The Grand Illusion 2.0
The Grand Illusion 2.0
Introductory note: this is a very long epistle. But I think my point needs to be made fully and at length. Before you go further, in fairness here is the TL:DR version:
- Advocates of free trade and globalization were taken aback a week ago by the assumption by China’s President Xi Jinping of rule for life.
- This was because it runs completely contrary to their theory that free trade leads to economic liberalization, which in turn leads to political liberalization.
- This theory has been repeatedly and thoroughly repudiated throughout history, most catastrophically be World War I.
- That’s because autocrats will use the gains of economic trade for their own ends, typically the pursuit of further political and military power.
- Historically middle classes do not revolt against autocracy when they are prospering, but rather only after a period of rising expectations has been dashed by an economic downturn in which the autocratic elite unfairly forces all of the burden onto them.
- But since these historical facts are nowhere to be found in the economic models, they are ignored as if they do not exist. We can only hope they do not once again lead to catastrophe.
Last week China stepped from autonomy into dictatorship. That was when Xi Jinping … let it be known that he will change China’s constitution so that he can rule as president for as long as he chooses …. This is not just a big change for China but also strong evidence that the West’s 25 year long bet on China has failed.
After the collapse of the Soviet Union, the West welcomed [China] into the global economic order. Western leaders believed that by giving China a stake in institutions such as the World Trade Organization would bind it into the rules based system … They hoped that economic integration would encourage China to evolve into a market economy and that, as its people grew wealthier, its people would come to yearn for democratic reforms ….
[W]hat’s happening in China … is huge and consequential. China is making the most significant change to its political system in 35 years.
For decades, China seemed to be getting more institutionalized…. But that trend has now been turned on its head. If term limits are abolished, which is now almost certain, Xi Jinping could stay China’s president, general secretary of the Communist Party and chairman of the Central Military Commission for the rest of his life. And he is just 64.
…. The real danger is that China is eliminating perhaps the central restraint in a system that provides staggering amounts of power to the country’s leaders. What will that do, over time, to the ambitions and appetites of leaders? “Power tends to corrupt,” Lord Acton famously wrote in 1887, “and absolute power corrupts absolutely.” Perhaps China will avoid this tendency, but it has been widespread throughout history.
[M]any people were too dazzled by the superficial changes, especially economic changes, to realize that the Communist Party’s objective is to stay in power, not to reform itself out of existence. Economic reform or, to be more exact, adopting some capitalist practices and embracing market in some areas, is only a means to a political end….
[W]hen China was forced to keep the door [to liberalization] more open, it was in a weaker position relative to the forces outside—the West in general and the U.S. in particular. But when the conservative forces inside China gain strength while the West appears to be in decline, those forces are far more likely and able to close the door again, as is happening right now. So, while the logic of irresistible liberalization appears to be reasonable on the surface, it overlooks the underlying reality of power.
The new and most dangerous twist to all this is that our great looming danger is Russia, China, and the rising oil dictatorships…. This is a worldview bereft of any historical perspective. Compared with any previous era, there is more economic integration and even comity among the world’s major powers. The imbalance between the West and the rest is large, not complete but large and in most areas increasing. The newly emerging states want to grow within the existing world order, which John Ikenberry has nicely described as “easy to join and hard to overturn.” The world is going our way, slowly and fitfully, with some detours. No great power has an alternative model of modern life that has any real attraction?
You know in Lexus I wrote that no two countries would fight a war so long as they both had McDonald’s. And I was really trying to give an example of how when a country gets a middle class big enough to sustain a McDonald’s network, they generally want to focus on economic development. That is a sort of tipping point, rather than fighting wars.
he reads too much into into two indisputable facts of the current moment — that there are fewer major wars taking place than in living memory and that there is a greater level of global economic integration than at any time in history.
Globalisation is not a new phenomena. During the second part of the nineteenth century there was a strong move toward the liberalisation of international transactioins, and international trade expanded rapidly until the beginning of World War I
embarked upon an extensive education program; it specialised in technical ares and so there was a greater push in that direction. It produced more and better scientists, and so Germany began her industrial advance. Also, the French threat, even if it was superficial, spurred the Germans in authority into action, and made them make Germany stronger and superior.German expansion was also helped by the expansion of the railway network, so that goods and mail could get from one place to another, and to more places, faster and more efficiently.
the universal assumption that a nation, in order to find outlets for expanding population and increasing industry, or simply to ensure the best conditions possible for its people, is necessarily pushed to territorial expansion and the exercise of political force against others…. It is assumed that a nation’s relative prosperity is broadly determined by its political power; that nations being competing units, advantage in the last resort goes to the possessor of preponderant military force, the weaker goes to the wall, as in the other forms of the struggle for life.The author challenges this whole doctrine. He attempts to show that it belongs to a stage of development out of which we have passed that the commerce and industry of a people no longer depend upon the expansion of its political frontiers; that a nation’s political and economic frontiers do not now necessarily coincide; that military power is socially and economically futile, and can have no relation to the prosperity of the people exercising it; that it is impossible for one nation to seize by force the wealth or trade of another — to enrich itself by subjugating, or imposing its will by force on another; that in short, war, even when victorious, can no longer achieve those aims for which people strive….
the percentage of a country’s population directly afflicted. During the course of World War One, eleven percent (11%) of France’s entire population were killed or wounded! Eight percent (8%) of Great Britain’s population were killed or wounded, and nine percent (9%) of Germany’s pre-war population were killed or wounded! The United States, which did not enter the land war in strength until 1918, suffered one-third of one percent (0.37%) of its population killed or wounded.
the “J-curve” theory says that when conditions improve for a relatively long period of time, — and this is followed by a short economic reversal — an intolerable gap occurs between the changes that the people expect (dashed line) and what they actually get (solid line). Davies predicts that this is when revolution will occur (arrow).Support for this theory was found in a 1972 study of 84 nations. Researchers found a clear relationship between indications of political instability and economic frustration. “Frustrated countries” are those that had poor economic conditions — low economic growth, insufficient food, few telephones and physicians — while being acquainted with the higher living standards of industrialized, urbanized countries.These studies show that frustration is more likely to develop from relative frustration — the gap between their expectations and the reality that does not live up to these expectations. People in poor countries isolated from the outside world do not realize how poor or frustrated they are. Their frustrations are accepted merely as part of living. In contrast, the people in poorer countries exposed to modern standards feel more “frustrated.” To top this off, deprived people who have experienced some recent progress are more frustrated than those who experienced poverty and oppression.
South Korea is hardly a model of a free economy. The hand of government planners in setting priorities and steering companies has been heavy. The low wages that helped fuel growth did not result from market forces. For 25 years, successive governments deliberately held down pay rates. They virtually barred strikes, jailed militant labor leaders, and decreed tough guidelines for wage increases. To block development of independent unions, companies created their own and installed leaders acceptable to the government. Says a Western diplomat in Seoul: ”Union leaders were practically appointed by the national security police.” With democratic winds sweeping South Korea this summer, workers were emboldened to push for higher pay, independent unions, and the right to strike,
A more fundamental point is about human nature. In any economic downturn, the powerful elites are going to try to deflect all of the suffering on the powerless masses. In a representative democracy, eventually the majority will rebel at the ballot box and elect a party which promises to end their suffering. [Update: It might be a left-wing party, like Syriza in Greece or FDR’s New Deal democrats in the US, or it might be from the right-wing like AfD in Germany or Donald Trump. ]
In an authoritarian state, however, no such safety valve exists. That’s why revolutions don’t happen in an era of rising expectations. They happen when rising expectations are dashed. So long as China’s economy continues to expand stoutly, expect no meaningful turbulence. But someday China will have a recession, and then, dear reader, is when world history will get interesting.
NDD, great analysis. Highlights a huge hole in economic thinking.
This NDD post isn’t about economics … it’s a poly-sci, or State-Department consideration, or political one.. Not one of his cited persons or articles is by an economist.
Economists and Economics don’t predict future wars or consider them unless they are imminent & in the immediately in the future.
NDD’s post is an opinion piece about the potential future effects of free-trade among nations.
Hitler, Stalin, Mao, now Xi……….
US has always had a nemesis to justify plundering its economy for war plant jobs!
The bogeyman thread has been used since 1949 (Mao pushed the corrupt the nationalists off the back of China and kicked out the Luce adored missionaries) to abuse peaceniks.
DO we expect a little red book or a Qing emperor?
Well, it’s possible that the Economist and market-happy economists actually believed their propaganda back in the 1980s when they were pushing the capitalism-to-democracy thesis. But it’s just as likely that they weren’t so dumb, that they never really believed their propaganda. It was just a handy cover for their criminal support of capitalism based on neo-slave labor in China’s export zones: “Oh it’s awful now, but capitalism will promote democracy and then it will get better.”
We are a little blog offering many economic, business, and other views on the internet. I do get the “real-world economic review;” but, I do not recall your article in issue 71 on China. “China’s Communist-Capitalist ecological apocalypse” I work in manufacturing and have spent much time in China, Thailand, Philippines, Malaysia, etc. Everything you say about China is true. I have seen the ghost town malls built going unused near Shenzhen while visiting a PCB plant and the rows of apartment buildings near Jianiang. My Chinese engineer pretty much summed it up; “Chinese government does not plan for the poor to live or make use of these new buildings.” She was open in her criticism of the government to me.
Your $.57 /hour pay is true for the content of direct Labor in a product. It comes back to the US at a cost of ~$3/hour as how we cost it. It is peanuts in comparison to the Overhead costs avoided in China and charged to US manufacturing. Not advocating tariffs as much as realization of what is happening. Your article calls this aspect out very clearly. I would like to contact you directly if I may.
For those who may not understand what this is. It is the waste or residue left over from the manufacture of photo-electric cells which we enjoy in the US to provide electricity. Much of this product is imported from China to the US. The toxic remnants are dumped on the ground (as described) in rural sections of China. (In the US, this would be a criminal offense and someone would get be charged. Then the courts would have to prove the Koch Brothers or whoever actually knew this was occurring at their facility [which is getting harder to do].) If you have not seen this article (I have dispersed the real-world economic review from time to time), it is worthy of a read. It correlates with what I have seen in Asia (China) and talked about. The link is above.
What I found fascinating is an interview linked within,
“Pei: Foreign adventurism in the context of declining economic performance is a distinctive possibility, but it is also very risky for the regime. If it succeeds, it will gain domestic legitimacy, but should it lose a war, it could lose power quickly. In the short to medium term, the Communist Party’s real strategy is to strengthen the security state, including the building of a powerful surveillance state. The strategic thinking behind it is that, since we can no longer deliver carrots, we will have to rely on sticks more. This explains the rising degree of repression in China, and things could get a lot worse if the economy performs more poorly.”
Makes their security system a lot easier to understand:
“Across China, a network of 176 million surveillance cameras, expected to grow to 626 million by 2020, keeps watch on the country’s over 1.3 billion citizens.
Loaded with facial recognition technology and artificial intelligence that can keep tabs on people and their activities, the cameras represent a blessing for the security state and a nightmare for privacy advocates, dissidents and anyone else the Chinese government deems a threat.”
The Atlantic….. a neocon [Orwellian rag].
In the US we have google cameras.
Capitalist oligarchs as big brothers are so much better than PRC’s CommParty!
And big data/AI doing it for both
A repeated whataboutism regarding every single post is a sign of a weak mind and a weak argument.
Yeah, I can use google earth and see someones house or car, and I would imagine there are “people” who can do more than that.
But I doubt there is much of comparison between that and one of these facial recognition cameras for every 3 chinese that can find a person just by entering their name, and track him and who he meets.
In the example I linked above. Authorities were able to find and detain a person in a city of more that 3 million people in six minutes.
Should have said “detain” not “arrest”.
What of the American “democracy”?
Where the majority of the population has seen its standard of living decline in the past 20 years even as its wealthy grow ever wealthier?
The author assumes that democracy is stable when neither the original Greek democracies, nor the nascent democracies in newly formed governments in Asia and Russia, were particularly stable.
Why then is the American democracy to be different, particularly when “change” in government by vote is clearly not actually resulting in different policies?
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