Tuesday, January 04, 2011

Gideon Rachman cries wolf, and bids us listen

As a presumable preview of his forthcoming book, Zero-Sum Future: American Power in an Age of Anxiety the FT's Gideon Rachman has a cover story in Foreign Policy that seeks to strip away a cocoon of denial regarding American decline:

In the end, of course, the Soviet and Japanese threats to American supremacy proved chimerical. So Americans can be forgiven if they greet talk of a new challenge from China as just another case of the boy who cried wolf. But a frequently overlooked fact about that fable is that the boy was eventually proved right. The wolf did arrive -- and China is the wolf.
While the Soviet and Japanese challenges to U.S. economic hegemony faded, China's 30 year track record make its accession as the world's largest economy all but inevitable.  In raveling out the implications, Rachman takes on what he sees as a series of comforting myths: that "America still leads across the board" and will continue to do so for decades; that "globalization is bending the world the way of the west" and that China will inevitably become a democracy; that in a world in which all consequential countries are democracies, cooperation will trump conflict and mutual enrichment will result.

In response, Rachman gives us to understand that the U.S. lead is evaporating more quickly than anticipated; that China has managed 30 years of near-double digit growth without liberalizing as predicted; that as U.S. hegemony fades, so does mutual cooperation among democracies; and that protection is building momentum as the western consensus frays post-crisis.

Rachman's reality check is sobering but not startling. Who besides a coterie of rabid neocons does not acknowledge that U.S. hegemony of the 20th century variety cannot be sustained forever (in fact, those neocons represent the single greatest risk that it will dissipate swiftly in the wake of the next rash military adventure).  The question that Rachman does not address is whether relative U.S. decline will be accompanied by absolute decline -- or more precisely, whether a relative decline in the U.S. share of global wealth will be accompanied by a long-term relative decline in standard of living, infrastructure, governance, innovation, intellectual leadership, and soft power.

I sense a tinge of devil's advocacy in Rachman's reality check.  In my progress through his debunkings, I found myself responding "yes, but" at key points.  Take, for example, Rachman's critique of American assumptions about globalization:
Both George W. Bush and Bill Clinton took a similar view that globalization and free trade would serve as a vehicle for the export of American values. In 1999, two years before China's accession to the World Trade Organization, Bush argued, "Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy.… Trade freely with China, and time is on our side."

There were two important misunderstandings buried in this theorizing. The first was that economic growth would inevitably -- and fairly swiftly -- lead to democratization. The second was that new democracies would inevitably be more friendly and helpful toward the United States. Neither assumption is working out.
Regarding the first point: Chinese democratization may not have occurred "on schedule" as far as U.S. assumptions are concerned (though few, I'm sure, have ventured to lay out out a timeline).  Rachman does not deny that it may yet happen; he only argues, circumspectly, " It is now entirely conceivable that when China becomes the world's largest economy -- let us say in 2027 -- it will still be a one-party state run by the Communist Party."  Yet the pressures toward democratization are real, and in fact have been sketched out by
Rachman himself (Sept. 14, 2009):  
The government’s neurotic obsession with achieving its totemic figure of 8 per cent growth a year hints at the country’s continuing political fragility. Without a democratic mandate, the Communist party relies on rapid growth to keep the system stable. Somehow the country needs to make the transition to a system in which the government can draw upon alternative sources of legitimacy. Twenty years after the Tiananmen massacre, the Communist party shows no outward sign of contemplating a transition to a more democratic system. Meanwhile, the Chinese media speculate openly that social unrest could rise to dangerous levels, if economic growth slackens.
Moreover, Taiwan, Hong Kong and South Korea all took decades to democratize in the wake of authoritarian capitalism.  China is a bigger battleship.

Rachman's next point -- that the spread of democracy need not foster international harmony or American soft power -- seems to me in some measure to be directed against a straw man:

And even if China does democratize, there is absolutely no guarantee that this will make life easier for the United States, let alone prolong America's global hegemony. The idea that democracies are liable to agree on the big global issues is now being undermined on a regular basis. India does not agree with the United States on climate change or the Doha round of trade talks. Brazil does not agree with the United States on how to handle Venezuela or Iran. A more democratic Turkey is today also a more Islamist Turkey, which is now refusing to take the American line on either Israel or Iran. In a similar vein, a more democratic China might also be a more prickly China, if the popularity of nationalist books and Internet sites in the Middle Kingdom is any guide. 

Whoever promised that democratization would land the world in the Rose Garden?  The argument as I recall it is that democracies tend to resolve their differences through negotiation rather than war, not that they always act in concert or dance to America's tune.  Viewed in aggregate, notwithstanding disappointments and quarter steps, I think it's fair to say that the world's major powers, more or less as represented by the G-20, have managed a fair measure of of cooperation since the global financial meltdown -- in a roughly coordinated round of stimulus, in keeping the lid (for the most part, thus far) on protectionist pressures; in uniting over sanctions against Iran. Rachman cites the "weakness" of those sanctions as evidence that China will not dance to the U.S. tune -- but that judgment, like much of his argument, is subject to Escher-like glass half empty/half full perspective shifts.

The third "yes but" is closely related to the prior. Rachman sees the world drifting away from embracing "win-win" globalization toward "zero sum" competitive protectionism. For evidence, he relies heavily on Krugman's assertion, echoed notably by Larry Summers, that China's "undervaluation of its currency is a form of protectionism" that deserves and will ultimately trigger retaliation.

That may be. But it may not.  The tug-of-war over revaluation has been delicate and deliberate. Less dogmatic China-watching economists than Krugman, such as Michael Pettis, have argued that Remnibi appreciation likely would not have the desired effect, and have laid out the complexities of Chinese efforts to stimulate domestic consumption; others, such as Aryind Subramanian and Jeffrey Garten, have emphasized the slow, patient work that needs to be done to build international coalitions and institutions that will nudge China in the right direction and offload the burdens of American hegemony by degrees by building the capacity of institutions such as the G-20, the IMF and the WTO.

The glass half-empty/half-full split is laid out with almost comic symmetry on the Comment page of today's FT, where Rachman extends his argument that globalization is on the point of retreat, while former EU trade commissioner Peter Mandelson takes the opposite point of view.  Rachman argues that wide gap in growth rates between the developed and developing worlds is pushing the U.S. and Europe toward retaliatory protection; Mandelson, that a rising tide is on the point of lifting all boats and washing away protectionist impulses.  Here's Rachman:

Globalisation prospered and took root during a period when all the world’s major powers were experiencing strong economic growth. It is threatened by a new world, in which emerging powers are palpably doing much better than the established economies of the west. The threat to globalisation will grow unless and until there is a co-ordinated global recovery.
 And Mandelson:
There were genuine fears that the global downturn would provoke 1930s-style protectionism. This has not happened: global leaders stood by their commitment to keep borders and trade open. If it continues to rebound at current rates, world trade by volume will recover to 2008 levels by 2012, after collapsing in a way unseen since the second world war. The rules-based system, centred on the World Trade Organisation, has proved its worth.
 Rachman sees the stars aligning for trade conflict (and Joseph Stieglitz, on the same Comment page, amasses a more comprehensive catalog of protectionist measures taken recently around the globe):
...the overall conditions for a growth in protectionist sentiment are liable to strengthen during the course of 2011. The Chinese show little sign of making the concessions on currency that would change American minds. US unemployment remains stubbornly high. And protectionism as an economic philosophy is being gradually rehabilitated, as leading economists increasingly argue that tariffs can be a justified response to “mercantilist” policies, such as those China is accused of.

Mandelson sees multilateral institutions strengthening:
The third reason for optimism is multilateral governance. A Doha trade deal is more likely in 2011 than at any point in the past three years. The progress created by the group of 20 leading nations may have lost some of its urgency, but it has still compelled the rewriting of global bank capitalisation, liquidity and leverage rules. The G20 will often disappoint, but its existence certainly favours the converging dynamic of the past three decades.
I am not suggesting that Rachman is wrong, or that his argument is weak   But he does seem to be choosing, behind the momentum of a coherent hypothesis, to (conditionally) emphasize the negative. He is an empiricist, and his tilt toward the negative prognosis is I think pretty recent.  I will in any case buy (and prospectively recommend) his book.

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