_Journal of World-Systems Research_, 1995, Volume 1, Number 14
http://jwsr.ucr.edu/
ISSN 1076-156X
Future Hegemonic Rivalry between China and the West?
Erich Weede
Forschungsinstitut fur Soziologie
Lindenburger Allee 15
50931 Koln
Germany
Fax 49-221/470-5180
Copyright (c) 1995 Erich Weede
ABSTRACT
Currently, there is a unipolar distribution of power. The United
States reigns supreme. Russia's economic power will remain
insufficient to underwrite a renewed attempt to establish global
leadership. While the European Community still commands sufficient
resources for exercising global leadership, it lacks the political
foundation for unitary action. Moreover, the European addiction to
the welfare state undermines European competitiveness. Japan is too
much of a 'trading state' and unlikely to become a first-rate
military power, before she is overtaken by China in economic size.
So, count Russia, Europe and Japan out as conceivable challengers
to United States hegemony. China is the only plausible candidate.
Its economic growth rate is nothing less than spectacular.
Moreover, the Chinese government seems capable of extracting
the necessary resources for waging a hegemonic rivalry from a
society that is likely to remain quite poor for at least another
generation. There are a number of conceivable scenarios for the
emerging American-Chinese relationship. The future will depend on
the relative speed of the American decline and the rise of China as
well as on the openness of the global economy. The more open the
global economy, the better the prospects for rising per capita
incomes in China become, the better the prospects for some
mellowing or even democratization of the Chinese regime. Only if
the West sticks together under American leadership and if creeping
capitalism in China leads to creeping democratization later, is
hegemonic rivalry likely to remain benign and peaceful.
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[Page 1]
1. From Bipolarity to Unipolarity
Economic decline has been the root cause of the collapse of
communism in the Soviet Union and elsewhere in Central and Eastern
Europe. As has been noted by two German economists (1), the end of
the cold war, caused by the collapse of communism, is a kind of
corroboration of some Marxist propositions. For Marxists, the
political and ideological superstructure depends on the underlying
economic forces. If the economy declines, if politics and ideology
become fetters for the development of productive forces, then the
superstructure is swept away. This has happened.
Communism has persistently been a failure in the production of
consumer goods. Communism was never good at providing incentives,
or at inventing new processes and products, or at efficiently
allocating resources. Still, the Soviet Union and its allies were
capable of competing with the more populous and more affluent West
in the arms race for decades (2). While Soviet economic performance
eroded over time (3), the external challenge simultaneously became
more serious. Because of the American rearmament during the first
Reagan administration and the strategic defense initiative
(SDI), the Soviet Union had to face the possibility that the United
States and the West might start to participate in a serious rather
than leisurely way in the arms race. An implication of this
possibility - which, under worst case assumptions, however, must
have looked like a real prospect to Soviet leaders - was the
conclusion that economic decline endangers the technological basis
[Page 2]
of military power in the long run, and that therefore the
deficiencies of the Soviet economy had to be remedied. Seriously
thinking about the causes of Soviet economic troubles had to
undermine the ruling ideology, i.e., the root cause of the
troubles.
Although economic decline and renewed American pressure under
Reagan promised a dark future to the Soviet Union, there was little
reason to panic. The nuclear balance of terror, the military
strength of the Soviet Union, and the democratic character of
Soviet adversaries provided military security for the Soviet Union
for some time to come. Instead of seeking relief by means of
military adventures - obviously a dangerous strategy in the nuclear
age - the USSR could consider domestic reform. For the USSR faced
not only economic decline and Reagan's challenge epitomized
by SDI, but also an easily appeasable opponent. As Deudney and
Ikenberry (4) have put it, "a world dominated by liberal states
affords remaining illiberal states both a need and an opportunity
to liberalize".
Under Gorbachev the Soviet Union has attempted three modes of
remedial action: perestroika, glasnost, and 'new thinking'. Out of
these, the restructuring of the economy has been the most timid at
the beginning and the least successful. The Soviet or Russian
economy could not improve without first reintroducing scarcity
prices as well as private property rights, i.e., nothing less than
the substance of capitalism. Glasnost and the semi-free elections
in spring 1989 may have changed the Soviet Union from a
totalitarian and fully repressive system of government to semi-
democratic and semi-repressive one. In general, semi-repressiveness
promotes violence and political instability (5). The southern
periphery of the Soviet Union soon illustrated this relationship
quite forcefully. Moreover, glasnost has made it more difficult to
hide the ills of the Soviet economy and the lack of tangible
progress of perestroika.
Already in 1988, Brzezinski predicted that domestic reforms in the
Soviet Union would result in a major crisis: "Unintentionally ...
Gorbachev's policies are thus contributing to the buildup of a
[Page 3]
potentially revolutionary situation. His reforms are creating
constituencies for change. They are unleashing hopes that are
almost fated to be disappointed. They are creating dislocations
that, in the meantime, are actually worsening the quality of life
for the average person. They are also reducing the level of
political fear - even as they raise the level of social
frustration. Such a combination is inherently explosive." (6) In
another respect, Brzezinski's prediction was as true as the one
above, but much more precise, namely: "To decentralize a
state-owned economy, one has to decentralize the political system
as well. ... In effect, that is tantamount to the dissolution of
the empire." (7)
Although the 'new thinking' in the Soviet Union looked suspect to
many observers (including myself) at the beginning, it ultimately
led to an understanding of the Soviet national interest "as a
search for relief from burdens" (8) and to the replacement of the
Breshnev doctrine by the Sinatra doctrine that permitted former
Soviet clients to do it their way.
Jaruzelski could compromise with Solidarnosc and permit a semi-free
election in Poland that the Communists decisively lost to
Solidarnosc. Thus, in summer 1989 Poland replaced a Communist
government by a non-Communist government. The protracted struggle
of the Polish people against Communism throughout the 1980s had
paid off. This was an extremely powerful demonstration that
protests against Communism need not be in vain.
Instead of protecting ruling Communists against the local peoples,
the Soviet Union occasionally came closer to pushing them aside. At
[Page 4]
the very least, Gorbachev's visit to East Germany in fall 1989
clearly documented his lack of interest in maintaining a regime
which was installed and maintained by Soviet troops. When
demonstrators challenged the East German Communist government,
Soviet troops remained in their barracks. The Soviets permitted
revolutionary change in spite of the ready availability of about
380,000 troops to put it down. Soviet inactivity in East Germany
and elsewhere in Eastern Europe was a litmus test demonstrating
some truly 'new thinking'. Under Gorbachev the Soviet Union no
longer wanted to overburden itself by continuing confrontation and
an arms race against the United States, Western Europe and Japan.
In order to end the Cold War, the Soviet Union has given up its
Central and East European empire.
The failed coup in August 1991, the break-up of the Soviet Union,
and Yeltsin's succession to power in the Russian core of the former
Soviet Union testify to the democratic progress which Russia and
some other parts of the former Soviet Union have made. But this
progress remains vulnerable. Democracy might still fail with
economic reform. By and large, you need a capitalist economy and a
high standard of living in order to make democratic rule feasible
and stable (9). It is hard to see how Russian democracy can be
stabilized on the basis of persisting poverty and falling
standards of living.
For 1991, the World Bank estimates that the purchase power
corrected Russian GDP per capita was 31.3% of the American value.
Few, if any, experts believe that it has improved since then, or is
[Page 5]
likely to significantly improve in the coming years. The Russian
population was 58.5% of the American. Thus, the economic size of
Russia was about 18.4% of the American (10). This economic size
together with political and economic turmoil is clearly
insufficient for a renewed Russian challenge to the West.
Given the ample stocks in nuclear and other weapons, Russia could
be a valuable partner in a coalition, but on its own Russia cannot
make it. If allied to the United States, Russia would become a
junior partner. If allied to China, Russia would start as an equal
and become a junior partner quite soon. An alliance with a united
Europe looks inconceivable to me.
Russia would matter most if it were allied to Germany. This would
be a challenger coalition of the losers of World War II and of the
Cold War, a kind of super-Rapallo. In some respects the
contemporary European order looks like an invitation to a combined
Russian-German challenge. Never in the last three centuries were
the borders of the two most populous countries in Europe and their
states, i.e., of Russia and Germany (or Prussia before 1871), so
unfavorable to both of them at the same time.
While Hitler planned and began large scale ethnic cleansing in
Eastern Europe at the expense of Poles and Russians to provide room
for German settlements, World War II ended with more than 10
million Germans becoming victims of large-scale ethnic cleansing
for the benefit of Poles, Czechs and (in northern East Prussia or
Kaliningrad oblast) Russians. Russians did not (or not yet?) suffer
a similar fate in the newly independent republics which formerly
belonged to the Soviet Union. But many of them live under
[Page 6] 'foreign' rule and resent it. Moreover, Russian
nationalists are not yet resigned to the loss of the Ukraine which
contains what some regard as the birthplace of 'Russian' political
identity, i.e., Kiev, and the Crimea with a Russian majority and
important naval bases, and the loss of much of the coastline of the
Baltic Sea.
On top of these potential demands for correction of the misfortunes
of recent history, there is the issue of northern East Prussia or
Kaliningrad oblast. A look at the map demonstrates that this
Russian exclave is unlikely to endure as it is. Either the Russians
might want to reconnect it with their mainland, i.e., by annexation
of Belarus and the Baltic states, or they might offer it (against
some kind of compensation) to Germany. In either case it is hard to
imagine this happening peaceably.
Although causes for resentment may drive Russians and Germans into
each other's arms, such a coalition would suffer from imbalance and
mutual suspicion from the beginning. Russia could contribute
military power and Germany economic power. After sharing the spoils
of reexpansion in Eastern Europe, renewed suspicion, or even
hostility, would be almost inevitable.
Both sides would know it and might therefore be deterred from
trying such a policy. Although Russians - especially those who
voted for Zhirinovsky in the December 93 elections - may be
desperate enough for such a coalition (11), prosperity or gentle
decline is likely to protect Germans from this temptation.
Moreover, even a German-Russian spoiler combination would not
suffice for a serious challenge to American hegemony. Such a
coalition becomes most likely if the German and the Russian economy
[Page 7]
experience grave difficulties at the same time, which, of course,
thereby reduces the weight of the challenge. This spoiler
combination may produce war or speed the decline of the West. It
cannot replace American hegemony.
2. Potential Challengers to American Hegemony
a. Europe
Since the collapse of the Soviet Union, the United States has
achieved military hegemony by default. Economically, the American
situation still is quite comfortable. A few years ago, Samuel
Huntington (12) reassured his fellow Americans: "If hegemony means
producing 20 to 25 percent of the world product and twice as much
as any other individual country, American hegemony looks quite
secure." He added: "The most probable challenge to this prediction
could come from a united European Community. The European
Community, if it were to become politically cohesive, would have
the population, resources, economic wealth, technology and actual
and potential military strength to be the preeminent power of the
21st century. Japan, the United States and the Soviet Union have
specialized respectively in investment, consumption and arms.
Europe balances all three." This is not a prediction. It merely is
Huntington's second best guess, if his expectation of continuing
American hegemony turns out to be wrong. Still, the European
Community that has renamed itself 'European Union' is a candidate
hegemon to be discussed. It exceeds the United States in
[Page 8]
population, in GDP, in exports, and even in active armed forces
(13).
Essential to all scenarios of renewed European greatness is
European unity, i.e., a unity that overcomes bickering about
agricultural subsidies, and who pays for them, and replaces it by
a unity of political purpose and a unified, but purely European
(rather than NATO) military structure. It is quite certain that
this transcendence is not going to happen within a decade. It is
uncertain whether it will ever happen, or whether even a unified
Western Europe will be sufficient in the 2020s. Although I am very
skeptical about European readiness to unite politically and
militarily, another reason why I cannot imagine European hegemony
is that a unified Europe is likely to decline even faster than a
Europe of nation-states.
In my view (14), the rise of Europe compared to the great Asian
civilizations over the past 500 years owes more to political
fragmentation and the resultant limitation of governmental power
than to any other single cause. In contrast to the great Asian
civilizations which were often united under imperial rule, like
China, Europe was politically disunited. There were interstate
rivalry and wars. The mere existence of an interstate system
contributed to the limitation of governmental power over subjects
and to decent government. If a European ruler or government was
more superstitious in religious, ideological or philosophical
affairs, or, in particular, more inclined to confiscate the
property of merchants and producers than other European governments
were, then the misgoverned territory tended to lose people, talent
[Page 9]
and capital to neighboring countries, some of whom were always
hostile and ready to welcome refugees and their financial as well
as human capital. Competition and hostility among European rulers
provided an opportunity for exit to subjects. Therefore, European
rulers had to resist their exploitative and kleptocratic desires
and to concede relatively secure property rights to their subjects,
in particular to merchants and to urban people. Therefore,
private property rights were always safer in Europe than in the
great Asian civilizations.
Limited government, private property rights and markets are
essential to promote economic growth for a number of reasons.
First, they provide producers with an incentive to work hard by
establishing a link between effort and reward. By contrast,
kleptocracy or socialism merely elicit shirking. Second, private
property rights and markets permit the exploitation of knowledge
which is scattered over thousands and millions of heads. No ruling
authority has ever known or can ever know who knows what,
or how to produce which goods or services most effectively. Third,
private property rights promote innovation by protecting private
decision-making from social or political interference. As Chinese
explorers of the high seas and overseas merchants learned in the
15th century, when the Ming court outlawed overseas exploration and
trade, governmental coercion can suppress innovation. A consensus
requirement would be nearly as bad (15).
If all inventions and their applications had depended on social
consent, we might still be in the stone age. Fourth, there can be
no scarcity prices and, therefore, there can be no efficient
[Page 10]
resource allocation without a large number of independent property
owners and traders.
In principle, a united Europe on the one hand and limited
government, private property rights and market exchange at freely
established scarcity prices on the other could be compatible with
each other. Observation of political practice makes one suspicious,
however. The common agricultural policy is still the most costly
endeavour of the European Community or Union. It always has been an
orgy of interventionism, inefficiency and injustice. By
establishing miminum prices, the European Union guarantees
overproduction. Price supports benefit rich farmers more than poor
farmers.
Simultaneously, high food prices hurt poor consumers more than rich
consumers. Moreover, exports of European farm products at
subsidized prices hurt American farmers and thereby burden
transatlantic relations, and hurt Third World or East European
farmers, thereby reducing the chances of poor countries catching up
with the rich countries. In a nutshell, professional economists
would be hard pressed to invent a policy doing as much harm for
as little good as the European common agricultural policy. The more
general point is that the Europeanization of economic policy-making
establishes the opportunity to commit policy errors on a much
grander scale than has been possible in most of European history.
Politicians might exploit such opportunities.
European agricultural policies are also useful to make another
point. Decisions are made to serve special interest groups or
distributional coalitions, not to serve anything like national,
[Page 11]
European, or cosmopolitan interests. According to Olson (16), aging
political regimes in general, and aging democracies in particular,
are likely to become prisoners of interests groups and to pursue
ever less efficient economic policies. Governments intervene in the
market, distort prices, transfer income - and interfere with
efficient resource allocation. The older an established regime -
for example, a democracy - becomes, the more it suffers from
institutional sclerosis and declining economic growth.
Although empirical support for this proposition has been quite weak
where American states have been compared with each other (17),
Olson's proposition received fairly strong and consistent support
where industrialized democracies have been analyzed (18). Moreover,
economic decline was further reinforced by high government
revenues, expenditures, or transfer payments (19). Some European
countries, like Britain and Sweden, suffer from being old
democracies (and therefore afflicted with strong distributional
coalitions) and having high government expenditures simultaneously;
others suffer from at least one of these ailments. Since
European nations are still fairly close to the leading edge in
technology, there is also little room to boost growth rates by
capturing the 'advantages of backwardness'. Thus, Europe is likely
to be outperformed by more dynamic regions elsewhere (20). If you
add slowly declining economies and a proven record of not being
capable of collective action in the security field, then the
prospect of European hegemony displacing American hegemony looks
poor.
[Page 12]
If a united Europe is not a plausible contender for hegemony what
about its strongest component, Germany? I cannot take Germany
seriously as a contender. First, on the eve of the reunification of
Germany, the West German share of the European Community's GNP was
about 25%. Even if East Germany were to become as productive as the
West, the German share in the European Community GNP would not
exceed 30%. Second, Germany has seriously mismanaged economic
unification thereby postponing recovery in the East (21). Third,
since purchase power-corrected average incomes in West Germany
in 1991 were slightly less than 90% of American incomes, and since
the entire German population was slightly less than 32% of the
American population (22), it is hard to see how German GNP can even
touch a third of the American GNP in the foreseeable future. Even
a fairly desperate challenger coalition of Germany and Russia would
find it difficult to exceed 50% of American economic size within
this century (23).
b. Japan
Japan is another candidate for hegemony. Since the end of World War
II, it has outperformed all other industrialized economies. The
Japanese economy is larger than any other, except for the American
economy. Trend extrapolation seems to give Japan some chance of
overtaking the United States early in the 21st century.
Nevertheless, one might suspect that Japan cannot sustain its past
performance: some of the past success of Japan has to be attributed
to the catch-up phenomenon. Japan could imitate best practices from
more advanced countries, especially the United States, and
[Page 13]
therefore grow faster than other developed countries.
Moreover, Japan still had a large agricultural sector in the 1950s
and 1960s. By reallocating labor from less productive agriculture
to more productive industry, Japan could boost its growth rate. But
these sources of enhanced growth are largely exhausted. So is the
comparative weakness of distributional coalitions. In the
post-World War II world, Japan's democracy was one of the youngest.
According to Olson's theory (24), institutional sclerosis should
have been a less effective brake on growth in Japan than elsewhere.
Over time, this Japanese advantage should diminish. Finally, Japan
largely avoided the welfare state trap. The greyer Japan becomes,
the more difficult it will be to avoid this European disease.
Therefore, I think that extrapolation overestimates Japan's
potential (25). Moreover, currently (in 1993-94) the American
economy does better than the Japanese.
Even if Japan could sustain its past growth rates, Japan is not yet
a first-rate military power. It still lives under the American
nuclear umbrella. Increasing defense expenditures in any way other
than by stealth has been difficult in post-World War II Japan
because of a growing economy and an allocation of about one percent
of GNP to the military. Although Japan may have the capability to
become a great power, it has yet to develop the will to become one
(26). In my view, the Japanese face a fast-closing window of
opportunity. While Japan still commands a larger economy
than China, China grows much faster and is likely to overtake Japan
and the United States, if it can sustain current growth rates for
another decade or two. Once China has overtaken Japan in economic
[Page 14]
size, a peaceable and underarmed Japan will find it difficult to
acquire nuclear arms against its protector's (i.e. American)
objection, and its nearby potential rival's (i.e. China's)
objection (27). Japan is likely to remain richer than its
giant Chinese neighbor, just as Switzerland is richer than larger
France or Germany. High average incomes combined with military
inferiority are not the stuff to make a candidate for hegemony.
c. China
According to the World Bank and the Economist (28), in 1991 China
was already number three in the world GDP league, placed about
halfway between Japan and Germany. Of course, GDP per head was only
between eight and nine percent of Japanese or German incomes, and
less than eight percent of American incomes. But three
characteristics make China a serious contender: first, the sheer
weight of numbers; second, its spectacular economic growth rate;
and, third, its military power that already includes possession of
nuclear weapons.
Since China (29) had about 4.55 times the population of the United
States and 0.076 times its GDP per head in 1991, it already has
more than 35 percent of the economic size of the United States. By
the way, this is approximately twice the size of the Russian
economy. Other sources estimate the size of the Chinese economy to
be between 45 and 60% of the American (30). Still, this would be a
poor economic base to challenge the United States, if Chinese and
[Page 15]
American growth rates were similar in order of magnitude, or if
Chinese and American state capabilities and willingness to impose
burdens on their peoples were closely matched.
Neither of these conditions applies. For the 1980-91 period the
World Bank reports a Chinese per capita growth rate of 5.8 percent,
and an American growth rate of 1.7 percent. Looking to GDP growth
rates (31), China scores 9.4, while the United States scores 2.6.
If the Chinese advantage in growth rates persists, the Economist
expects the Chinese economy to match the American in size by 2010
(32).
Of course, it is risky to make growth predictions for nearly two
decades. Political turmoil after Deng Xiaoping's death may throw
the Chinese economy back for decades. After all, Communist-ruled
China did suffer from terrible policy mistakes and turmoil in the
past. The great leap forward in the late 1950s, the people's
communes, and the resulting mass starvation cost between 15 and 40
million lives. Later, the cultural revolution killed at another 2
or 3 million people or more. Adding together all those who lost
their lives because of Chinese Communism yields estimates up to the
order of magnitude of 60 to 80 million victims (33). Thus,
persistent Communist rule does permit the repetition of tragedy.
But a case for optimism can be made. Charismatic, powerful and evil
dictators - murdering people by the millions, like Hitler, Stalin,
and Mao Zedong - are rare. Without being struck by a calamitous
leadership twice in a short period of history, China stands a
chance of catching up with the United States in economic size
within a generation or less.
[Page 16]
Of course, a tacit assumption in any scenario where China prospers
is political stability. Stability is not easily maintained in a
country with significant regional disparities (34), where about
hundred million people have left the countryside for uncertain work
and housing prospects in the cities and tens of millions more are
ready to go. Moreover, there is inflation, a succession crisis to
come, and some depletion of regime legitimacy (35). Therefore,
'optimism' about China's future, political stability, and economic
prospects in no way rules out future impositions of stability by
brute force and repression, as in 1989.
Even now, the China-United States economic size ratio is comparable
to the Soviet-American ratio during the Cold War. This in itself
demonstrates that a Communist dictatorship with between a third and
half the economic power base of a democratic hegemon can mount a
serious challenge. Remember Luttwak's dictum, according to which
Commmunist leaders may be five times as effective as the West in
getting military power out of an economy (36). While China does not
overburden itself by an arms race in the same way as the late
Soviet Union did, China's military spending and arms acquisition
do certainly indicate a serious interest in great power status.
Starting as a nuclear power and with real military spending
recently growing at double digit rates (37), China builds the basis
for a future challenge now.
The prospects of a Chinese bid for hegemony depend mainly on two
factors. First, will China be capable of continuing its spectacular
[Page 17]
economic growth for another decade or two (38)? Ruling out another
period of government-imposed folly, as during the great leap
forward or the cultural revolution, the prospects are good. Part of
the extraordinary growth rate of China may be accounted for by the
advantages of backwardness, i.e., by the possibilities to imitate
best practices already applied in more advanced countries and to
reallocate labor from agriculture to more productive industries.
This source of growth is unlikely to be exhausted soon. Another
widely accepted source of economic growth is human capital
formation. Primary school enrollment is universal, and secondary
school enrollment is better than it was in South Korea in 1970 or
than it currently is in Thailand. Thus, human capital formation is
sufficient to underwrite a continuation of the Chinese economic
miracle. Another widely accepted source of growth is investment.
Chinese gross domestic investment was significantly higher than
elsewhere in the 1980s, and its growth rate has been surpassed only
by South Korea (39). Again, investment provides no reason why the
Chinese economic miracle should run out of steam soon.
The more difficult issues affecting the growth prospects of China
are private property rights, competition, innovation, the size of
the public sector, price distortions, openness and
export-orientation of the economy.It has been argued that a chief
reason why imperial China was overtaken by the West was the
insecurity of property rights in China because of an arbitrary
government (40). The Communists, of course, did not respect
private property rights in the first decades of their rule. They
[Page 18]
expropriated and massacred millions of rich peasants and
capitalists deemed to be adversaries of the revolution. Then they
forced peasants into cooperatives, and later into people's
communes, thereby thinning out property rights and reducing
incentives to work.
Since 1979, however, the ruling Communists under the competent
stewardship of Deng Xiaoping did again decentralize property rights
and return rights to work the land to individuals, families, or
small groups of families (41). Thus, work incentives were
reestablished in countryside. Since the overwhelming majority of
the Chinese population lived in the countryside and worked the
fields in the 1980s, and since rural incomes grew three-fold
in only eight years (42), this was the beginning of the Chinese
economic miracle. However, while later reforms did permit the
establishment of private manufacturing enterprises, and while
private enterprises significantly outperform state-owned industrial
giants (43), the security of private property rights must remain
under suspicion in a regime still nominally committed to socialism.
Concerning competition, the situation is much better for two
reasons. The weight of agriculture in the economy does guarantee
competition between many producers, i.e., between peasants.
Moreover, the devolution of economic power to the provincial or
district or township levels itself reinforces competition. Where a
township, village or rural district owns a textile factory, it has
to compete with similar enterprises owned by other local
governments, collectives, or private entrepreneurs. Often the
[Page 19]
competition is ferocious. In contrast to central-government-owned
enterprises, local-government-owned enterprises are subject to hard
budget constraints. To some degree, decentralized decision-making
and competition in themselves foster innovation. Moreover, China
can adopt innovations made elsewhere. The large population of
overseas Chinese in Southeast Asia and elsewhere may serve as a
transmission belt. Private property, competition, and openness tend
to undermine price distortions. Although China still suffers from
state-controlled prices and distortions, and although there is
not yet a free (i.e., hire and fire) labor market, the situation
did markedly improve in the last 15 years.
The most successful economies in the Chinese neighborhood,
including Mainland China's hostile small brother Taiwan, grew by
export-orientation (44). How export-oriented is China? According to
World Bank data, the Chinese GDP in 1991 was 1.67 times the size of
the Indian GDP. In general, larger economies trade less than
smaller ones. Nevertheless, the ratio between Chinese and Indian
exports in the same year was 3.12 (not somewhat less than 1.67, as
could be expected). By this measure, China's orientation towards
global markets is nearly twice as strong as India's. And India is
the only country comparable to China in population, poverty, and
potential market size. Moreover, in the 1970s the growth rate of
China's exports was already twice as high as India's, although only
about half as high as Taiwan's. In the 1980-91 period, however, the
gap (ratio) between China's and India's export growth rates
somewhat narrowed because of a big Indian improvement and a lesser,
although still encouraging, Chinese improvement.
[Page 20]
In this more recent period the Chinese export growth rate fell
between the Taiwanese and South Korean rates. Moreover, in 1991
China was the second largest recipient of foreign direct
investment, after Mexico, which of course benefits from the
closeness of the United States. By contrast, India received less
than the World Bank's reporting threshold of one million dollars
(45). Moreover, investor interest in China seems to grow. In the
first half of 1993 direct foreign investment pledges were four
times as high as they were in the corresponding period of 1992
(46). While these are all fairly crude indicators, they provide no
reason to doubt that China can sustain the growth rates which it
experienced in the 1980s.
In order to realize its potential for growth, China has to
reestablish macroeconomic stability. The central government's
deficit is large and growing. Of course, this is related to
provincial self-assertion and to inefficient and subsidy-dependent
state enterprises. Too much of the budgetary shortfall is financed
by the printing press and therefore fuels inflation. High and
accelerating inflation generates distortions and dissatisfaction.
Moreover, it is likely to reduce growth. But a serious attempt to
reduce inflation cannot avoid hurting powerful interest groups:
the military, if defense spending is cut; former urban workers with
state enterprises who have to be laid off, if their enterprises try
to become profitable - or if they fail and go bankrupt; or even
businesses with close family links to the top party leadership, if
credit availability is reduced. If the central government fails to
stand up to special interests and gets the macroeconomic
fundamentals wrong, then the prospects for China are darkened (47).
[Page 21]
3. Alternative Scenarios for the New Age of Sino-American
Bipolarity
Although American decline has been bemoaned too early and too
often, the ascendance of China would imply some relative decline.
Permanent unipolarity is an illusion and new great powers will
arise (48). In my view, China is by far the most plausible
candidate. Even if the economic size of China and the United States
will be about equal, American per capita incomes may still be about
five times as high as the Chinese. Thus, even then China will still
enjoy some 'advantages of backwardness' and grow much more rapidly
than the United States. If the United States is not ready for the
management of decline, there will be only a single obvious option:
Western unity, perhaps some kind of confederation between North
America and Europe. There is a common cultural background and a
common historical heritage (49). A Western or North Atlantic Union
in, say, 2010 would almost immediately reestablish Western
leadership (50). Moreover, Western unity might reassure the West
sufficiently to make possible constructive engagement with China.
The rise and decline of great powers has always been difficult to
manage peaceably (51). In the nuclear age we have to try. Even a
Sino-American cold war would be a catastrophe. The United States
and the West could not rely on winning once more. The Chinese might
not oblige by mismanaging their economy, as the Soviets did. There
[Page 22]
would be another arms race and another chance for nuclear
deterrence to fail (52). Moreover, another cold war would almost
certainly rule out a collaborative effort to mitigate the
environmental problems that might urgently require action in
the early 21st century. In fact, the economic rise of China and
neighboring Asian countries by itself may well double the pollution
problem (53).
A united and secure West would enjoy the margin of safety to choose
collaboration rather than confrontation with China. In the 21st as
in the 20th century prosperity will rest on free trade and a global
division of labor. Only free trade (or preferential market access,
because free trade has been more likely within alliances, such as
the America-centered alliance system, than between alliances)
permitted Germany and Japan to recover after World War II. Only
free trade permitted South Korea and Taiwan to outgrow poverty.
Without free trade, especially without access to the American
market, even Mainland China will stand little chance.
There is a reason why I refer to the two major losers of World War
II and to the major small tigers of East Asia. By now, all of these
countries are secure democracies. Who would have dared to predict
so in the 1950s? These countries benefited from a causal chain
running from free trade to prosperity, from prosperity to
democracy, and from democracy to peace with other democracies (54).
The dominant task for humankind in the 21st century will be to let
China trade its way to prosperity (55), to let prosperous
Chinese establish democracy on the Mainland (56), as prosperous
Chinese did in the late 1980s and early 1990s on Taiwan, and to
[Page 23]
establish some kind of democratic peace between the West and China
- just as there has been a secure peace for a long period between
the British and the American democracies. Thereafter, maybe in a
century, even the decline of the West need not be more worrisome
than the decline of Britain compared to the United States was in
the 20th century.
Admittedly, free trade with China is a risky policy, especially if
it succeeds in promoting capitalism and prosperity without
producing democracy. I do understand why Betts (57) worries: "With
only a bit of bad luck in the evolution of political conflict
between China and the West, such high economic development (in
China, E.W.) would make the old Soviet military threat and the more
recent trade frictions with Japan seem comparatively modest
challenges." Only Atlantic unity can give the West the strength and
self-confidence to help China grow rich and prosperous by free
trade. The rise of Asia in general, and of China in particular,
makes ever closer ties between the United States and (Western)
Europe more rather than less important. It is the only insurance we
can buy.
-----------------------------------------------------------------
Notes
1. Gerlinde und Hans-Werner Sinn: Kaltstart. Volkswirtschaftliche
Aspekte der deutschen Vereinigung. Mnchen: Beck (dtv), 1993 (3rd
ed.), pages 1-5.
[Page 24]
2. See Edward N. Luttwak: The Grand Strategy of the Soviet Union
(New York: St. Martin's Press 1983), p. 115, for an evaluation of
this achievement: "Somewhat mechanistically, we may estimate the
'power efficiency' of the Soviet empire by its ability to convert
GNP into power. By that standard, we may say that the Soviet system
is roughly five times as efficient as the alliance that embraces
the United States, NATO Europe and Japan, since the combined GNPs
of those countries are roughly five times as great as the Soviet,
while their conjoint power is at best equal." Luttwak's 'power', of
course, refers to military power only.
3. See Peter Murrell and Mancur Olson: "The Devolution of Centrally
Planned Economies", Journal of Comparative Economics 15, 1991,
239-265.
4. Daniel Deudney and G. John Ikenberry: "The International Sources
of Soviet Change", International Security 16(3), 1991-92, 74-118.
5. See Edward N. Muller: "Income Inequality, Regime Repressiveness,
and Political Violence", American Sociological Review 50, 1985,
47-61; Erich Weede: "Some New Evidence on Correlates of Political
Violence", European Sociological Review 3, 1987, 97-108.
6. Of course, a book published in 1989 must have been written no
later than 1988. See Zbigniew Brzezinski: The Grand Failure. The
Birth and Death of Communism in the Twentieth Century. New York:
Charles Scribner's Sons, 1989, pp. 100-101.
[Page 25]
7. Op. cit., page 99. Some observers attribute even a willingness
to destroy Communism to Gorbachev. See Charles H. Fairbanks: "The
Nature of the Beast", National Interest 31, Spring 1993, 46-57,
especially page 57: "Gorbachev, the leader of the country's
communists, forced his own movement to commit suicide... The
Bolshevik tradition inspired Gorbachev. The institutions and
customs of democratic centralism empowered him. With that
inspiration, and that power, he destroyed the state that he
commanded."
8. See Stephen Sestanovich: "Inventing the Soviet National
Interest", National Interest 20, Summer 1990, 3-16, page 14.
9. For a summary of the evidence, see Peter L. Berger: The
Capitalist Revolution (New York: Basic Books, 1986) and the
literature quoted there.
10. For numbers, see World Bank: World Development Report 1993 (New
York: Oxford University Press), pages 239 and 297. Although these
numbers are outdated, they almost certainly exaggerate the economic
size of Russia in 1993 or 1994. Recently, the Economist (Vol. 329,
No. 7841, December 11, 1993, page 23) wrote: "Russia's output has
fallen more in the past three years than America's did during the
Great Depression..."
11. Zhirinovsky seems ready to offer to Germany the territories
that Germany lost in the two world wars - without asking Poles or
Czechs for their opinion. See Jacob W. Kibb: "The Zhirinovsky
Threat". Foreign Affairs 73(3), May-June 1994, 72-86.
[Page 26]
12. Samuel P. Huntington: "The U.S. - Decline or Renewal?" Foreign
Affairs 67(2), 1988/89, 76-96, quotes from pages 84 and 93.
13. "Survey: The European Community". The Economist (vol. 328, No.
7818, July 3rd, 1993).
14. See Erich Weede: Wirtschaft, Staat und Gesellschaft (Tbingen:
Mohr, 1990) or "Ideas, Institutions and Political Culture in
Western Development", Journal of Theoretical Politics 2(4), 1990,
369-389. My thinking has been very much influenced by Eric Jones:
The European Miracle (Cambridge: University Press, 1981) and
Friedrich August von Hayek: The Constitution of Liberty (Chicago:
University Press, 1960).
15. See Nathan Rosenberg and L.E. Birdzell: How the West Grew Rich
(New York: Basic Books, 1986), page 310.
16. See Mancur Olson: The Rise and Decline of Nations (New Haven,
CT: Yale University Press, 1982), also Murrell and Olson, op. cit.
note 3.
17. See Virginia Gray and David Lowery: "Interest Group Politics
and Economic Growth in the US States." American Political Science
Review 52(1), 1988, 109-132. Clark Nardinelli, Miles S. Wallace and
John T. Warner: "Explaining differences in state growth:
Catching-up versus Olson." Public Choice 52, 1987, 210-213. Richard
Vedder and Lowell Gallaway: "Rent-seeking, distributional
coalitions, taxes, relative prices and exonomic growth." Public
Choice 51, 1986, 93-100. John J. Wallis and Wallace E. Oates: "Does
Economic Sclerosis Set in with Age?" Kyklos 41(3), 1988, 397-417.
[Page 27]
18. See Peter Bernholz: "Growth of Government, Economic Growth and
Individual Freedom." Journal of Institutional Economics 142, 1986,
661-683. Kwang Choi: "A Statistical Test of Olson's Model". Pp.
57-78 in Dennis C. Mueller, ed.: The Political Economy of Growth
(New Haven, CT: Yale University Press, 1983). Jan-Erik Lane and
Svante Errson: "Political Institutions, Public Policy and Economic
Growth." Scandinavian Political Studies 9, 1986, 19-34. Erich
Weede: "The impact of state power on economic growth rates in OECD
countries." Quality and Quantity 25, 1991, 421-438.
19. See Bernholz and Weede, op. cit.; see also Fred C. Pampel and
John B. Williamson: Age, Class, Politics, and the Welfare State
(Cambridge: University Press, 1989) for an analysis of the welfare
state and its defects.
20. The EC share in world manufacturing exports has been falling
since 1980. Then it was above 22%. Now it is below 18%. "Survey:
The European Community." The Economist (vol. 328, No. 7818, July
3rd, 1993, page 12).
[Page 28]
21. For the numbers as well as the evaluation of unification
policies, see Sinn and Sinn, op. cit. note 1, esp. page 4. Also:
Erich Weede: "The Politics and Economics of German Reunification:
Are There Lessons for Korea?" Korea and World Affairs XVII (4),
1993, 648-670.
22. For numbers, see World Development Report 1993, op.cit. note
10, pages 239 and 297.
23. For Russia see the calculations at the end of the first section
of this paper.
24. Op.cit., note 16.
25. At first glance, a more optimistic reading of the Japanese
future is possible. See J. Bradford De Long and Lawrence H.
Summers: "Equipment Investment and Economic Growth". Quarterly
Journal of Economics 106, 1991, 445-502. They argue (page 455)
"that differences in equipment investment account for essentially
all of the extraordinary growth performance of Japan relative to
other countries." The prediction that Japan might overtake the
United States can be based on the fact that "the absolute
level of industrial investment in the United States has fallen
below that of Japan". See Wayne Sandholtz et al.: The Highest
Stakes. The Economic Foundations of the Next Security System (New
York: Oxford University Press, 1992, page 8). In my view, equipment
investment itself is likely to fall, as Japan becomes more similar
to European rent-seeking societies.
[Page 29]
26. See Peter J. Katzenstein and Nobuo Okawara: "Japan's National
Security: [Page 30] Structures, Norms and Policies." International
Security 17(4), 1993, 84-118. Or Thomas U. Berger: "From Sword to
Chrysanthenum: Japan's Culture of Anti-Militarism." International
Security 17(4), 1993, 119-150. Even if Japan developed the will, it
may be argued that Japan suffers from a comparative disadvantage in
international security rivalries. See Michael M. May: "Japan as
Superpower?" International Security 18(3), 1993-94, 182- 187.
Moreover, even those who take Japan to be a very serious challenger
have to admit that competitive defense production in Japan still
lies 10 to 25 years in the future. See Sandholtz et al., op. cit.,
page 67.
27. For an extreme scenario see: "A World History, Chapter 13: The
disastrous 21st century". The Economist (Vol. 325, No. 7791,
December 26th, 1992, pages 17-19).
28. The Economist (Vol. 328, No. 7819, July 10th, 1993, page 63:
Economic giants).
29. See World Development Report 1993, op.cit. note 10, pages
238-239 and 296-297.
30. The Economist (Vol. 325, No. 7787, November 28th, 1992. Survey:
When China Wakes, esp. page 5). See also William H. Overholt: The
Rise of China (New York: Norton, 1993).
31. See World Development Report 1993, pages 240-241.
[Page 30]
32. If you add Hongkong and Taiwan to the PRC, then the economic
size of China may match the United States already in 2002. "Survey:
Asia. A billion consumers". The Economist (vol. 329, No. 7835,
October 30th, 1993, page 16). Or Nicholas D. Kristof: "The Rise of
China". Foreign Affairs 72(5), 1993, 59-74, especially page 61. For
a more pessimistic evaluation of Chinese prospects, see "Economic
Focus: China". The Economist (vol. 331, No. 7861, April 30th, 1994,
page 77).
33. See Jrgen Domes: The Government and Politics of the PRC
(Boulder, CO: Westview, 1985) and Jurgen Domes and Marie-Luise
Nath: Geschichte der Volksrepublik China (Mannheim:
B.I.-Taschenbuch, 1992). The lower estimates come from the earlier
book (pages 38, 49 and 212); the higher numbers come from the more
recent book (pages 46, 62 and 121). Somewhat lower figures
are provided by Lowell Dittmer: China Under Reform (Boulder, CO:
Westview, 1994), pages 14, 72.
34. Although per capita income in the richest region is about seven
times as high as in the poorest province, it is a gross and
misleading simplification to say that some coastal provinces boom
and the interior does not. In the 1985-91 period, the fastet
growing province was Xinjiang, in the northwest of China. Moreover,
Yunnan in the southwest grew as fast as much advertised Guangdong.
For relevant data and further reasons why a territorial
disintegration of China is unlikely, see Overholt: The Rise of
China, op. cit. note 30, especially chapter II. Another recent
discussion of regional autonomy and conceivable disintegration is
Gerald Segal: "China's Changing Shape". Foreign Affairs 73(3),
May-June 1994, 43- 58.
[Page 31]
35. See Gerrit W. Gong: "China's Fourth Revolution". The Washington
Quarterly 17(1), Winter 1994, 29-43. Or, Eric Jones: "Asia's Fate:
A Response to the Singapore School". The National Interest 35,
Spring 1994, 18-28. Or, Dittmer: China Under Reform, op. cit. note
33.
36. See Luttwak: The Grand Strategy of the Soviet Union, op.cit.
note 2, page 115. More generally, it has been found that Marxist
regimes are capable of imposing twice to three times as high
military burdens on their peoples as non-Marxist regimes. See James
L. Payne: Why Nations Arm (Oxford: Blackwell 1989), esp. page 111.
37. See: "Asia's Arms Race: Gearing up". The Economist (Vol. 326,
No. 7799, February 20th, 1993, pages 21-24). Or Kristof, op. cit.
note 32. Or Desmond Ball: "Arms and Affluence: Military
Acquisitions in the Asia-Pacific Region". International Security
18(3), 1993-94, 78-112.
38. Some estimates for 1993 run as high as 14%. See: "China's
perpetual revolution". The Economist (Vol. 328, No. 7824, August
14th, 1993, pages 53-54).
[Page 32]
39. All of this information comes from the data appendix of the
World Development Report 1993, op.cit. note 10. For reasons why I
focus in these variables, see, for example, World Bank: The East
Asian Miracle (New York: Oxford University Press, 1993).
40. See Eric Jones: The European Miracle (Cambridge: University
Press, 1981). Tai-Shuenn Yang: Property Rights and Constitutional
Order in Imperial China (Bloomington, IN: Workshop in Political
Theory and Policy Analysis, 1987).
41. For information on these issues, see Domes or Domes and Nath,
op.cit. note 33. But "the state retains ownership and has adamantly
refused to forswear the possibility of eventual resumption of
control, despite the chronic insecurity this arouses among
peasants." Quoted from Dittmer: China Under Reform, op. cit. note
33, page 201.
42. "Survey: When China Wakes". The Economist (vol. 325, no. 7787,
November 28th, 1992, page 4).
43. Inefficient and loss-making state firms still employ about 107
million people. Moreover, these firms simultaneously constitute
welfare systems for workers. Their deficits contribute to the
central government's deteriorating finances and inflationary
pressure. See "China's perpetual revolution." The Economist (vol.
328, no. 7824, August 14th, 1993, pages 53-54). In contrast to
Soviet-type economies, managers at Chinese state- owned enterprises
are rewarded or punished for their performance. If unsuccessful,
they may lose about half of their salary. While factory workers
have jobs for life, managers may be demoted or fired. See
"Survey: When China Wakes". The Economist (Vol. 325, No. 7787,
November 28th, 1992, page 15). Moreover, the size of public sector
in total employment in the PRC should not be exaggerated. It is
[Page 33]
44. See World Bank, op.cit. note 39. World Bank: World Development
Reports 1987 and 1991 (New York: Oxford University Press, 1987 and
1991). David Dollar: "Outward-oriented Developing Economies Really
Do Grow More Rapidly: Evidence from 95 LDCs". Economic Development
and Cultural Change 40(3), 1992, 523-544. Somewhat disagreeing:
Robert Wade: Governing the Market (Princeton: University Press,
1990).
45. For the numerical information, see the data appendix of World
Bank: World Development Report 1993 (New York: Oxford University
Press, 1993).
46. "China's perpetual revolution". The Economist (Vol. 328, No.
7824, August 14th, 1993, pages 53-54).
47. For a very pessimistic evaluation, see Richard Hornik:
"Bursting China's Bubble". Foreign Affairs 73(3), May-June 1994,
28-42.
48. Compare Christopher Layne: "The Unipolar Illusion: Why New
Great Powers Will Rise." International Security 17(4), 1993, 5-51.
In contrast to me, however, Layne takes Germany and Japan seriously
as potential challengers.
[Page 34]
49. On the importance of these matters, see Samuel P. Huntington:
"The Clash of Civilizations?" Foreign Affairs 72(3), 1993, 22-49.
50. It is the comparative decline of the West on both sides of the
Atlantic that necessitates North Atlantic cooperation vis-a-vis
dynamic East Asia. It is absolutely essential that Western Europe
and the United States are not lured by strategic trade theory into
mercantilism and a 'cult of the economic offensive'. See Michael
Borrus, Steve Weber, and John Zysman, with Joseph Willihnganz:
"Mercantilism and Global Security". The National Interest 29, Fall
1992, 21-29. On the political economy of strategic trade
theory see Jagdish Bhagwati: The World Trading System at Risk
(London: Harvester and Wheatsheaf), or Paul Krugman: "Is free trade
pass?" Journal of Economic Perspectives 1(2), 1987, 131-144.
51. See A.F.K. Organski and Jacek Kugler: The War Ledger. Chicago:
University of Chicago Press 1980. Robert Gilpin: War and Change in
World Politics. Cambridge: Cambridge University Press 1981. Daniel
S. Geller: "Capability Concentration, Power Transition and War."
International Interactions 17, 1992, 269-284.
52. While I am on record as a believer in the effectiveness of
nuclear deterrence as a means to reduce the risk of war, it is hard
to believe that nuclear deterrence always works perfectly. See
Erich Weede: "Extended Deterrence by Superpower Alliance." Journal
of Conflict Resolution 27(2), 1983, 231-254 and 27(4), 1983, 739
where misprints are corrected.
[Page 35]
53. "Pollution in Asia: Pay Now, Save Later". The Economist (Vol.
329, No. 7841, December 11th, 1993, 60-61). Already, China is the
third largest source of greenhouse gases. It might well become the
largest source of acid rain by 2010 and emit three times as much
carbon dioxide as the United States by 2025. Unless something
constructive is done, Chinese economic growth may kill forests in
Siberia, Korea, and Japan. Its impact on climate and sea level may
inundate Bangladesh. See Kristof, op.cit. note 32.
54. This causal chain has been analyzed by Erich Weede: "Economic
Policy and International Security: Rent-Seeking, Free Trade and
Democratic Peace." Paper prepared for presentation at the European
Public Choice Conference, Valencia, Spain, April 6-9, 1994. This
paper builds on a large number of studies. Here, I quote only a
single study on each link in the causal chain. For trade and
prosperity, see Jagdish Bhagwati: The World Trading System at Risk
(London: Harvester and Wheatsheaf, 1991). For prosperity and
democracy, see Seymour M. Lipset: "The Social Requisites of
Democracy Revisited." American Sociological Review 59, 1994, 1-22.
For democracy and peace, see Bruce M. Russett: Grasping the
Democratic Peace (Princeton: University Press, 1993).
[Page 36]
55. Whether supporting China by opening Western markets to Chinese
exports actually is in the Western interest, of course, depends
crucially on the assumptions that a new cold war between China and
the United States, or China and the West, can be avoided, and that
democracy stands a good chance to develop in a future prosperous
China. But if the West decides to deny China the chance to grow by
trading itself out of poverty, then this might well be received in
China as a kind of preemptive declaration of a new cold war.
Although optimistic scenarios about China need not turn out to be
self-fulfilling prophecies, pessimistic scenarios tend to be self-
fulfilling. Compare Chalmers Johnson: "Rethinking Asia". The
National Interest 32, Summer 1993, 20-28, especially page 24.
56. For reasons why capitalism promotes democracy, see Peter L.
Berger: "The Uncertain Triumph of Democratic Capitalism", and
Kyung-won Kim: "Marx, Schumpeter, and the East Asian Experience",
pp. 1-25 in Larry Diamond and Marc F. Plattner, eds.: Capitalism,
Socialism, and Democracy Revisited (Baltimore: Johns Hopkins
University Press, 1993). The prospect of "authoritarianism
unmodified by successful growth" is also labeled "least
probable" by Eric Jones: "Asia's Fate: A Response to the Singapore
School". The National Interest 35, Spring 1994, 18-28, especially
page 28.
57. See Richard K. Betts: "Wealth, Power, and Instability:
East-Asia and the United States after the Cold War". International
Security 18(3), 1993- 94, 34-77, especially pp. 53-54.
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