Heading for a fall?

China’s rapid economic rise has been the topic of much debate over the past few years, and I think that this rise has some implications for western political economic theorists that are quite fun to explore. The orthodox view of China’s rise seems to be that it is going to continue to grow rapidly for a while to come, and that this growth is a serious threat to world stability. Of course a lot of the kind of thinking you read on China is just bog-standard journalistic stupidity, not worthy of much time and heavily influenced by that strange blend of insecurity and arrogance that seems to characterize cheap western journalists’ approach to Asia. A lot of it also looks like a very close copy of what was said about Japan both before World War 2 and again during Japan’s meteoric rise of the 70s and 80s. However, generally, no matter how poor the quality of journalism on Japan, foreign policy seems to have been much more level-headed, and China has been allowed to do its thing largely in peace since the 1970s. In response, China has changed radically over that time: it’s adopted many elements of the free market, turned its back on much of the Maoist principles that led to disasters like the Cultural Revolution, and has even come close to admitting and apologizing for Tienanmen Square (though it hasn’t). Also, most of the UN’s millenium goals have not been met, but those that have been met are largely due to China: it has made huge inroads into health and social problems that other developing economies have failed to dent, so something is going right in China. On the other hand, some people think that China is heading for a crash, and that this crash is going to be bad, based on bad fundamentals; this goes very much against the orthodoxy and is almost a heretical claim, but it is out there. Certainly China’s GDP growth is hard to believe from the perspective of most developed economies.

I think these changes, and the way the world is beginning to reorient economically and politically around Asia, raise interesting questions for political economists in the West. I think that a lot of people are ignoring the possible theoretical challenges that China’s rise may pose for a variety of Western disciplines, and I want to consider them here. Let us suppose that China continues to liberalize politically without becoming democratic, and let us assume also that China follows the trajectory many people seem to believe it is capable of, and continues to develop without an economic crash – that is, it maintains an economy that has, essentially, the characteristics of a bubble without collapsing – suppose instead that it makes a soft landing, with the party putting the brakes on growth where necessary and slowing things down at the right time – this seems to be what many people believe will happen. I think this raises some challenging questions for market neo-liberals, marxists and possibly also Keynesians, that I’d like to consider here.

1. Is market capitalism the best model?

Modern Western political economics seems to have pretty much given up on any kind of economic system except market capitalism, but most economic theorists seem resigned to the existence of boom-and-bust cycles in capitalism: the challenge is not in getting rid of them, but in managing them. But every bust is a tragedy for a minority of the population, and creates (minor) political upheaval. Eliminating boom-and-bust would be a boon for capitalism, but despite the Gordon Brown’s infamous claim to the contrary, it doesn’t seem possible. So if China can develop over the next 10 years without experiencing such a catastrophe, then the Chinese may be able to claim to have developed a capitalist model free of busts; but their model, for all its capitalist points, is not market capitalism. Is managed capitalism a better capitalist model than market capitalism, and can it be achieved in a democracy? Of course, other Asian nations have shown similar economic models – Japan and Thailand spring to mind – but they eventually faced busts as they liberalized. If China avoids the bust (and there’s no guarantee it will) while maintaining greater than 5% annual growth over 2 decades, what does this tell us about the relative merits of managed vs. market capitalism? I think this possibility raises challenging questions for liberal economists and Keynesians alike.

2. Are economic freedoms and political freedoms really intertwined?

A common mantra of neo-liberal economists and market liberals generally is that economic and political freedoms are intricately intertwined; that you cannot genuinely have one without the other. In its most extreme form any form of government interference in markets must necessarily reduce political freedom too; in more reasonable forms, it’s not possible to advance to a proper level of political and social freedom if large portions of the population don’t have economic freedom. But this doesn’t happen in China: a society without fundamental political freedoms is developing a strong market economy, which (although I have no proof) I think is much more economically free than the classical liberal model would expect given the lack of political freedoms. Is the market liberalist model of the essential interconnection of these two freedoms fundamentally wrong? If so, under what conditions? I can think of a model of economic and political freedom in Australia which depends on strong, prescriptive social institutions (union membership and compulsory voting) that are quite unique in the developed world – and Australia also has a remarkable economic history over the past 30 years. Is some restriction on political freedom essential for achieving economic freedom?

3. Was historical materialism completely wrong?

As I understand it, historical materialism describes stages of economic development that societies pass through, and argues that transition to a new stage occurs through social and political upheaval. Typically, marxists believed that the communist revolution could only occur once society had developed through some “objective” standards, to the point of industrialization, and that the social and political upheaval that heralded the coming of the communist utopia would generally only be achieved when society contained a sufficient critical mass of politically conscious industrial workers. Generally, therefore, marxists preferred to be active in industrialized societies with strong unions and social democratic parties – places like the UK and (famously) Germany. But the most successful communist societies – Cuba and China – were underdeveloped relative to the historical materialist model, and their revolutions occurred through military action amongst peasants by a vanguard of (often foreign-educated) members of the elite, not the industrial working class. Communist China has existed since 1949, so in 2021 it will become the longest-lived communist nation on Earth (supplanting the USSR, 1917-1989); sooner if you factor in the period of instability in the USSR that followed the revolution (the equivalent period having occurred before 1949 in China). So unless something drastic happens in the next 10 years, it appears that historical materialism’s predictions were, are and will be thoroughly and utterly wrong. Not only that; while the USSR and the Eastern European communist states, founded in a strong industrial working class, were inflexible and oppressive, China and Cuba have shown themselves to be much better able to adapt to the flows of history, and have shown themselves capable of survival through pursuing political, economic and foreign policy reforms that were unthinkable to the founding nations of the communist ideal. Of course, it could just be that there are cultural influences at work – Cuba is far from the only South American country to have tried communism, and the rest (like Nicaragua) were very flexible in their interpretation of the tenets of Marxism; and Vietnam is another example of an Asian communist country that gave classical Marxism the flick very quickly. But historical materialism presents itself as some kind of fundamental theory. Whichever way you slice it, unless China really goes under in the next 5-10 years, I think Marxists need to accept that their view of history is completely stupid and wrong. And when they do, I’d like an apology to my Grandfather for the despicable actions of the USSR in the Spanish civil war – actions that were based in an application of historical materialism to a country that was very close to the Latin American and Asian exemplars of a society ready for a communist revolution.

4. Is parliamentary democracy the only model of consultative government?

I think that the Chinese one-party state is actually quite a consultative political system – through cadres and local party structures I think it gathers information on the needs and opinions of ordinary Chinese and adapts its policies accordingly. People don’t get to vote for their leaders, but I think there are ways in which the leadership is influenced by ordinary opinion. I think this is a crucial part of the process by which the country has been able to engage in near-continuous reform since 1970, without many significant internal upheavals. I also think that this is an important difference between China and the USSR, whose leaders acted like new Tzars. Furthermore, it is clear that the Chinese leadership listen and react to foreign opinion, though never (obviously) against their own interests. So I wonder if they have created a kind of consultative government that responds to public pressure without elections. If it were possible to quantify differences in political responsiveness, would the Chinese leadership be found to be significantly different in accountability to, say, Obama, Bush or Sarkozy? Especially on foreign policy issues, China has avoided some quagmires that the entire world was very clearly telling Bush and Blair they should avoid; but it has also implemented significant reforms in economic and social policy that one would not expect of a communist leadership. Is this a sign of careful listening? And if so, does this mean that consultative government can be achieved without elections – is it possible it could be more desirable? If not desirable as a whole, does it offer any lessons in public accountability and responsiveness that western democracies can learn from? Was, e.g., the Australian Labor Party a more responsive and consultative government under Hawke not because of his leadership but because of its strong system of local branches and union representation? Is the problem with modern political parties that they are poll-driven spin-monsters, or that they lack the grassroots membership necessary to maintain a level of consultative interaction with the community? And if so, are they still genuinely democratic, even though they maintain the semblance of democracy through elections? If democracy is reduced to just a shell-game of voting and polling, is it any better than a politically restrictive but socially consultative dictatorship? Is the only difference one of sustainability, in that a dictatorship can go pear-shaped after a change of leader, while a democracy can’t? And if so, how do we explain the continued smooth transitions of leadership in Chinese communism?

5. Are democracies less militaristic than dictatorships?

In my previous post on China’s military budget, I noted that China is actually a pretty good international citizen, with low levels of military spending and very few imperialist projects. In short, China doesn’t go to war easily. In the past 20 years it hasn’t gone to war at all, while the USA has gone to war at least four times – on one occasion “accidentally” lobbing a missile into a Chinese consulate, an act that China chose not to respond aggressively too. How is it that a one party state that is, let’s face it, militarily pretty impregnable even when it isn’t spending much, is so uninterested in military adventures? One idea that occurred to me with the anniversary of the Falklands War is that China doesn’t have any domestic democratic pressure to go to war. China manipulates militaristic sentiment domestically, some would argue quite cynically, but is perfectly capable of putting a lid on demands for war. On the other hand, democratic leaders can benefit significantly from military intervention, whether they seek it out (as Bush did in Gulf War 2) or it comes to them (as in the Falklands). They have a lot of incentives to manipulate jingoistic sentiment,  and I think recent events show that they are quite happy to do so when it suits them. Before world war 2, wars of colonial conquest were a given in Western political theory – the idea that you don’t invade some tinpot country when it suits you would have been quite alien to the way of thinking of most democrats in London or Washington or Paris. Perhaps for dictators war is much less likely to be a net positive politically than it is for democrats? But this idea doesn’t stand up by itself – dictators have a long history of stupid wars, and the worst wars of the last century only occurred after democracies slid into dictatorship. So what is the particular property of China’s one-party state that makes it so averse to wars of choice? Some cultural thing? Something about its particular political constitution? If so, is there a class of dictatorships – like China – that are much less likely to go to war than a modern democracy? Are the properties of this class fragile and easily changeable (so that, e.g., China could just suddenly flip into a military expansionist mode tomorrow), or does it have something to do with the aforementioned consultative style? Is it simply a function of China’s stage of development? Is there something about the sheer size and diversity of China that means the political class have to tread very carefully to avoid tearing the country apart?

I don’t claim to have a view one way or the other on any of these questions, but I think they pose interesting challenges to the mainstream of western political economics as I perceive it through my (layman’s) perspective. If China successfully negotiates its development phase, and especially if it can resolve the Taiwan issue peacefully, then I think political economists are going to have to accept that their theories are challenged by the new models (and some of the older ones) springing up in Asia. I doubt we’ll see much change, but that doesn’t mean we can’t consider the possible ramifications of a peaceful, stable, economically and environmentally sustainable China, if such a beast emerges over the next 10-20 years. How will Western democratic and economic ideologies change in the Asian century?