Living With Rivals

China was one of the few countries to recognize that Keynesianism had a clear, and frankly correct, answer on how to counter a recession driven by a lack of demand.

There is, though, a ticking time bomb deep within the current Chinese system. While they have liberalized economically, they have yet to give any real power to the people politically.

Living with Rivals

            The United States has never really known a capable rival. It is true that when the US was first created she had to carefully and diplomatically deal with the European powers who were easily more powerful. However, with the Europeans concerned with their own struggle within Europe, and the self-evident fact of the rising power of the US in the 19th century, it would not have been wise for any power to take on the US after a certain point. Granted a European power did try and go to war with the United States, namely the British in the war of 1812, they were not successful in their endeavor and the US only grew stronger relative to the Europeans. Not to forget the fact that relations with Britain quickly warmed with the Monroe Doctrine and the British support for it, now the US had a powerful ally it could rely on.

           Fast forwarding to the Cold War, it may not have been obvious at the time but Communism as an economic ideology was bound to fail.  The Soviet Union produced a quick economic miracle through forced industrialization, but a system with no incentive for hard work can hardly expect to last long in historical terms. On the other hand, the Chinese system, in the short term, presents no such inherent flaws. Politically it is as Communist as before, what with the strict hierarchy. However the Chinese have managed to make the system surprisingly meritocratic, and have thus produced competent leaders. China was one of the few countries to recognize that Keynesianism had a clear, and frankly correct, answer on how to counter a recession driven by a lack of demand. It is no surprise, then, that they have come out of the recession with economic engines roaring while countries like the United States, who only committed to timid stimulus plans, face years of a slow and painful recovery. Increasingly the Chinese have used this power to pursue their own national interests. Sometimes this is legitimate, like wanting a greater say in the World Bank. Other times they have unsettlingly display of immaturity, like the fight with Japan, and frankly the rest of Asia, over resources in the Chinese Sea that clearly belong to another country. Not to mention friction with the United States over human rights abuses that are inherent in an authoritarian state.

There is, though, a ticking time bomb deep within the current Chinese system. While they have liberalized economically, they have yet to give any real power to the people politically. People are still brutally suppressed, and Liu Xiaobo, creator of the ’08 charter calling for politically liberalization in China and recent winner of the Nobel Peace Prize, is still in jail for demanding what we in the West view as basic human rights. Despite ongoing unrest, the Chinese population at large seems to be ok with the current system. We know from the history of popular revolts against a dynasty when it loses the “mandate of heaven,” that the Chinese people are perfectly capable of overthrowing unjust rulers.

So why did the Chinese people stop after the Tiananmen massacre, rather than continue? The answer lies in China’s astounding and sustained economic growth. Since the Tiananmen massacre, the Chinese government essentially made a deal with its people. Its people would stay out of politics as long as the Chinese economy grew at a rapid rate. To verify this we should see a large and sustained growth rate since 1989. The data is close enough; the growth rate in China has been at least 7% since 1991, and was usually over 9%. This type of growth rate for such a long period of time is the envy of the world, and rightly so. However, even if China sustains this growth for another 30 years, it will reach a limit quickly thereafter. That type of growth reflects how China is still an undeveloped country, and draws its economic strength from sheer numbers. Once China becomes a developed country, its growth rates will drop down from astronomical numbers.

Another question is how low can the growth rate goes until unrest builds up to an unacceptable level? So far it seems like China is already near that level. The potential currency wars have dominated the financial news recently. The cause of the conflict is that China keeps its currency artificially low, causing its products to be cheaper and thus increasing its exports. As of now that means that, for the United States, that its import-export imbalance is artificially high, creating a drag on growth. However, the Chinese refuse to let their currency naturally appreciate while accusing the US of damaging their economy because of the Federal Reserves low interest rates. This implies that China fears that if it does allow its currency to appreciate, its exports will shrink to such a degree as to promote unrest. The current system is unsustainable, as the imbalance is a widely cited cause of the Great Recession –David Frum has a great article on CNN explaining why (CNN.com) - and so it is either another crisis for the whole world, or just China. As you might imagine that doesn’t bode well for anyone.

            The final question is, assuming there is a successful popular revolt for Democracy in China, would democracy change anything? I mean, in terms of the Chinese people’s civil rights of course it would, but in terms of possible hostility towards the US, would it defuse the inevitable rising power against current power hostility? The only example of a rising Democracy replacing a current Democracy on the world stage as the most powerful country is the US’s rise in the 19th century replacing Great Britain. However, the two countries were and are very close culturally, and the US in the 19th century didn’t particularly care about world affairs outside the Western Hemisphere. So the answer is that we don’t know and we can’t know. Democracies, so far, are far less prone to declaring war on each other. So perhaps it will lessen tensions, considering issues like human rights won’t be an issue. However, a rising power replacing a current power is still a rising power replacing a current power. In the end that power dynamic may be too fundamental to change. Lets hope the US and China can live with each other as rivals, or else the future will be very unpleasant.

Written by Aaron Meltzer


(http://www.chinability.com/GDP.htm cite).

http://www.washingtontimes.com/news/2008/nov/28/economy-protests-worry-beijing/(cite).