The Rise of China and the Demise of the Capitalist World Economy Review

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The Rise of China and the Demise of the Capitalist World Economy ReviewI had hoped this would be a hopeful book somehow laying out a convincing argument that China's rise will eclipse the disintegrating international capitalist economy and usher in a new world order focused on meeting human needs in an environmentally sustainable manner. Sadly, that is not this book's argument.
"Chinese socialism was the historical product of a great revolution, which was based on the broad mobilization and support of the workers and peasants comprising the great majority of the population. As a result, it would necessarily reflect the interests and aspirations of ordinary working people. On the other hand, China remained a part of the capitalist world-economy, and was under constant and instance pressure of military and economic competition against other big powers. To mobilize resources for capital accumulation, surplus product had to be extracted from the workers and peasants and concentrated in the hands of the state. This in turn created opportunities for the bureaucratic and technocratic elites to make use of their control over the surplus product to advance their individual power and interests rather than the collective interest of the working people. This was the basic historical contradiction that confronted Chinese socialism as well as other socialist states in the twentieth century."
The author, Minqi Li, was a member of the student dissident movement of the 80s in China. He describes the milieu during which he studied neoclassical economics at Beijing University: "The 1980s was a decade of political and intellectual excitement in China. Despite some half-hearted official restrictions, large sections of the Chinese intelligentsia were politically active and were able to push for successive waves of the so-called 'emancipation of ideas' (jiefang sixiang). The intellectual critique of the already existing Chinese socialism at first took place largely within a Marxist discourse. Dissident intellectuals called for more democracy without questioning the legitimacy of the Chinese Revolution or the economic institutions of socialism.
After 1985, however, economic reform moved increasingly in the direction of the free market. Corruption increased and many among the bureaucratic elites became the earliest big capitalists. Meanwhile, among the intellectuals, there was a sharp turn to the right... The politically active intellectuals no longer borrowed discourse from Marxism. Instead, western classical liberalism and neoliberal economics, as represented by Friedrich Hayek and Milton Friedman, had become the new, fashionable ideology."
A turn towards neoliberalism had, by the 1980s, been made possible by decades of Maoist development policy, which had developed "the necessary industrial and technological infrastructure [allowing China to] become a major player in the global capitalist economy." Li does a good job explaining the capitalist world-system, according to Immanuel Wallerstein's formulation, with its separation into core, semi-peripheral and peripheral states. The international division of labor has core states, like the U.S. and Japan, performing cutting-edge production requiring massive investment and organization, and which offer the greatest profit margins; the semi-peripheral states, like South Korea and most recently China, performing second-generation production that was cutting edge decades ago but which still offer substantial profits; and the peripheral states, like Angola and Bangladesh, which perform low value-added production like raw material exports and low-tech manufacturing.
Li argues that China's move from peripheral to semi-peripheral status (as China now produces all sorts of high- and low-tech products for the core states) signals trouble for the capitalist world-system: "the current 'rise of China' as well as the 'rise of India,' could be the signal that the capitalist world-economy is calling upon its last strategic reserves (such as China, India, the remaining resources, and the remaining space for pollution) to make one more attempt to jump-start global accumulation... The current global development is likely to suggest that several secular trends, which result from the inherent laws of motion of the existing world-system, are now reaching their historical limits."
Why? Because the capitalist world-system relies on strategic reserves of labor that can be called upon when existing labor forces begin to successfully fight for higher wages. Since the system needs high profit margins to reproduce itself via investment, and since high wages put pressure on profit margins, the capitalist world-system needs countries like China and India to turn to for their cheap labor forces once wage costs, or lack of effective demand (in other words, low wages that reduce a market's buying power) begin to threaten profitability. But the very process of exploiting labor in China - building factories and creating an urban working class, moving China from peripheral to semi-peripheral status - threatens to undermine the ability to exploit such labor in the future. Li explains: "To the extent that the non-core states have lower levels of proletarianization, workers tend to be less educated, less effectively organized, and under constant pressure to compete against a large rural reserve army [of laborers]. The workers in these states, therefore, tend to have much lower bargaining power and receive significantly lower real wages. *The low real wages in the periphery and semi-periphery make it possible for the world surplus value to be concentrated in the core and help to keep down system-wide wage costs*. However, in the long run, the development of the capitalist world-economy has been associated with the progressive urbanization of the labor force. After some initial disorientation, urbanized workers have invariably struggled for higher degrees of organization and extension of their economic, social and political rights. Their struggles have led to growing degrees of proletarianization within the capitalist world economy." (emphasis added)
This spells trouble for the world-system, since as production costs increase in China as workers successfully fight for higher wages, there will be few alternative states for producers to turn to for cheap, educated labor and efficient infrastructure. Also, China's ever-increasing contribution to environmental degradation threatens to undermine the world economy through destruction of the natural environment of which it is a part.
Li's analysis of economic - and, more depressingly, ecological trends - leads to the following conclusion: "With the decline of the US hegemony (reflected by its ever-declining ability and willingness to pursue the system's long-term, common interest), no other state is in a position to replace the US and provide effective leadership for the system. China and every other potential hegemonic candidate all suffer from insurmountable contradictions and weaknesses. None has the ability to offer 'system-level solutions' to 'system-level problems.' Either the existing world-system has exhausted its historical space for potential new leadership and therefore is doomed to systemic disintegration, or the new leadership will have to assume the form of an alliance of multiple continent-sized states, which will then become a world-government and therefore bring the existing world-system to an end.
The capitalist world-economy rests upon the ceaseless expansion of material production and consumption, which is fundamentally incompatible with the requirements of ecological sustainability. Depletion of material resources and pollution of the earth's ecological system have now risen to the point that the ecological system is on the verge of collapse and the future survival of humanity and human civilization is at stake.
To summarize, multiple economic, social, geopolitical, and ecological forces are now converging towards the final demise of the existing world-system, that is, the capitalist world economy."
What comes next could be a rational world-system of production geared towards first fulfilling human needs, then wants, in an ecologically-sustainable manner. But while the current system's demise is assured, there is no guarantee of the character of its replacement, and, at this point, very little likelihood it will resemble the description above.The Rise of China and the Demise of the Capitalist World Economy Overview

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When China Rules the World : The End of the Western World and the Birth of a New Global Order Review

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When China Rules the World : The End of the Western World and the Birth of a New Global Order ReviewMartin Jacques' "When China Rules The World" carries a provocative title, but it should not be a surprise. Anyone can see this outcome coming by simply projecting economic growth in the U.S. and China at roughly their current rates; Goldman Sachs gave such conclusions credibility in 2007 when it concluded that China would surpass U.S. GDP in 2027, and double it by 2050. Jacques' book suffers not from an overly wild imagination, but from taking entirely too long to get this already obvious conclusion, and then not exploring enough about what that means for either Britain (his nation) or the U.S.A.
Far too much of "When China Rules The World" is taken up by a detailed historical summary and analysis of China's 5,000-some year history - to establish that it is not prone to colonizing other parts of the world, values unity among its people, and that its predominantly Han 'nationality' of people are becoming increasingly smug (racist?) as China's economic power grows. Jacques could have shortened this material enormously by simply pointing out that the key to China's recent growth has been the pragmatic orientation of its leaders. Obviously, economic growth has been their #1 objective since Mao's death, and public announcements communicated that the military would have to take a back seat. The late Premier Deng Xiaoping demonstrated this pragmatic focus when - despite being Mao's #2 and having been purged twice for not being a strong-enough Communist, he turned the nation's direction around after Mao's death. At the time, Deng explained his lack of commitment to ideology or history as follows: "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice." This was interpreted to mean that being productive in life is more important than whether one follows a communist or capitalist ideology.
Regardless, even if Chinese history was the clear determinant of its direction, the topic is so immense and complex I doubt anyone but a Chinese scholar would have the resources or credibility to synthesize the thousands of years involved. That rules Jacques out. However, Jacques' material on today's China is much more useful.
Many China naysayers contend it cannot continue with anything near its recent growth rates because rising demand for labor will end the supply of its low-cost labor. Jacques, however, points out that China needs to create 8 million new jobs/year for its expanding urban population, plus another 15 million for new rural migrants coming to the cities. By 2020 it is estimated that there will be 553 million non-agricultural workers in China - 100 million more than in all the developed world. Another estimate is that 20 years from now China will still have 20% of its population looking for non-agricultural work - in other words, China has a relatively limitless supply of cheap labor.
How will China continue to rapidly grow its economy? First, by increasing its internal consumption, and secondly by moving up the value chain. Manufacturing comprises only about 15% of the cost of getting a product to market. China's leaders aim to increase China's proportion of the whole by raising R&D from $25 billion in 2004 to $45 billion in 2010 and $113 billion in 2020. China is also intensifying efforts to persuade overseas Chinese to return (eg. one-third of Silicon Valley's professional and technical staff are Chinese), and to raise the status and enrollment of its best universities. China has also been very successful in leveraging access to intellectual knowledge in exchange for granting foreign firms access to its markets. Then there's also its reputation for intellectual piracy. Jacques envisions strong Chinese total-product competition in aircraft manufacture, electric automobiles, communications, computers, and solar panels. Given their growing number of engineering graduates and American research labs located in China, I suspect they will also be strong contenders in household goods, biomedical products, wind turbine production - probably about any area they decide to move into, given their strong cost advantages.
Another reason some doubt China's continued success is that it isn't bringing democracy to the masses. Jacques, however, contends that very few countries have combined democracy (as now envisioned) with the process of economic take-off. (The U.S., for example, was late to grant voting to women and minorities.) Jacques also contends that developing countries are especially likely to value a government's ability to deliver economic growth, maintain ethnic harmony, limit corruption, and sustain order and stability as equal, if not greater values to democracy. Regardless, "When When China Rules The World" also presents data showing that most Chinese believe the political climate has improved since 1989 (Tienanmen Square), and 72% of its population are satisfied with the condition of the country vs. only 39% in the U.S. (As for the widely reported large number of civil disturbances within China reported each year, Jacques contends most have nothing to do with the central government - eg. local land issues.)
Bottom line - like it or not, China will become the major global power by 2050 - assuming continued rapid economic growth, and Jacques doesn't think that is going to stop. What does this mean? Jacques says Chinese companies will be the biggest in the world, as will its stock exchanges and banks. Macao will take Las Vegas' place as gambling capital of the world. The dollar will continue its decline and American military bases overseas will become increasingly difficult to finance. China's new aircraft carriers, stealth submarines, etc. will take over the Pacific near China, and its anti-ship missiles render the U.S. Navy obsolete. Taiwan will return to China's jurisdiction.
My projections for the U.S. are a return to protectionism and/or continued decline in our standard of living. Off-shoring will expand to include higher-level jobs such as engineering design, R&D, branding, corporate ownership, and even some marketing. Absent gaining control of our trade and government deficits, the U.S. risks substantial inflation. Government spending will have to drastically reduced at all levels, especially existing outlays for health care, education, and defense.
The "good news" is that there is already compelling evidence of U.S. overspending in all three areas. U.S. health care and education expenditures as a percentage of GDP are both about 2X and more those of other major developed nations, while U.S. defense expenditures (6-7% of GDP) equal those of the rest of the world combined (more if Homeland Security is added in). U.S. outcomes in these areas, however, are middling at best. Thus, about 15.5% of GDP could be eliminated from government and private expenditures for these three areas - about $2.2 trillion/year. In addition, Social Security benefits will have to be cut, the maximum level of taxable earnings eliminated, or both.
Jacques makes a very good point when he says that globalization was largely developed and instigated by Western nations, especially the U.S.; the benefits, however, have largely accrued to East Asia and China, and the drawbacks to the U.S. Combined with increased private and public efforts to outsource service jobs to India, and more jobs lost to technology, its going to be a very rough next few decades in the U.S.A. Americans need to be much more careful about what they wish for!When China Rules the World : The End of the Western World and the Birth of a New Global Order Overview

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When China Rules the World: The End of the Western World and the Birth of a New Global Order Review

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When China Rules the World: The End of the Western World and the Birth of a New Global Order ReviewLike many journalists who covered China in 1989, I thought it obvious that China's Communist Party would fall to ashes within a few years, having lost all credibility at Tiananmen Square. Got that wrong.
As China's economy took off in the 1990s, I knew for sure that steady growth would force the country to become more democratic. Wrong again. (Open, yes. Democratic, no.) At the very least, I figured, a broad swath of Western economists must be right to agree that China's modernization would require a following of accepted rules of Western finance. To develop, China would have to become more transparent and legally accountable, starting with a freely convertible currency. Right? Not really.
As Martin Jacques argues effectively in this book, the West has misjudged China because of a bedrock assumption that modern financial and political systems have to follow some basic principles of openness, rule of law and democracy. That is the paradigm that favored the United States, and paved the way for its world domination, from 1945 onward. But China's remarkable progress is not following the script, and is challenging Western assumptions.
With clear and compelling writing, Jacques makes the case that when China is the dominant power, it will make the rules. It may even create a new international paradigm, one that is just as hard for Americans to foresee as it was for the British a century ago to foresee their own decline, and as it was for the Romans, long before that.
"The West has, for the most part, become imprisoned within its own assumptions," Jacques writes. "Progress is invariably defined in terms of degrees of Westernization, with the consequence that the West must always occupy the summit of human development."
In the past few years, there have been dozens of books about China's rise. Most of them are mindless, over-the-top enthusiastic or else utterly alarmist. This one is an exception, a book that offers true food for thought, and plenty to chew on. It shook me from preconceived notions.
Jacques has limitations. His predictions about the future get more flimsy as he gets more specific. He glosses over the evils of Mao's era. But his critique of Western assumptions is pretty trenchant.
When China Rules the World: The End of the Western World and the Birth of a New Global Order Overview

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