Chapter IX power, Wealth and Interdependence in an Era of Advanced Globalization
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Concepts for Chapter 9 Fast Follower Illiberal states Imitation Local Innovation Move up the value chain Nuclear revolution Power Transition Theory Discussion Questions Describe and evaluate the data for shifts in the relative positions of nations in size of GDP. Discuss and evaluate the debate over whether rapid growth in emerging economies is likely to slow. Analyze the varying positions about the ability of China to sustain economic growth. What is the probable range of possible outcomes over the next two decades in the economic balance of China and the U.S.? Analyze the methodology of developing scenarios and attaching probabilities to these scenarios as a basis for predicting future outcomes. When we combine military and economic capabilities, does the prediction of a rough balance between China and the U.S. seem valid? What are the central ideas, conclusions, and most important limitations for power transition theory in estimating the potential for war or peace between the U.S. and China? What combination of the elements of interdependence needs to be present to have a tempering effect on the potential for war? Compare the systems of interdependence in 1813, 1913, and 2013 in terms of this relationship. Depth, density and complexity of interdependence generate massive gains to participating states Reinforcing elements and incentives relating to interdependence promote cooperation to create and preserve the global system Global security and economic institutions formalize and reinforce the gains and informal/forms norms among elites deriving from economic interdependence and undermine gains from military action. How persuasive is the evidence that the nature of contemporary interdependence is such that it will constrain the potential for war between the U.S. and China? For Further Reading Elbridge Colby, et al. Nuclear Weapons and U.S.-China Relations, CSIS, 2013, http://csis.org/files/publication/130307_Colby_USChinaNuclear_Web.pdf A useful examination of the nuclear relationship of the U.S. and China. Aaron Friedberg, A Contest for Supremacy: China, America and the Struggle for Mastery in Asia, New York: Norton, 2011. One of the primary forecasts of a likely military conflict between China and the U.S. Robert Jervis, The Meaning of the Nuclear Revolution, Ithaca: Cornell University Press, 1989 The best analysis of the impact of nuclear weapons on global politics. Peter Kruger and Paul Schroeder, (eds.) The Transformation of European Politics, 1763-1848: Episode or Model in Modern History? Munster: LIT, 2002. Examination of systemic change in the potential for war. Nicholas Lardy, Sustaining China’s Economic Growth After the Financial Crisis, Washington: Brookings, 2012. A lucid and compelling analysis of the Chinese economy. Andrew Nathan and Andrew Scobell, China’s Search for Security, New York: Columbia University Press, 2012. An important study of the making and content of Chinese foreign and security policy. Barry Naughton, The Chinese Economy, Cambridge: MIT Press, 2007. Though a little dated, the best single source on the Chinese economy. Edward Steinfeld, Playing Our Game, Oxford: Oxford University Press, 2010. A detailed analysis of China’s position in the global economy. 1 For excellent overviews of these relationships, see Ronald Finlay and Kevin O’Rourke, Power and Plenty, Princeton: Princeton University Press, 2007; Lance Davis and Robert Huttenback, Mammon and the Pursuit of Empire, Cambridge: Cambridge University Press, 1988. The Chinese term is fuquiang. Orville Schell and John Delury, Wealth and Power, New York: Random House, 2013. 2 This is accomplished by adjusting the figures for each year to prices in 2005. 3 For example, in 1993 there were virtually no passenger cars on Hanoi streets, essentially only bicycles and motorbikes. You could stand for several minutes on an important street in midday and see no cars. In 2014, the same streets are choked with cars. 4 Dani Rodrik, “The Future of Economic Convergence,” NBER Working Paper No. 17400 September 2011; Dani Rodrik, “The Past, Present and Future of Economic Growth,” Global Citizen Foundation, Working Paper 1, June 2013. 5 The difficulty in achieving this outcome can be seen when we try to model the processes associated with innovation. See Christiano Antionelli, “The Economic Complexity of Technological Change: Knowledge Interaction and Path Dependence,” in Antionelli (ed.) Handbook on the Economic Complexity of Technological Change, Cheltenham: Edward Elgar, 2011, 3-59. 6 Ruchir Sharma, “Broken BRICs: Why the Rest Stopped Rising,” Foreign Affairs, 91.6 (Nov/Dec 2012) 2-7; Nelson Antoine, “Emerging Markets, Hitting a Wall,” New York Times, June 22, 2013; The Economist, “When Giants Slow Down,” June 27, 2013; Nathaniel Popper, “Old Economies Rise as Growing Markets Begin to Falter,” New York Times, August 14, 2013. 7 Brazil, Russia, India, and China. 8 The Economist, “Is the Fastest Period of Emerging Economy Growth Behind Us,” August 20, 2013, http://www.economist.com/debate/days/view/1001 9 Of course, this will require large and effective efforts by the Indian government to develop educational and other institutions that can provide workers able to utilize this knowledge. 10 Arvind Subramanian and Martin Kessler, “The Hyperglobalization of Trade and Its Future,“ Peterson Institute Working Paper, 13-6 (July 2013) 11 Alexandra Stevenson, “China’s Economy Expands at Slowest Rate in Quarter-Century,” New York Times, January 20, 2015, http://www.nytimes.com/2015/01/20/business/international/china-gdp-growth-rate-slowest-since-1990.html?ref=business 12 Atul Kohli, State-Directed Development, Cambridge: Cambridge University Press, 25-123; Alice Amsden, Asia’s Next Giant, Oxford: Oxford University Press, 1989; Robert Wade, Governing the Market, Princeton: Princeton University Press, 2004; Yongping Wu, A Political Explanation of Economic Growth, Cambridge: Harvard University Press, 2005. 13 For a thorough discussion of FDI in China, see Yuqing Xing, “Facts About and Impacts of FDI on China and the World Economy,” China: An International Journal, 8.2 (September 2010) 309-327. 14 Edward Steinfeld, Playing Our Game, Oxford: Oxford University Press, 2010, 70-119. 15 Pankaj Ghemawat and Thomas Hout, “Tomorrow’s Global Giants: Not the Usual Suspects,” Harvard Business Review, November 2008, 80-88. 16 Shaohua Zhan and Lingli Huang, “Rural Roots of Current Labor Migrant Shortage in China,” Studies in Comparative International Development, 48 (2013) 84-87. The coming decline in the size of the workforce in China adds to the wage pressure. Mitali Das and Papa N’Diaye, “The End of Cheap Labor,” Finance and Development, June 2013, 34-37. 17 David Barboza, “In China, Projects to Make Great Wall Feel Small,” New York Times, January 12, 2015, http://www.nytimes.com/2015/01/13/business/international/in-china-projects-to-make-great-wall-feel-small-.html?action=click&pgtype=Homepage&version=Moth-Visible&module=inside-nyt-region®ion=inside-nyt-region&WT.nav=inside-nyt-region&_r=0#story-continues-1 18 The share of investment in China’s GDP hovers near 50%, well above in the high investing nations of Asia and more than double that of many western nations. Consumption spending, is consistently below 40% of GDP, dramatically below levels of most nations and even more dramatically lower than the consumer-driven economy of the United States. 19 Simon Cox, “Pedaling Prosperity,” The Economist, May 26, 2012, http://www.economist.com/node/21555762 ; Nicholas Lardy, Sustaining China’s Economic Growth After the Financial Crisis, Washington: Brookings, 2012. 20 Yanzhong Huang, “Population Aging in China: A Mixed Blessing,” Asia Unbound (Council on Foreign Relations), November 4, 2013. 21 Elisabeth Economy, “China’s Growing Water Crisis,” World Politics Review, August 9, 2011. 22 Damien Ma and William Adams, “Comment: Why Feeding China Could Leave the Rest of the World Hungry,” Foreign Policy, October 2, 2013. 23 Louise Watt, “Air Pollution Cuts Northern China Lifespans,” Associated Press, July 8, 2013. Delhi seems to be competing for the world’s worst air pollution with Beijing. Gardiner Harris, “Delhi Wakes Up to an Air Problem It Cannot Ignore,” New York Times, February 14, 2015. 24 Details on these efforts can be found in The World Bank, China 2030, Washington: International Bank for Reconstruction and Development, 2012; Yasheng Huang, “China’s Great Rebalancing: Promise and Peril,” McKinsey Quarterly, June 2013; Ian Johnson, “The Great Uprooting; Moving 250 Million Into Cities,” New York Times, June 15, 2013, http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?hp&_r=0. 25 Barry Naughton, The Chinese Economy, Cambridge: MIT Press, 2007, 349-374. Linsu Kim, Imitation to Innovation, Cambridge: Harvard Business School Press, 1997. 26 Of course, Google was a “knock-off” of Yahoo. And the initial versions of Microsoft’s Windows in the 1980s was a knock-off of the look and feel of Apple’s operating system, which itself was a knock-off of the operating system from Xerox PARC’s Alto. Westerners tend to forget how much imitation without payment occurs here. 27 Kal Raustiala and Christopher Sprigman, “Fake It Till You Make It,” Foreign Affairs, July/August 2013, 25-30. 28 Mark Greeven and Zhao Xiaodong, “Developing Innovative Competencies in an Emerging Business System: New Private Enterprises In Hangzhou’s Software Industry,” ERIM Report ERS-2009, 2009, http://hdl.handle.net/1765/16599 29 Dan Breznitz and Michael Morphree, Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China, New Haven: Yale University Press, 2011. G.E. Anderson, Designated Drivers, Singapore: John Wiley, 2012; Dieter Ernst and Barry Naughton, “China’s Emerging Industrial Economy,” in Christopher McNally, China’s Emergent Political Economy, London: Routledge, 2008, 40-59. For discussion of the limitations of the Chinese model for the auto industry, see Crystal Chang, “Center-Local Politics and the Limits of China’s Production Model,” in Dan Breznitz and John Zysman, The Third Globalization, Oxford: Oxford University press, 2013, 82-98. 30 John Mathews, Dragon Multinationals, Oxford: Oxford University Press, 2002. 31 Loren Brandt and Eric Thun, “The Fight for the Middle: Upgrading, Competition, and Industrial Development in China.” World Development, 38.11 (2010) 1555-1574. 32 In addition to Brandt and Thun, “The Fight …,” see Loren Brandt and Johannes Van Biesebroeck, “Capability Building in China’s Auto Supply Chains” University of Toronto, www.rotman.utoronto.ca/offshoring/Ch4.pdf ; Kazuyuki Motohashi and Yuan Yuan, “Productivity Impact of Technological Spillover from Multinationals to Local Firms,” Research Policy, 39 (2010) 790-798; Edward Tse, et al. “China’s Mid-Market Innovators,” Strategy + Business, 67 (Summer 2012) 32-36. 33 See a series of articles in East Asia Forum, 4.2 (April-June 2012); Paul Geitner, “China, Amid Uncertainty at Home and in Europe, Looks to Germany, New York Times, April 22, 2012, http://www.nytimes.com/2012/04/23/business/global/china-invests-in-germany-amid-uncertainty.html?_r=2&ref=world& 34 John Mathews et al. “Fast-Follower Industrial Dynamics: The Case of Taiwan’s Emergent Solar Photovoltaic Industry,” Industry and Innovation, 18.2 (2011) 177-202. 35 The Economist, “Samsung: The Next Big Bet,” October 1, 2011, http://www.economist.com/node/21530976 Part of Samsung’s advantage in developing a rival smartphone comes from its partnership role with Apple in producing the iPhone. 36 Wei Xie and Steven White, “Sequential Learning in a Chinese Spin-off: the Case of Lenovo Group Limited,” R&D Management, 34.4 (2004) 407-422. 37 Qing Mu and Keun Lee, “Knowledge Diffusion, Market Segmentation and Technological Catch-up: The Case of the Telecommunication Industry in China,” Research Policy, 34 (2005) 759-783; Geert Duysters, et al. “Internationalization and Technological Catching up of Emerging Multinationals: A Comparative Case Study of China’s Haier Group,” Industrial and Corporate Change, 18.2 (2009) 325-349. 38 Dieter Ernst and Barry Naughton, “Global Technology Sourcing in China’s Integrated Circuit Design Industry,” East-West Center Working Papers, No. 131 (August 2012) 17-18. 39 Dieter Ernst, “Can Chinese IT Firms Develop Innovative Capabilities Within Global Knowledge Networks?” in Henry Rowen, et al. (eds.) Greater China’s Quest for Innovation, Stanford: Shorenstein Center, 2008, 197-216; Dieter Ernst, A New Geography of Knowledge in the Electronics Industry? Honolulu: East-West Center, 2009. 40 Edward Wong and Didi Tatlow, “China Seen in Push to Gain Technology Insights,” New York Times, June 5, 2013, http://www.nytimes.com/2013/06/06/world/asia/wide-china-push-is-seen-to-obtain-industry-secrets.html?ref=edwardwong ; William Hannas, et al. Chinese Industrial Espionage: Technology Acquisition and Military Modernisation, Abingdon: Routledge, 2013. 41 Colum Murphy and John Stoll, “Geely’s Li Doubles Down on Volvo,” Wall Street Journal, June 5, 2013, http://online.wsj.com/article/SB10001424127887324063304578526253294475858.html ; Yipeng Liu and Michael Woywood, “Chinese M&A in Germany,” in Ilan Alon, et al. (eds.) Chinese International Investments, London: Palgrave, 2012, 212-233; Thilo Hanemann, “Building a Global Portfolio: What China Owns Abroad,” http://rhg.com/notes/building-a-global-portfolio-what-china-owns-abroad 42 Tse-Kang Leng and Jenn-Hwan Wang, “Local States, Institutional Changes and Innovation Systems: Beijing and Shanghai Compared,” Journal of Contemporary China, 22.80 (2013) 219-236. 43 Martin Schaaper, “Measuring China’s Innovation System,” OECD STI Working Paper 2009/1. http://www.oecd-ilibrary.org/science-and-technology/oecd-science-technology-and-industry-working-papers_18151965 ; For an analysis that evaluates China from the standard of a leading edge knowledge economy, see Vincent Shie, et al., “Locating China in the 21st Century Knowledge-Based Economy,” Journal of Contemporary China, 21 (2012) 113-130. 44 Denis Fred Simon and Cong Cao, China’s Emerging Technological Edge, Cambridge: Cambridge University Press, 2009. Notwithstanding the massive number of graduates, in many cases there is good reason to question the quality of their training. Also see, Li-Kai Chen, et al. “The $250 Billion Dollar Question: Can China Close the Skills Gap?” McKinsey, 2013. 45 Nicholas Lardy, Sustaining China’s Economic Growth, Washington: Petersen Institute, 2012; Mary Teagarden and Dong Hong Cai, “Developmental Lessons from China’s Global Companies,” Organizational Dynamics, 38.1 (2009) 73-81. 46 The Economist, “When Giants Slow Down, July 27, 2013, http://www.economist.com/news/briefing/21582257-most-dramatic-and-disruptive-period-emerging-market-growth-world-has-ever-seen The rates of increase projected are net of price increases. This makes the figures priced in 2013 dollars. 47 This figure is in 2013 dollars. Assuming no additional population growth in China, per capita income in 2034 with 7% average growth would be about $30,000, closer to but still considerably below the U.S. per capita income in 2034 of about $75,000. At 6% growth per capita income would be $24,000 and at 5% the figure is near $20,000. 48 Michael Beckley, “China’s Century? Why America’s Edge Will Endure,” International Security, 36.3 (Winter 2011/12) 41-78. 49 For an effective critical commentary on Beckley’s thesis and his response see Joshua Itzkowitz Shifrinson and Michael Beckley, “Debating China’s Rise and U.S. Decline,” International Security, 37.3 (Winter 2012/2013) 172-181. 50 Arvind Subramanian, Eclipse: Living in the Shadow of China’s Economic Dominance, Washington: Peterson Institute, 2011; Martin Jacques, When China Rules the World: The End of the Western World and the Birth of a New Global Order, New York: Penguin, 2012. Also valuable is The Economist, “Global Economic Dominance,” September 9, 2011, http://www.economist.com/node/21528591 51 Jacques presents a less optimistic prediction for China, expecting its proportion of global GDP to surpass that of the U.S. by 25% in 2050. Nonetheless, he expects China to be able to leverage this advantage into overwhelming global power. This is somewhat improbable, given his own calculations. 52 With apologies to that insightful philosopher, Yogi Berra. For an academic analysis of this problem, see Philip Tetlock, “Theory-Driven Reasoning about Plausible Pasts and Probable Futures in World Politics,” American Journal of Political Science, 43.2 (April 1999) 335-366. 53 An excellent review of the variations from each school for analyzing U.S.-China relations is Aaron Friedberg, “The Future of U.S.-China Relations: Is Conflict Inevitable?” International Security, 30.2 (Fall 2005) 7-45. Also see, Peter Katzenstein, The Culture of National Security, New York: Columbia University Press, 1996. 54 Put another way, we opt for “analytical eclecticism” over “paradigmatic clashes.” Peter Katszenstein and Nobuo Okawara, “ Japan, Asian-Pacific Security and the Case for Analytical Eclecticism,” International Security, 26.3 (2001) 153-185. Bruce Gilley, “Beyond the Four Percent Solution: Explaining the Consequences of China’s Rise,” Journal of Contemporary China, 20.72 (November 2011, 795-811. 55 For a discussion of the many dimensions that “rising” might take, see Sheena Chestnut and Alastair Iain Johnston, “Is China Rising?” in Eva Paus, et al. (eds.) Global Giant, New York: Palgrave, 2009, 239-242. 56 And, most of those ten nations are U.S. allies or are closely related to the U.S. It would be very difficult for any adversary of the U.S. to assemble a coalition of nations that could come close to matching just U.S. military capabilities, much less the U.S. and potential allies. 57 For some nations, such as China, measures of defense spending can vary widely. For an alternate measure that places Chinese defense spending at a considerably lower level, see http://armscontrolcenter.org/issues/securityspending/articles/2012_topline_global_defense_spending/ 58 The Economist, April 7, 2012, http://www.economist.com/node/21552193 59 http://www.sipri.org/research/armaments/milex/milex_database Notably, both the U.S. and China have seen a decline in the percent of GDP devoted to military spending in recent years. 60 For an alternative effort to project economic power into the future, using data that incorporates finance and trade, see Arvind Subramanian, Eclipse: Living in the Shadow of China’s Economic Dominance, Washington: Petersen Institute, 2011. Another scenario-based analysis comes from National Intelligence Council, “Global Trends 2025: A Transformed World,” NIC, 003, 2008, http://www.aicpa.org/research/cpahorizons2025/globalforces/downloadabledocuments/globaltrends.pdf 61 If we calculate real global GDP rising at 3.5%, global GDP will increase from about $70 tillion today to about $140 trillion dollars in 2033. For military spending, we assume US military spending remains at 4.4% of GDP and China’s military spending rises to 3.5% of GDP. Each is a very conservative assumption: there will be considerable pressure in the U.S. to cut military spending and in China considerable pressure to raise military spending. 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. 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