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Two new books look at the deepening schisms between US and China

Books by Martin Wolf and Frank Dikotter examine the deep contradictions of Pluto-populism and communism in the US and China respectively as both seem headed for conflict

The US and China are so entwined with each other and the global economy that the current de facto Cold War may be the best impasse we can hope for.
The US and China are so entwined with each other and the global economy that the current de facto Cold War may be the best impasse we can hope for.

The now routine sorties by China into Taiwanese airspace, seen most recently when the Taiwanese President visited the US, and the spy balloons over the US are more than an omen in the sky. They signal that Beijing, having benefitted from the global trading system, is increasingly primed for confrontation rather than commerce. The US, in turn, is seeking to belatedly shore up its semiconductor industry by excluding China, while recently undertaking military exercises with the Philippines with a view to protecting Taiwan. Yet, the two economies are so entwined with each other and the global economy that the current de facto Cold War may be the best impasse we can hope for. Two recently published books, China After Mao: The Rise Of A Superpower (Bloomsbury) and The Crisis Of Democratic Capitalism, (Allen Lane/Penguin Books), examine two opposing systems beset by such deep contradictions that without reform, chaos and violence is closer than ever. 

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Martin Wolf’s The Crisis Of Democratic Capitalism addresses the fast-building contradictions of liberal and illiberal capitalist democracies in a world of rising inequalities brought on by the greater financialisation of our economies and technological change. Large sections of the ruled feel alienated from the governing system. As Wolf observes, even if globalisation per se was not the reason for growing inequalities, a shock transmitted to the US via “import competition from China between 1999 and 2011 may have cost (between) 2 million and 2.4 million jobs.” This, coupled with the steep decline in the power of unions, contributed to many older white people in particular feeling a loss of identity, a factor both in Donald Trump’s dominance of the Republican Party from 2016 on and the support for Brexit. Polarisation fed by populists and these trends have been accentuated by social media. The many contradictions of capitalism that Marxists have wishfully predicted for a century are now apparent and worrying. 

Frank Dikotter’s China After Mao presents the reforms of the economy since 1980, starting with Deng Xiaoping’s experimentation with more economic freedom in coastal provinces to the spending spree after the global financial crisis in 2008, as mostly half-baked, favouring rising output and an unsustainable debt load while allowing the private economy to take root only at the margin. In a metaphor for Beijing’s repeated overinvestment in large state-owned projects, Dikotter writes of the Baoshan Iron and Steel Works founded as the reforms got underway in 1978, “The equation was simple: steel meant industry, industry meant wealth and power, more steel meant more wealth and power. Deng demanded more of it.” After four decades of reform, just a handful of coastal provinces that are integrated with the global economy have sound budgets. And, the wealth of these provinces is overwhelmingly because of the know-how and investments from clever entrepreneurs in Taiwan and Hong Kong and the investments of multinationals such as Apple Inc. Even so, a provincial planning committee in Zhejiang, one of these wealthy coastal provinces, warned a few decades ago that “we redistribute our resources irrationally and we tear down and rebuild chaotically”. 

Dikotter quotes a survey by China’s central bank at the start of the new millennium that sought to assess the efficiency of all the investment poured into state enterprises: “The result showed that for every three yuan lent by banks the enterprises increased their output by two yuan. After a quarter of a century of reform, they simply destroyed one-third of the capital they received.” 

Local government debt today looms over contemporary China as its greatest domestic challenge, but it goes back two decades or so. In 2001, former premier Zhu Rongji, who sought to reform China’s financial system and oversaw its entry into the World Trade Organisation, found that in many provinces, anything from a quarter to 80% of government employees were unpaid. This was partly responsible for local governments seeking to monetise land and inflating a property bubble across the country that bedevils the economy to this day. 

The day of reckoning for China’s model of, in effect, state-led property speculation and local government debt spirals has been predicted by many for years now. Both China’s accession to the WTO, which massively boosted its trade prospects and created something akin to a stranglehold for the country as a supplier to retailers such as Wal Mart, and a conga line of highly successful pseudo-privatisations via Wall Street’s listing of Chinese SOEs (state-owned enterprises) in the 2000s, fortified a shaky economy. From Goldman Sachs former CEO Hank Paulson to the CEOs of Western manufacturing companies to that tireless China cheerleader Henry Kissinger and the World Economic Forum, Beijing found itself blessed with energetic Scheherazades who repeated the myth that more engagement with the West would make China more liberal and more democratic. 

As tensions have risen between the US and China, it is often argued that Washington, like Sparta before it during its conflict with Athens in ancient Greece, is headed towards confrontation because it cannot abide the rise of an alternative power centre. Comparisons between Xi Jinping’s brutalist China, which has border disputes with virtually all its Asian neighbours and where successful Chinese businessmen deemed threats amid Beijing’s murky politics routinely “disappear”, and a crucible of civilisation such as ancient Greece are laughable. Last month, a respected human rights lawyer was sentenced to 14 years in jail for having been part of a group that discussed a democratic transition for China. Instead, it could be argued the US helped turbocharge this superpower’s development by bending rules so it could join the WTO and then amply funded it through Wall Street’s part privatisations of China’s SOEs from China Telecom to Petro China and many more that raised tens of billions of dollars. 

As Wolf’s part political economy, part philosophical treatise makes clear, one of the political consequences of the deindustrialisation brought on by the China shock (and in part by technology) is that working class people feel “more politically impotent” than before from the US’s Midwest and south to England’s northern parts that voted for Brexit. The weakening of unions and the whittling away of community bonds highlighted by sociologists such as Robert Putnam left a fertile ground for the rise of populists such as Trump and Britain’s Boris Johnson. Tribal loyalties meant that it was enough for plutocratic politicians to entertain and project a fake empathy. Into this vacuum came new media, which made easier the spread of outright lies and conspiracy theories. As Wolf observes in words that apply to many of India’s television outlets as well as WhatsApp, “Collecting information remains costly, but dissemination is costless.” The rub is that most of the advertising on digital media goes to Facebook and Google, further weakening traditional media. Wolf posits that Trump might have won in 2016 even without today’s social media: “The message itself is distress, fear and anger.” 

Even though the US economy is doing extremely well but for its inflation challenge, economic inequality and inequality of opportunity—the exorbitant cost of a US college education, for instance—means that many middle-class people struggle to keep their living standards from sliding and as many as four-fifths believe their children will be worse off than they are. To pick just one example: former General Electric CEO Jack Welch’s father was a train conductor. An important social contract is rightly or wrongly seen as having given way. A recent issue of The Economist underlines that the US economy has been prospering handsomely over the past couple of decades relative to the rest of the developed world, but perceptions, fed by feverish partisan TV media, count in politics and are much more negative. 

One similarly finishes reading these important books with a sense of foreboding. Dikotter’s is not as persuasive as his seminal work on the Cultural Revolution because he does not give the world’s fastest growing economy much credit at all. While it is certainly true that China’s debt of more than 300% of GDP is more than a middle-income economy has ever navigated, his penultimate paragraph packs in that “only a fraction of the near-sighted rural population could afford a pair of glasses” alongside the claim that China’s labour force had “one of the lowest levels of education of any comparable country.” Apple Inc, which currently has the herculean task of diversifying from making 95% of its products in China, would dispute that. 

Wolf’s book is a superb analysis of the global political economy and an accessible and engaging philosophical discourse on citizens and their rulers in our more than occasionally dystopian times. He believes we deserve better media and, more controversially perhaps, experiments with Swiss-styled referendums so that electorates feel more engaged and listened to. Wolf argues that voters tend towards myopia and “have a low-stakes interest in their vote because it is unlikely to make any difference to the outcome”. In a variation of that theme, he quotes Joseph Schumpeter as saying, in an uncanny premonition of the pervasive political tribalism on WhatsApp, Facebook and Twitter, that “the typical citizen drops down to a lower level of mental performance as soon as he enters the political field”. Sadly, that indictment is true today of all too many voters and politicians the world over. 

Rahul Jacob is a former South China correspondent for the Financial Times and writes the World Apart column for Mint

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