development will lead to a political opening. There is now a consensus that allowing China to join the World Trade Organization in 2001 was a mistake and that if America fails to contain China’s geopolitical reach now, tomorrow it will be impossible to do so. America’s anxiety about China is in my view a realization of the fact that China’s market-friendly, big-data authoritarianism is a much more dangerous adversary for liberal democracies than Soviet Communism ever was.

A dangerous adversary… who would have thought it? Again, we would do better to show the world that liberal democracy means something other than bickering and we would do even better to show that all Americans respect the outcomes of democratic elections.

When George H. W. Bush left the White House he told incoming president Clinton that he was rooting for him… because he was rooting for America. When Barack Obama left the White House, his and losing candidate Hillary Clinton’s supporters, immediately started to try to destroy Donald Trump, his administration, his family, his friends and and his associates. Perhaps Obama was courtly and genteel… but it was in his name and to preserve his reputation that the American left has mounted an insurrection against Donald Trump.

Recently, Keith Bradsher and Li Yuan wrote an extended article explaining that China’s post-Communist success was not based on Western principles but was based on Chinese policies. Chinese officials listened respectfully to Milton Friedman and chose a different course.

They explain the Chinese way of modernizing their economy and becoming a world power:

China would instead reform on its terms. It would free entrepreneurs to seek their fortunes, while still keeping a tight grip on essential economic levers. It would set national goals, then persuade or force people and companies to meet them. It would open up to the world at its own pace — and the Communist Party would run the show.

To Mr. Friedman and other top economists, the strategy should have failed. Centrally planned economies breed waste and corruption. Big government ambitions cripple future generations with debt. Price controls lead to hunger and want. Official prognosticators invariably blow it. The Soviet Union proved that.

Those experts were wrong. China prospered.

The results:

Today it is the world’s second-largest economy. Hundreds of millions of its people have been lifted out of poverty. It is home to the world’s biggest auto industry, the second-most billionaires and the largest single group of internet users. It has some of the richest and most powerful technology companies on the planet.

China succeeded by creating its own model. It borrowed some Western ideas while rejecting others. It opened itself to the world when necessary, and put on the brakes when it chose to. It set goals and backed them with government money. It freed its people to make and spend money, but it forbade them to ask for a better deal. Entrepreneurs built modern China, and the Communist Party kept them in line.

Other potential success stories in Asia and Latin America stuck to the economic script and stumbled. They slashed budgets when international experts told them to, hurting growth. They opened up to the world before they were fully ready to compete — and were tripped up by global turbulence. China’s government, by contrast, reformed slowly and sometimes reluctantly, stepping in when external or internal forces threatened its rule. During financial crises that struck Asia in 1997 and then the world in 2008, China gained strength as other nations faltered.

China’s economy now stands as an alternate narrative to Western ideals. And yet the decisions the Communist Party made to secure its economic future have led Beijing to its biggest test since Tiananmen Square.

It is not all hearts and flowers. China has problems. While the extreme poverty rate has been reduced, within the space of forty years, from more than eighty percent to less than ten percent, problems remain:

Its goals — a complicated mix of juicing the economy, cleaning up the country’s air and water and meeting its people’s rising expectations — have become harder to reach. Its efforts to spur growth have left the country staggering under trillions of dollars in debt, while the world is taking aim at China’s industrial ambitions.

And after three decades of balancing freedom and authoritarianism, China may be leaning too far toward state control under Xi Jinping, the country’s top leader. The Communist Party may be putting too much stock in its own abilities at the expense of the entrepreneurs who drove China’s success.

Milton Friedman might have been right after all.

Or China may still find its way.

Over and over, China has been underestimated by legions of leaders and economists who thought they knew better. “It’s not only the West,” said Justin Lin Yifu, a former chief economist at the World Bank, who was born in Taiwan but defected to China. “It’s almost every country in the world. It’s the multilateral institutions and the academics and intellectuals.”

Perhaps Bret Stephens wants to side with the intellectuals who said that China would necessarily fail. Whatever the reason, in his Thursday column, he declared that China was a declining power. The goal now is to manage the decline…

Stephens is clever, perhaps too clever. He begins with a cheap analogy. And an exercise in contrary opinion:

Those whom the gods wish to destroy, they first tout as countries of the future.

And he explains that in 2009 The Economist touted Brazil as the next great economic power:

In 2009, The Economist wrote about an up-and-coming global power: Brazil. Its economy, the magazine suggested, would soon overtake that of France or the U.K. as the world’s fifth largest. São Paulo would be the world’s fifth-richest city. Vast new reserves of offshore oil would provide an added boost, complemented by the country’s robust and sophisticated manufacturing sector.

And it was not just Brazil:

The phrase “rise of China” has now become so commonplace that we treat it more as a fact of nature than as a prediction of a very familiar sort — one made erroneously about the Soviet Union in the 1950s and ’60s; about Japan in the ’70s and ’80s; and about the European Union in the ’90s and ’00s.

Why should current clichés regarding China’s supposed rise be any different?

Hopefully, Stephens is not serious about comparing China and Brazil. Brazil’s economic miracle was based on a rise in commodity prices. Brazil is not a world leader in technology, manufacturing or industry. It has no military influence to speak of. And Confucian culture has little to do with Roman Catholic culture.

Anyway, Stephens sees the glass half empty:

The Laogai Research Foundation estimates the number of forced laborers in China to be in the millions. In a superb piece of journalism last month in Vox, Rossalyn Warren traced a desperate message found in a Walmart purse to the Yingshan prison in southern China. The note described 14-hour workdays and beatings.

Tyrannies do not work in the long run. But they do know how to make people work in the short term.

Yet even with the advantages of scale and force, China isn’t working. In 2014, a year in which Beijing posted an official growth rate of 7.3 percent (as compared to 2.6 percent in the U.S.) China lost $324 billion to capital flight, according to a UBS estimate. In 2015, the figure more than doubled, to $676 billion, according to the Institute of International Finance. In 2016: $725 billion.

He believes, as an article of faith, that China will fail because it does not have the dynamism of America’s liberal democracy. He does not mention that China has started to out-innovate us. His touting of liberal democracy is a strange assertion for a time when half the country refuses to accept election results. It is even stranger that Stephens has not remarked that liberal democracy has become an excuse for decadent lifestyles, rude, crude and lewd behaviors and for a distinct decline of national pride and patriotism.

Stephens sees an empty glass when he looks at the number of Chinese who want to leave their country. He says nothing about those Chinese citizens who have been returning to China:

If China’s prospects are as bright as China boosters think they are, why do China’s most fortunate sons and daughters see their future elsewhere?

Maybe that’s because individual rights, democratic choices, rule of law, competitive markets, high levels of transparency, low levels of government corruption, independent news sources, and freedoms of thought, conscience and speech are assets beyond price —ones that Westerners tend to value too lightly while foolishly assuming others do as well. If you define power as the power to attract and not simply compel, then Beijing — with its dystopian vision to fully surveil and rate all citizens by 2020 — isn’t a rising power at all. It’s a collapsing one.

Our independent news sources often skew the facts to make Donald Trump look bad. It happens every day. As for freedom of thought, try exercising your freedom of thought in an American university. If you fail to mouth the dogmas of multiculturalism and fail to bow down to the gods of diversity, you will be run off of campus. Just yesterday, a dangerous radical named Ben Shapiro was disinvited from Gonzaga University because his presence would provoke violence.

One suspects that Stephens is blinding himself to the current state of America. In his words:

China’s rise is not some kind of mirage. But what matters is the future, not the past, and whether a nation built on constraining the freedoms granted to ordinary people can outpace, outsmart, and outlast another nation built on defending and broadening those freedoms. On current evidence, that seems utterly doubtful.

Perhaps its a pure accident, but fast upon the Stephens column, Fareed Zakaria addressed similar issues. He will take the opposite position: that we seem to be at peak America.

While the United States continues to outperform other advanced economies, the “rise of the rest” also continues, with China, the world’s second-largest economy, growing at three times the pace of the United States. A quarter-century ago, China accounted for less than 2 percent of the global economy. Today, it is 15 percent and rising. China boasts nine of the world’s 20 most valuable tech companies.

This economic reality is having a geopolitical effect. China is the largest trading partner of major economies in Latin America, Africa and Asia. That gives it clout. Its “Belt and Road Initiative” is designed to extend Beijing’s influence across Asia and beyond, creating not just a market but also a string of allies and dependencies. It has expanded its control over the South China Sea in ways that neither the Obama administration nor the Trump administration has been able to block or counter.

Of course, Zakaria blames it implicitly on the Trump administration. He seems especially torqued by Trump’s failure to participate in international institutions that have not exactly been friendly to America.

Yet, he notes cogently that America is drowning in debt. He does not mention that the Obama administration bears the onus for this increase:

Foreign leaders also note that the United States is likely to be increasingly constrained by its mounting budget woes. The Financial Times’s Gillian Tett points out that the U.S. government now spends $1.4 billion a day on its debt, 10 times more than the next major industrialized country does. As interest rates rise and more Americans reach the age of collecting Social Security and Medicare, the federal government will be unable to fund much else. Ezra Klein has quipped that the American government is “an insurance conglomerate protected by a large, standing army,” and that is becoming truer every day.

Consider these a few thoughts for today.


Sam L. said...

" If you are saying that China and America are adversaries, this tells us that, as an economic power, China is a far more important competitor than is Russia." What does Russia make and sell in the US? Semi-auto AK-47s is the only thing I can think of. Thoughts, anyone? Buehller??

Brazil: I recall reading a number of science fiction stories in the '50s that posited Brazil as the coming economic power in the future.

Dr. Irredeemable Dreg said...

Excellent post, Schneiderman.

Bret Stephens, a very bright guy, commits the fatal "economics as ideology" error, making the kind of failed forecasts that issue therefrom. Not surprising coming from an LSE graduate, an institution founded by the Fabian Society. Economics as ideology always ends up being egg on the face, like the hilarious Keynesian estimate ginned up by O'Rama Regime Economic Council head Christina Romer to boost the now-infamous "Porkulous" stimulus bill. She "forecast" that every dollar of "investment" would yield $1.60 in return.

David Foster said...

Precisely because the Chinese economy is larger and more dynamic than the Russian, I see Chinese influence over American politics and political dialogue as a much more serious threat...indeed, increasingly not just a threat but a reality. See my post So, Really Want to Talk About Foreign Intervention?

Dr. Irredeemable Dreg said...

I see that ever-Thumper policy wank Bill Kristol is thumping for "regime change" in China.

Maybe after David French is elected President.

Sam L. said...

I read earlier today that the Russkis sell wheat. Don't know if any of us is buying it.

SteveD said...

Success, compared to what? Everything is relative. China has 3 times the population of the US. To become equally prosperous, it would have to have three times the GDP, but its GDP is barely half the US. Per capita, the US is 5-6 times richer than China. Also, good part of China's success comes from stolen Western intellectual property. China started as a basket case nation, but its got about as far as it can without further liberalization.

Note that the GDP of China's most prosperous province is more than the GDP of the entire country of Russia. That shows you how far Russia has fallen.