x Abu Dhabi, UAESaturday 20 January 2018

Capitalism and unknown ideas: the rise of China, the decline of the US

Books In two new books, Stefan Halper and Ian Bremmer ­examine the triumphant rise of the new China and the challenges faced by the free market. But, writes Howard W French, the attention of both authors is really on America's uncertain economic future.

One day historians may look back at the photo that graced the front pages of newspapers around the world in May, featuring the president of Brazil and the prime minister of Turkey, each with an arm around the Iranian president Mahmoud Ahmadinejad, as an important signal in the making of a new world order, a harbinger of things to come. The headlines were about a newly brokered deal by two of the world's rising middle powers to process Iranian uranium - an attempt to defuse the campaign led by the United States for harsher sanctions against Iran.

We are long accustomed to Ahdmadinejad's taunting of Washington. But here were the presidents of once-dependable allies of the United States, visibly enjoying poking their thumbs in the eye of American diplomacy. Incidents like this, it is increasingly clear, are political expressions of something happening on a much larger scale around the world, a phenomenon that has long been announced and yet has largely remained subterranean: the crumbling of America's broad-shouldered, post-Cold War preeminence, and its replacement with something far more messy and uncertain.

It is a development that is neatly described in The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-First Century, a wilfully provocative but poorly named book by Stefan Halper, a longtime veteran of Republican White Houses and State Departments from Richard Nixon to George HW Bush. "Since capitalism went truly global, smaller and poorer countries have gotten rich through their natural resources, cheap and abundant labor, export industries, and outsourcing," Halper writes. "As emerging markets have become richer, they have often integrated with the global economy, but this has not necessarily meant greater integration with the West."

While many people have suggested that the "rise of the rest" has diminished the power of the United States, Halper goes further and places the blame on the shoulders of China and to a lesser degree Moscow. Halper is merely the latest author to jump on the rise-of-China bandwagon - a publishing trend that looks unlikely to play itself out anytime soon. He and Ian Bremmer, the author of The End of the Free Market: Who Wins the War between States and Corporations?, have both written books that nominally have China at their centre but are really about something else: managing American decline.

One of the first big commercial titles in this genre was the unambiguously named When China Rules the World: The End of the Western World and the Birth of a New Global Order, by Martin Jacques, a book that was by turns so naïve and boosterish that it was occasionally cringe-inducing. An enamoured late-comer to the region, Jacques repackaged many of the ideas of the long-discredited "Asian Values" school of thought, propounded by leaders like Mahathir Mohamad of Malaysia and Lee Kuan Yew of Singapore in the 1990s. Simply put, they claimed superiority for managed consensus under authoritarian regimes, drawing selectively on Confucianism for authenticity's sake.

For this reader, books like Jacques' recalled the hype of the now-all-but-forgotten "rising Japan" era of 30 years ago, when frightened Americans were recommended to diligently study another shimmering, apparently ascendant Asian model. To describe books like these as faddish is not to dismiss China's reemergence as a global leader or to suggest the subject is not worthy of serious examination. To the contrary, it is in part a statement of dissatisfaction that a great book on such a serious topic has not yet been written - one that would plumb China's many strengths and its still formidable weaknesses with equal enthusiasm and insight.

Halper and Bremmer, to be fair, nonetheless manage something quite different from Jacques. While purporting to talk about China they are each, in fact, primarily considering the United States and its suddenly shakier place in the world. What makes them fascinating, as a pair - despite the fact that they say little new or original about China - is that while both represent conservative American introspection, they produce starkly different prescriptions.

Here, one almost feels as if bookended between the spirit of two hugely influential works of the last generation, Francis Fukuyama's 1992 The End of History and the Last Man, which suggested that democratic capitalism was mankind's only viable remaining political-economic system, and Paul Kennedy's 1987 book, The Rise and Fall of Great Powers, which diagnosed America's imperial overreach and fatigue and predicted an era of decline.

Halper handily rebuts Fukuyama, using abundant evidence from the contemporary global scene to reject the idea that rising powers like China have little choice but to assimilate into the western-built international system, and to gradually adopt western norms in vital matters of governance and economics. "This was all very grand, all very simple, and, as it turns out, all very wrong," he writes. "In practice, free politics has failed to keep pace with free markets, and capitalism is learning to flourish without bringing liberalism or democracy. In fact, at least two resilient variations of illiberal capitalism have materialized to challenge the preeminence of the western market-democratic brand as models of capitalist governance in the 21st century."

These, he says, are "resource-based illiberal capitalism run by autocratic governments", from Russia and Venezuela to the oil-rich states of the Middle East, and "export-driven, state-directed capitalism, often called the East Asian model". Bremmer, in The End of the Free Market, lumps both of these models into a super-category he calls state capitalism, a description capacious enough to encompass Saudi Arabia, the United Arab Emirates, Egypt, Ukraine, South Africa, Mexico, Malaysia, and even the country often spoken of as the world's largest democracy, India. Its biggest and most influential practitioner, though, and the example that receives the most sustained attention throughout the book is, of course, China.

What common denominator could possibly link such an apparently disparate collection? If capitalism is "what people do if you leave them alone", in the immortal words of the political philosopher Kenneth Minogue, at its simplest, Bremmer defines state capitalism as "a system in which the state dominates markets, primarily for political gain". Thus far, the two books are largely in sync, but henceforth their analyses of this basic landscape pull them in sharply divergent directions. How not to be surprised by the views of someone like Halper, a member in good standing of the American conservative policy elite? His survey of the rising authoritarians concludes, in effect, that they are on to something, and proceeds toward a virtual apostasy - averring that their system may indeed be superior in some important ways. "While capitalism remains the lifeblood of global commerce today, there is more than one form of capitalism," Halper writes. "Our erstwhile ideological enemies of the last century have joined the modern market society, but not with the results we expected. Instead they've done it in ways that demonstrate new, different, and in some cases more successful ways of playing our game."

To these ears, quite unlike the writing of Jacques, whose background is in British Marxism, this sounds rather like a serious case of late-imperial self-doubt. Indeed, Halper goes much further, decrying America's deluded exceptionalism, the doctrinal ideology of free-market fundamentalism, whose long ascendancy began with the rise of Margaret Thatcher and Ronald Reagan, and the vapidly triumphal trope common in so much American journalism that if the citizens of other countries are eating McDonald's, wearing Levi's or drinking Starbucks coffee, that's proof enough of history's end. His prescription, in a nutshell, is to steal a leaf from industrial-policy thinkers and introduce more strategic planning in the American economy.

Abroad, he urges the US to build international coalitions around discreet issues or interests as a way of hemming China in. Bremmer processes the same global landscape in far more confident and, on balance, competent ways. Though it has registered successes, state capitalism is fundamentally an expression of insecurity, and the contradictions that accumulate when one favours economic management through a council of state rather than the invisible hand of the market inevitably catch up with those in charge and exact an exorbitant cost. "Free markets provide those who participate in them with long-term advantages that state capitalism can't match," he writes. "First, political officials have engineered state-capitalist systems to produce wealth, but mainly as a means of maintaining political control and projecting state power. Forced to choose between the prosperity of their people and the security of their governments, state capitalists will choose security every time." Such behaviour, Bremmer adds, "lowers the trajectory of long-term growth."

Focusing on China, Bremmer says the country's "vulnerabilities are increasingly obvious. The Communist Party believes it must create 10 to 12 million new jobs each year to maintain employment rates - and therefore social order… Whatever the true tipping point, the economic efficiencies brought about by growth of the private sector and advanced technological investment in the state-owned sector are increasing worker productivity. That means more output from fewer workers, generally a good thing. But it also means that China will create fewer new jobs for each extra unit of growth. In other words, the treadmill is moving faster, and the leadership must run harder to remain in the same place."

But even this caveat doesn't go far enough: although its GDP numbers are still booming, China's economy already looks remarkably unbalanced, addicted to increasingly heavy government-led investment to produce further growth, like the addict who requires ever larger doses of his chosen drug. Japan has already demonstrated where this approach leads: to overbuilding, to huge non-performing debts and to lost decades. In China, there is much more at stake, from environmental collapse to social disorder on a gargantuan scale. Bremmer's advice for the United States, meanwhile, has a confident ring but seems less sure. For America, he suggests, virtue in upholding its principles as a democratic, free-trade economic powerhouse will be its own reward. Keeping markets open and competing vigorously will help the country retain its status as the "indispensible nation", and not wavering on these principles will ultimately win over a large assortment of emerging, middle-sized powers, who will be watching carefully to see if the West believes its own free-market creed. Just in case, though, Bremmer says Washington should sustain its enormous defence outlays into the future. Whatever the country's soft-power limitations, "America's hard-power advantages are more durable".

Howard W French is a former correspondent for the New York Times, the author of A Continent for the Taking: The Tragedy and Hope of Africa, and teaches at the Columbia University Graduate School of Journalism.