Chapter IX power, Wealth and Interdependence in an Era of Advanced Globalization
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- Analyzing Global Interdependence and the Rise of China
- VI. Conclusions
1913 The global economy in 1913 had achieved very high levels of basic interdependence, with large volumes of trade and investment among independent states. At the same time, the global economy was equally defined by the relationships of imperialism and power politics. The result was systems of economic interdependence were embedded in somewhat contradictory relationships of security and power relations. Trade was generally based on production within one nation followed by the export of a finished product to other nations. Investment was dominated by portfolio investment, which meant the funds involved could be quickly withdrawn, and loans, which created a relationship of dependency. Exchange and investment were also embedded in norms defined by the nationalistic struggle for power and advantage, with rising protectionism after 1880 offset by falling costs of transportation. The spectrum of elite opinion in all major powers operated within the bounds of intense nationalism in security and economy and did not venture into the massive intellectual and structural changes needed for international economic and political integration.79 As a result, the considerable economic interdependence in Europe in 1913,80 rather than operating to dampen the potential for war, actually reinforced norms of conflict because of weak institutions and equally weak cooperative norms. Interdependence between France and Germany was substantial but contributed much to German insecurity and to German designs on obtaining control over French markets and industry. In 1913, interdependence was but part of a system of policies, resources and relationships bound by the nation-centered system of production, the extension of the nation through imperialism, and the role of trade in relation to achieving international power. Global economic institutions were limited, beyond the gold standard, with rules for exchange constructed as much by traders as by states.81 The potentially pacifying incentives from interdependence conflicted dramatically with those of imperialism, nationalism and international security and, as such, frequently were incorporated into the incentives of these conflict-oriented systems. Largely undeveloped were the domestic and international political foundations that would permit stronger relationships of interdependence and thereby create incentives for peace. Thus nationalistic and highly competitive assumptions about trade reinforced similar views about security. 2013 The global system of 2013 presents a substantially distinct, even qualitatively different, system of interdependence. Not only are economic relationships bound together into complex, deep and widely distributed systems of interdependence, but equally important, systems of global institutions relating both to economy and security are framed around a strong recognition of the mutual gains from cooperation. For those nations most closely connected to the existing global order, these systems create powerful and even compelling incentives to attenuate the use or threats to use military force to achieve the aims of states. Global exchange has become much deeper and more complex as a result of the massive increase in the geographic scale of production and the global diffusion of the capacity to produce for global markets. This was achieved through global knowledge networks, the fragmentation and diffusion of production into complementary specializations, the creation of these systems by transnational firms through related networks of FDI, strategic alliances and global innovation processes. Firms were also engaged in partnerships with nations seeking investment, with nations providing the soft and hard infrastructure needed to operate and upgrade production. The system that emerges is defined by high density, tightly coupled and complementary exchange diffused across much of the planet. Equally important is the supportive system of norms and institutions relating both to security and economic exchange that provide the rules and the political and governance base for globalization. Unprecedented in human history, this system creates the stability necessary for a global system of exchange to operate. The norms that undergird these arrangements consist of systemic thinking – recognition of security and economic interdependence, the gains to be had from cooperation for mutual gains, the mutual losses from failure to cooperate, and the absolute need for political management of these relationships. The core institutions of NATO, WTO, IMF, World Bank and the myriad layers of associated and complementary institutions and Non-governmental organizations both create and reinforce these norms. This discussion identifies three different types of global interdependence based on the complexity and depth of economic interdependence, the nature of international institutions and norms, and whether these factors have a reinforcing or negative relationship. How can this be used to evaluate the effects of interdependence on contemporary China? Analyzing Global Interdependence and the Rise of China There is no compelling evidence that would permit a definitive test of a hypothesis relating interdependence and war, especially given the dynamic and complex nature of such systems.82 Rather, we can at best assemble evidence that tends to support or refute expectations we can link to such a hypothesis and draw only tentative conclusions. The evidence needs to identify key features of the global system and the ways the system affects the incentives for states relating to conflict and war. We will review evidence in two related situations, each involving the behavior of states in relation to this system. The first considers how “outsider” states to the emerging global system have interacted with this system: to what extent have “outsider” states been ready to join the global capitalist economy and to what extent have these states worked to resist this system? The behavior of these states helps us to judge the impact of the global system on the propensity for cooperation, conflict and war. We are especially interested in nations that are already hostile to this system. Do these nations resist, even to the point of using force, to destroy this system or do they choose to join it? If a system of economic interdependence did not promote cooperation and the avoidance of war, we would expect very few, if any, hostile states to join it and commit their security and prosperity to such an order. Instead we would expect, given such hostility, at least significant preparation for war and high levels of conflict from such nations directed toward leading nations and significant efforts to remain apart from such a system. A system so attractive from an economic and security status that it attracts “outsider” and “hostile” states must have a very strong capacity for promoting mutual gains and managing the potential for conflict. The period from 1970-2014 is instructive on this question. Here, many illiberal states83 chose to join the liberal international order – an order of economic, political and security liberalism – and persisted in integrating ever deeper into the system over time. At the same time, a significant but declining number of nations remained outside this order, either by choice or by exclusion. China, which in the 1950-1972 period was intensely hostile to the system of global capitalism and was ready to mobilize many nations to resist if not fight this system, chose to join the liberal order in the 1970s and dramatically reorient its global strategy and domestic system of political economy in order to do so. This involved a calculation of the security implications, as well as the economic restructuring required, from such a decision. Joining a system of global interdependence based on capitalism, at a time when China was quite weak economically and militarily, strongly suggests that Chinese leaders – from Mao to Deng – did not fear this order.84 The many other states like China, that also joined the system, must have concluded joining would not increase but rather would decrease their security problems and would provide significant economic gains.85 Additional evidence relates to how closely illiberal states align themselves to the global liberal order: shallow involvement is consistent with incentives that do not attenuate the potential for war and conflict; deep integration is consistent with high expectations of a reduction in the chances for war and conflict. Here the evidence again suggests acknowledgement and acceptance of the security gains from close alignment. This is because joining this system in most instances has involved accepting both economic and security norms: basic systems of economic exchange, more complex rules for resolving trade conflicts, for dealing with economic competition, and for managing global financial instability went together with the norms of managing global security, which were also part of the bargain. The post-1970 system was open to new members and clearly began providing large gains to those that joined. In the 1960s and 1970s, those states joining the EEC/EU and poor states such as Korea, Thailand, Singapore, Taiwan and Malaysia integrating into the system achieved much faster economic growth with manageable consequences for the domestic political economy and an improved security position. The system of economic exchange, global institutions and norms did not threaten or reduce security; rather it enhanced security through systems of stability and through economic growth.86 Notwithstanding the fact that the system was and is dominated by economically and politically liberal nations – with strong preferences for markets, democracy and private firms – nations with quite antithetical values not only joined the system but were ready to make large changes in their values and institutions in order to facilitate participation. Further, those nations failing to integrate found themselves caught outside the economic and technological gains that contributed to dynamic economic restructuring. The most spectacular of these nations was the Soviet Union, which found itself in a catastrophic spiral of decline.87 The long-standing Soviet effort to compete militarily with the United States, and with the global liberal system while remaining outside of that system, could not be sustained. This strategy failed in economic terms to generate growth, but even more so failed to generate the dynamic structural and rapid technological changes found in the liberal system. Perhaps most telling, rather than attempting a military response to its decline the Soviet Union first attempted to join the global economy and engage in security cooperation with the United States and, when that failed to stem the tide of decline, simply imploded, with its former members now free to join the liberal system. The Soviets had little choice but to acquiesce in the loss of control over Eastern Europe and the reunification of Germany.88 Even more revealing for the connection between interdependence and conflict, the collapse of the Soviet Union and the Tiananmen crisis in China could have led the Chinese to reverse direction and retreat from the global capitalist order. Instead, by 1992 Deng Xiaoping was successfully pressing to integrate China even more into this system.89 The deep connections between wealth and power are demonstrated very clearly by the fate of the Soviet Union. At the same time, the impact of the global capitalist order on decisions relating to integration or conflict with this system is demonstrated by the choices of virtually all of the nations in the global communist order in the 1978-1995 period.90 Moreover, the global system was itself in the process of morphing into new and more complex forms after 1970.91 The rising tide of market-based global economic exchange and the revolutionary changes in the technologies of communication and transportation were being extended and transformed by the expansion of new members. Especially important were those poor nations that began to integrate hundreds of millions of new, inexpensive workers into the global capitalist economy. As we have seen in previous chapters, dramatically new forms of production emerged around the fragmentation of the value chain, with new forms of specialization, extraordinary increases in global FDI, and new forms of knowledge, technology and innovation networks. Much of this new system was defined and directed by new actors, often non-state actors operating in intimate partnerships with states.92 The result was a new form of global economy, able to produce higher quality products at much lower prices, create new products through rapid and cumulating innovation, and raise and lower production levels with extraordinary flexibility. Governance of the system came through strong norms and institutions promoting cooperation and through multiple rules and norms governing interaction. It was a new system for creating economic value and wealth; virtually no states were in a position to gain benefits from it through military attack but only by joining and adapting to it. This is a world dramatically different from the global interdependence of 1913 or 1813.93 This global system of interdependence deepened and became more complex, in the sense that feedback loops were reinforcing, thereby extending existing systems of exchange. The rising gains from the system were coupled to an increase in the density of connections as new participants encouraged more complex forms of exchange, which led to greater integration and even more new members. Existing international institutional corollaries of this system not only survived these changes but also adapted to and reinforced the processes of global exchange. The IMF found itself as the central player in managing the inevitable instabilities of a system defined by rapid and radical change, which seemed to manifest in repeated financial crises.94 By acting to contain the destructive effects of these crises, the IMF not only preserved the system but also reinforced the process of transformation and the value of such institutions for the system. Likewise the WTO, which managed the complex and difficult integration of China into the global system on terms that reinforced but did not destabilize the system, operated to contribute to the rising tide of complex and deep interdependence. These arrangements have no corollary in past systems of global interdependence. And the development of the system in these terms supports the hypothesis that contemporary interdependence is both qualitatively different from interdependence in the past and facilitates the integration of a rising power into the system. 95 Nations that might not initially have fully understood the effects of joining the global capitalist system would, over time, have little doubt about the consequences. The incentives for joining generally cumulated. Once nations have joined the system, this has rarely been followed by withdrawal. Even in instances where nations have suffered considerable pain – such as in the Asian financial crisis of 1997-1998 – no nation so affected chose to withdraw from the system.96 Participation in the global liberal order has not produced levels of domestic economic or political pain that would lead nations to even imagine withdrawal.97 The global order rests on very firm domestic and international political foundations and represents a powerful pull on nations. What does all this mean for forecasting the position of China in global affairs for the next two decades? China is surely the best example of an illiberal nation that has benefitted dramatically from joining the global liberal system. And of all the illiberal states taking this step, China began in the 1970s with very little connection to the global capitalist system and has become by far the most deeply integrated into this system. Global firms play a very large role in the Chinese economy, as a vital source of investment, technology, knowledge, competition for Chinese firms and providing access to global markets. Global production networks – spread across much of Asia and the world – create the avenues for a constant flow of components to China that end as Chinese exports to the rest of the world. China has large, growing and unbreakable set of links to global knowledge networks. How does participation in the global economy and the global security order generate incentives that affect China’s foreign policy choices? Earlier in this chapter we have considered the question of China’s ability to sustain its remarkable economic growth, mainly through continuous upgrading of firms’ ability to improve the quality and capabilities of products. For this to happen, we have described the essential role of connections to global knowledge networks, global production networks, global markets and the role of domestic competition from foreign firms. Already evident and expected to accelerate is a new form of Chinese connection to the global economy: outward foreign direct investment. One estimate forecasts $1 trillion in Chinese outward FDI by 2020, creating a gigantic and continuing system of new interests in global relations.98 Access to global markets, knowledge and productions networks and massive external investments makes the preservation of deep interdependence with the global economy a primary interest of China, at least for the foreseeable future. The ability to upgrade across the value chain, and even more so achieving innovation in the contemporary global economy, cannot take place through a strategy of knowledge and technology autarchy. No nation, even the most advanced, can possibly hope to succeed in keeping pace with global technology and knowledge advances while cutting itself off from the global knowledge system.99 The Chinese government clearly understands this reality, with its encouragement of Chinese efforts to expand access to knowledge through actions such as the purchase of German machine tool firms by Chinese firms. Any effort to alter significantly the global rules and norms relating to innovation, trade and investment would carry a major risk of damage to the capabilities of this system and thereby to China. Any significant use of military force by China would contain considerable risk of a rupture of the Chinese connections to the global system. Even an effort to alter the global order based on Chinese preferences would carry large risks of disruption and threaten China’s future economic prosperity.100 Seen in these terms, the global system of deep interdependence generates not only powerful incentives to join and remain but equally important incentives to preserve it, including avoiding the risks of war that could unravel the system. The way we think about power is affected by the existence of a system capable of having these effects. In 1913, the system of interdependence produced considerable incentives for nations to prepare for and use war as a primary instrument for achieving national ends. We have usually understood this to define power itself. But the global system has evolved into a different kind of system since then and our understanding of the nature of power must evolve as well. Structural power is much more important today than the power to hurt and coerce. What we call structural power involves the ability to create the system of exchange, innovation, knowledge, finance, institutions and norms. And structural power, which results from the nature of the existing global system, resides overwhelmingly with the United States. The U.S. is able, as a result of its long period of hegemony, to define rules, control access to vital resources, define the military calculations and choices of potential adversaries and generally shape outcomes that extend far beyond its apparent military and economic position. Structural power is embedded in systems of deep and complex interdependence and derives from asymmetries in the ability to define rules and control resources others need for success. Situations that appear to be positions of U.S. weakness – such as the massive holdings of dollar-denominated assets by the Chinese government – are actually positions of U.S. strength. The Chinese cannot credibly threaten to sell these assets and by holding this money China provides U.S. benefits in lower interest rates and permits U.S. purchases of imports on a credit card that doesn’t have to be paid off. At the same time, holding these assets allows the Chinese to preserve an exchange rate for the RMB that favors Chinese exports. This form of structural power derives from the position of the U.S. dollar as the global key currency combined with the power created by the size and global importance of the U.S. market.101 But most important, this and other forms of structural power derive from the system of complex and deep interdependence represented by this relationship between China and the United States. This is a system in which both gain, which neither wants to unravel, and which requires cooperative management to maintain. The effects of deep and complex interdependence on military conflict do not mean that other forms of conflict and certainly competition will not continue and thereby affect global political relations. One somewhat unexpected result may be to change the role of power in interstate relations, mainly by shifting power equations away from the capacity to hurt toward to the capacity to define the standards, norms and rules for the global system. Following the example of structural power described above, we can already see efforts by the Chinese to enhance their capacity for structural power. This comes from repositioning the RMB and the Chinese financial system for the RMB to play a role as a key currency, at least regionally and in areas with large amounts of trade with China, such as parts of Africa.102 In addition, efforts to rebalance the Chinese economy through expanding domestic consumption will certainly create a giant consumer market that already serves as a magnet for sales, global investment and product design.103 Both efforts will require time and discipline by the Chinese government, traits they have already demonstrated. The nature of a world composed of dueling systems of structural power is somewhat murky from today’s vantage point. Competition and even significant conflict over efforts to define rules for global exchange, investment, intellectual property, and the role for states in economies will persist and even expand. But creating structural power tends to reinforce the existing system, not undermine it. Thus, the use of war and the threat of war will likely be attenuated by the overriding reality of deep and complex interdependence and the gains to be had from cooperation.104 VI. Conclusions The power transition from the United States to China will most likely result in a raw advantage in economic size and military spending for China, but will leave China substantially constrained by the global system of deep interdependence, institutional arrangements, norms and governance. Theories based in the analysis of power transitions, economic interdependence and elite ideas all point to the same basic conclusion. As long as this global system remains adaptable to Chinese preferences and able to sustain global prosperity, these constraints will hold. Should either break down, that is should the global system fail to provide the incentives for cooperation, the Chinese will at some point have the capacity to break this system but perhaps not the capacity to make a new one. In such an environment, military struggle could return as a predominant form of interaction. We should recognize that for the highest probability outcome to materialize – that is, for China to remain committed to preservation of the main parameters of the current global system and avoid major military confrontations with the U.S. – many of the basic patterns from the past several centuries in global politics will need to be different. The case for conflict made by realists and power transition theories is strong, and identifies many pathways leading toward war between rising and declining powers. We have identified three main reasons why the patterns of the past are unlikely to repeat themselves in the contemporary system. First, China is quite unlikely to achieve the level of wealth and power advantages in the next two decades that could lead to decisions for war with the United States. The U.S. will retain significant advantages in per capita income and innovation and a qualitative military advantage. Second, nuclear weapons provide a very important deterrent against choices for war and risk-taking involving war between great powers. Third, the global system generates large gains for those who remain in the system and potentially larger risks and costs for those who operate outside the system. It is difficult to design scenarios leading China either to withdraw from or act to transform the contemporary system, one or both of which is a prerequisite for war. Directory: tlairson -> ipe tlairson -> Nyt amid Tension, China Blocks Crucial Exports to Japan By keith bradsher published: September 22, 2010 tlairson -> China Alters Its Strategy in Diplomatic Crisis With Japan By jane perlez tlairson -> The Asia-Pacific Journal, Vol 11, Issue 21, No. 3, May 27, 2013. Much Ado over Small Islands: The Sino-Japanese Confrontation over Senkaku/Diaoyu ipe -> Chapter 5 The Political Economy of Global Production and Exchange tlairson -> Nyt india's Future Rests With the Markets By manu joseph published: March 27, 2013 tlairson -> Developmental State tlairson -> The Economist Singapore The Singapore exception To continue to flourish in its second half-century, South-East Asia’s miracle city-state will need to change its ways, argues Simon Long tlairson -> History of the Microprocessor and the Personal Computer, Part 2 ipe -> For richer, for poorer Growing inequality is one of the biggest social, economic and political challenges of our time. But it is not inevitable, says Zanny Minton Beddoes Download 212.88 Kb. Share with your friends:
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