US decline and resilience - a book by Bruno Maçães reviewed by Dominic Green

BOOKSHELF | By Dominic Green
The American Century to Come
History Has Begun
By Bruno Maçães
(Oxford, 227 pages, $29.95)

The Wall Street Journal, August 17, 2020

The astute reader will have noticed that there is no shortage of books on America’s political and cultural decline. Bruno Maçães, who is in no doubt of America’s decline, sees the potential for its resurgence. The key to the future is American relativism. “We are unlearning old truths, a prelude to learning new ones,” he observes in “History Has Begun.” The book, though flawed by expansive predictions and occasional historical inaccuracies, is a fascinating survey of the decline and possible rise of the American empire. We may still believe in the liberal values that have guided Western politics since 1945, but they are now, Mr. Maçães argues, “true in a different way.”
The “automatic expansion” of liberal values no longer seems inevitable. If China sustains an alternative model for “developing and controlling the key technologies of the future,” the United States will find itself peripheral to a
Eurasian world order. Mr. Maçães’s recent book “The Dawn of Eurasia” advised
Europeans to stop worrying and learn to love the Belt and Road Initiative. Here, too, he
counsels the embrace of fate and radical relativism in the “game of civilization”—this
time as a means of securing American society and sustain- ing America’s global power.
“What if American history is only just beginning?” Mr. Maçães asks. He sees our
current troubles in Joseph Schumpeter’s terms: The
destruction of liberal values is also the “natural and spontaneous” creation of a new “post-
modern and postliberal” order. The book attempts to trace the emergence of a truly American “way of looking at the world” and to “decipher the logic of this new civilization.”
American society, Mr. Maçães reminds us, was founded on a “flight from reality.” The reality was the hereditary habits and laws of Europe. Alexander Hamilton called for “one great American system, superior to the control of all transatlantic force or influence, and able to dictate the terms of the connection between the old and the new world.” Nonetheless Hegel reckoned America was only “an echo of the Old World,” and Tocqueville could only conceive of America as “the end point of European culture and politics.”
The poets broke free before the politicians. Notwith- standing the continued existence of slavery in North America, Emerson and Whitman conceived of a “new man,” the practical proto-Pragmatist. “Reality,” writes Mr. Maçães, was for them “essentially a theatre for heroism. Call it the Hollywood theory of truth.” The truth of course is that Emerson would not have been able to conceive of his new American soul had he not read the Englishman William Blake’s vatic ecstasies or the Scotsman Thomas Carlyle’s prophecies on the forthcoming heroic European soul.
The “Americanization” of Europe, a form of reverse imperialism by mass-production and modern efficiency, was underway by the 1890s. But Americans, the first post- colonial people, were unwilling to recognize the extent of their power or its possible applications.
Roosevelt and Truman did better, though the Truman Doctrine of defending democracy anywhere was a recipe for “planetary conflagration.” After 1945, America was a global power in the European mode, able to “pursue its own instincts in complete freedom.” This, Mr. Maçães believes, led to disastrous attempts to export the deep “fantasy” of American liberalism to such unreceptive locations as Vietnam, Afghanistan and Iraq.
A European politico argues that American policy making—for good and ill—was always about creating new and better fantasies.
Part of the problem was the consensual replacement of America’s “liberal society” by an “unreal world.” Mr. Maçães traces this not to imperial arrogance but to technologically enhanced decadence. Television, and now the internet, align Freud’s pleasure principle—seeking pleasure to avoid pain— with “the principle of unreality: everyone can pursue his or her own happiness so long as they refrain from imposing it on others as something real—as something valid for all.”
Mr. Maçães writes perceptively on how the democratic right to a vivid fantasy life slowly annexed first domestic politics and then, fatally, foreign policy. There is no American reality, only the “fictional structures” pioneered by “Holly- wood, Disneyland and Vegas” and now applied to media events with names like “Russia collusion” or “impeachment.” The winners are the strongest performers: Donald Trump, whose “Art of the Deal” counsels “truthful hyperbole, an innocent form of exaggeration,” or Alexandria Ocasio-Cortez, whose Green New Deal is a quest “set in a kind of dreamland” and who admits, “We have to become master storytellers.”
The lesson of Vietnam was not to avoid overreach or idealism, but to find a better story: to avoid wars whose narratives might run out of control, and choose ones in which the “heroic act” could be accomplished with minimal risk. This “dream of total control” was the strategic equivalent of a cable television package. It drove the canny actor Ronald Reagan to limit his foreign campaigns to invading Grenada, and it encouraged politicians and strategists to ignore any fact of local context that might complicate the heroic script.
The American fantasy is energy-independent, so it can run and run. Mr. Maçães, a Harvard-trained political scientist who served as a Portuguese representative to the EU, suggests ways in which the United States can secure its interests as a peripheral power against the emerging Eurasian order. As Britain once “balanced” Europe to prevent the emergence of a hegemon, the United States can broaden its narrative techniques from those of the epic to those of the multivoiced novel. Can it play the “great balancer” of Eurasia—Europe, Russia, India—and prevent China from sweeping the board?
Mr. Maçães’s later chapters identify the path to the new America with embracing Silicon Valley and the application of military surveillance technologies to civilian life, including a drift toward a “hybrid Eurasian culture” that adopts Chinese innovations in surveillance and artificial intelligence. The word “democracy” does not appear in these chapters, though “empire” does. This is the emerging truth of the “new, indigenous American society.” To comprehend that emerging reality, it is necessary to read this book, flaws and all.
Mr. Green is Life & Arts editor of the Spectator (US).

A ascensão declinante da China - Todd Royal (Modern Diplomacy)

China’s Descending Rise

By

 Todd Royal

Modern Diplomacy, November 10, 2019

https://moderndiplomacy.eu/2019/11/10/chinas-descending-rise/

China is in a sustained economic slowdown. This is causing malignant unease among the political and economic leadership of the communist party in Beijing that governs China. Investing in China will be different, because: 

“The country’s first sustained economic slowdown in a generation. China’s economic conditions have steadily worsened since the 2008 financial crisis. The country’s growth rate has fallen by half and is likely to plunge further in the years ahead, as debt, foreign protectionism, resource depletion, and rapid aging take their toll.”

Chinese social structures are under duress over their aging society. Formerly in the 1990s-early 2000s: “China had the greatest demographic dividend in history, with eight working-age adults for every citizen aged 65 or older.” 

Once societies age, marital numbers decrease, and overall productivity plunges. China’s explosion of older citizens versus working-age will bring unique circumstances for global consumers. Factual evidence of slower productivity is evident throughout China, and will have to be considered for any financial or economic decision for decades ahead. The Chinese economic miracle bursting is largely due to aging demographics.

No one in western or eastern economic analysis circles or think tanks realistically saw this coming former President’s Deng Xiaoping opening of China. This was termed, “Socialism with Chinese characteristics (and/or) ‘socialist market economy,’” still ongoing. This slowdown will have deep ramifications for the global investment community, liberal order in place for over seventy-five years, and Chinese financial wealth that now spans the globe.

When countries age, and use reproductive rights to control populations, they become more assertive abroad, and repressive to its citizenry; this describes China’s social, political and economic philosophies that govern over a billion people. Since its one-child policy was enacted, Chinese economic productivity will plummet, “because it will lose 200 million workers and young consumers and gain 300 million seniors in the course of three decades.”

Suppressive economies have difficulty innovating, producing enough goods domestically, and integrating into world economic mechanisms that intends to distribute wealth globally. But this isn’t the first time these warnings have been made publicly.

Former Premier, Wen Jiabao gave a prescient declaration in March 2007 during the long march of economic progress when Mr. Jiabao had misgivings about China’s growth model by stating, “(Chinese growth had become) ‘unsteady, unbalanced, uncoordinated and unsustainable.” Recent numbers indicated China’s official GDP “has dropped from 15 percent to six percent – the slowest rate in 30 years.” 

Expansionary Chinese growth hasn’t experience this level of downturn since the end of the Mao into post-Mao era. What this does for the Belt and Road Initiative that is paving the way for investments into Central Asia up to the Arctic Circle is uncertain? Deep investment difficulties could witness China stopping the flow of billions of infrastructure projects into countries and continents such as Africa desperate for growth.

Public figures from the Chinese government generally have the economy growing at six percent, but many analysts and economists peg the number(s) at “roughly half the official figure.” China’s GDP has consisted of bad debt that typical financial institutions and western governments will transfer from the state to public sector and ultimately costs passed onto consumers. For China’s wealth to increase when so much domestic wealth is spent on infrastructure projects to increase GDP these official numbers need context.

China has bridges, and cities full of empty office and apartment buildings, unused malls, and idle airports that do not increase economic productivity, and if that isn’t the case then infrastructure increasing economic measurements will decrease. Unproductive growth factors officially known are: “20 percent of homes are vacant, and ‘excess capacity’ in major industries tops 30 percent.” According to official Chinese estimates the government misallocated $6 trillion on “ineffective investment between 2009-14.” Debt now exceeds 300 percent of GDP.

What’s discovered is the amount of China’s GDP growth “has resulted from government’s pumping capital into the economy.” Private investments have trouble overtaking government stimulus spending, and Foreign Affairs ascertains “China’s economy may not be growing at all.”

Chinese economic growth – post-Mao – saw the country’s self-sufficiency in agriculture, energy, and water almost complete by the mid-2000s. Through economic malfeasance, population control, and resource decimation, “water has become scarce, and the country is importing more food and energy than any other nation.” Environmental degradation is destroying the basic necessities for every day survival. 

This is where the world community and financial resources of east and west can meet needs, and grow interconnected, global economies. Energy is one of the biggest areas that China will engulf global energy supplies

The U.S. Energy Information Administration believes China will continue being the largest natural gas user in non-OECD Asia, and by 2050:

“Expects that China will consumer nearly three times as much natural gas as it did in 2018. China’s projected increase in natural gas consumption is greater than the combined growth of natural gas consumption in all other non-OECD Asian countries.”

Opportunities for liquid natural gas (LNG) facilities to be built globally, and in China to spur domestic and international economic activity are unlimited. As China goes, so goes Asia, and the world is now in the “Asian Century.” Investors, geopolitical strategists, and anyone concerned with global security should never believe it is wise to let China continue to falter economically and societally. Setting up investment mechanisms and diplomatic vehicles that benefit China, and the world community is a prudent choice.

When military choices defeat sound fiscal and monetary polices, the past 150 years have brought “nearly a dozen great powers experienced rapid economic growth followed by long slowdowns.” Normal, civilized behavior was pushed aside. What’s needed for Chinese economic growth is the free flow of information, managed wealth, consumer goods, and research/innovation.

Decades ahead, and current economic realities point to China being a great power that is under pressure, but still needs capital. A weak, unsecure China who isn’t satisfied with its place in the Asian hemisphere or global economic system isn’t good for continued prosperity. It would be smarter to engage and invest within China in the areas of energy, water, agriculture, and electricity where opportunities still abound.

Boom or bust in China? - A. E. Clark (Law and Liberty)

Decline and Fall of China?

by A.E. Clark

Law and Liberty, July 16, 2019

https://www.lawliberty.org/2019/07/16/decline-and-fall-of-china/

China’s rise has awed foreign observers and inspired a stream of books, many of them excellent, recounting the Asian juggernaut’s recent history and speculating about its future. The topic is of more than casual interest. China’s rulers tout their authoritarianism as superior to the liberal tradition, are upgrading their military in ways that seem designed to drive the United States out of the Western Pacific, and after concentrating an enormous part of the world’s manufacturing capacity in their country, are now working their way up the value chain. China has set itself the goal of dominating the Artificial Intelligence industry—and by implication, all the industries likely to be transformed by that general-purpose technology—before the year 2030.

“Tell me how this ends,” the clever general used to say.

To his credit, George Magnus knows he doesn’t know how it will end. But Magnus, the British former chief economist at UBS, knows a lot. I will try to summarize Magnus’s insights while noting limitations in his perspective and registering a demurral with respect to his conclusions.

At times, this book ventures deep into the economic weeds. Magnus’s four pages on the stalling of the reform of State-Owned Enterprises between 2013 and 2018 may be more than some readers want to know about that subject. But no one can gainsay the importance of economics for understanding modern China, and often Magnus complements more familiar perspectives in valuable ways. He mentions, for example, that at the time of the 1989 Tiananmen protests, the rate of inflation was 30 percent.

The thesis of Red Flags: Why Xi’s China Is in Jeopardy is twofold: First, China has reached the “end of extrapolation” and what worked for it in the past will not continue to work. Second, what makes it doubtful that China will adapt to the challenges now facing it is the insistence of the Chinese Communist Party (CCP) (and especially of Xi Jinping, who recently made himself in effect President-for-life) on tightening control over the economy and society.

Most of the book elucidates the first proposition. Like the four Asian Tigers (Hong Kong, Singapore, North Korea, and Taiwan), China relied on cheap exports and massive infrastructure investment to work a growth miracle. It is a familiar trope in the literature of development that after succeeding in this way, countries must adopt new strategies to keep growing richer, because they need higher-value-added industries and maybe don’t need any more bridges. The goal for these nations, upon arriving at middle-income status, is often said to be a “rebalancing” under which an expanded share of output is devoted to domestic consumption.

Magnus covers this ground but in greater detail than most authors, and with some surprises. He shows, with hard data, that the most serious imbalance in the Chinese economy is no longer the trade surplus but the over-reliance on domestic investment and debt-financing, the marginal productivity of which has fallen. At the beginning of the 1980s, you could get an extra yuan of GDP from as little as two yuan of investment; in 2015, the same growth required nine yuan in investment. With figures such as these, rather than anecdotes about ghost cities, Magnus draws a picture of widespread malinvestment in an economy laboring under rising debt.

Now, China is at no risk of a meltdown such as traumatized the other countries of East Asia in 1997, since its debt is not owed to foreigners. Even after describing the highly leveraged and under-regulated shadow-banking sector, and weighing the risk of a banking crisis, Magnus suggests in the end that the debt problems, in and of themselves, are manageable. What makes them a threat to China’s stability is that they will place a drag on growth.

Dealing gracefully with a fall in growth, and a fortiori with a recession, is difficult in a country with severe income inequality. Adding to the danger is the CCP’s insistence on tightly controlling the exchange rate, which requires capital controls that are hard to maintain in times of falling confidence. The greater the quantity of domestic credit, the greater the reserves needed to “back” it in a regime of fixed exchange rates, and confidence in the currency becomes more fragile. Magnus has an excellent section on the missteps during 2014 and 2015, and the cascading panics that shook the stock market and put pressure on the Renminbi. It cost the State about $150 billion to stabilize the former, and almost $500 billion in currency reserves to support the latter.

The author suggests, without making the reference explicit, that the authorities are reenacting the movie Speed on a grand scale. GDP growth depends on increasingly inefficient credit, with a strengthening headwind of rising debt. Everyone knows that rebalancing the economy will require slowing it down, but that would stress both the financial system and the social compact, with possibly explosive results. The People’s Bank of China therefore keeps its foot on the credit accelerator, so financial leverage and the debt overhang continue to mount . . .

Continuing his tour of the “traps” in which he thinks the Chinese leadership finds itself, Magnus provides a helpful overview of demographics. Terms like “demographic dividend” are lucidly explained, as is the history of migration from the countryside to the cities.

The author points out that China’s growth in the last three decades received an impetus from several events that were “one-offs”—by their nature, they can’t happen again. Bringing previously unproductive peasants by the hundreds of millions to work in urban factories, that’s over. Joining the World Trade Organization, that’s over. Enjoying a huge working-age population with few children to raise thanks to the One-Child Policy—not only is that over, it has left a demographic hangover in the form of a gender-skewed citizenry whose median age is rising rapidly, straining the nation’s minimal social security system.

The Need for Institutions

The second part of his thesis cites the finding of developmental economics that, to rise out of the “middle-income” bracket, a nation needs not merely more of the ingredients of prosperity: it needs those ingredients to combine more efficiently amid evolving challenges. What this comes down to, in Magnus’s view, is largely a matter of institutions. Trust in courts and contracts; mobility of labor and capital; accepted mechanisms to balance competing interests; an educational system not limited to the urban centers—all of these requirements of a modern economy are lacking. (We read herein the remarkable statistic that only 24 percent of the working-age population has completed high school.) Lacking, as well, is the freedom that people need to try new things even when (especially when), if successful, they will disrupt the industrial status quo.

No economy, he says, can remain dynamic and vigorous without these conditions. Magnus eloquently describes what is working against China here: the CCP’s fixation on control, a fixation that has intensified under President Xi. Xi appears to be bypassing much of the apparatus of the state in favor of new “leading groups” directly controlled by the CCP, and in many cases personally chaired by himself. Control of private enterprises is being tightened by means of Party cells and Party secretaries placed within them.

The Great Leap Forward, when no one dared challenge the crack-brained directives coming down from the top, offers a warning of what can happen in this kind of environment. But Magnus does not predict disaster. He suggests only that the CCP will never allow the kind of free-wheeling flexibility that would bring China into the top tier of economies. And he offers a pithy insight concerning Chinese business, which is notorious for conflicts of interest. President Xi’s anti-corruption drive purportedly aims to reduce them. But as Magnus points out, the most fundamental conflict of interest is the CCP’s own, since it acts at the same time as the owner, the manager, and the regulator of economic enterprise.

Similar arguments have been made elsewhere (even by your humble reviewer), usually emphasizing the role of civil society rather than economic efficiency. Some dismiss this critique as an attempt to impose Western values on an Eastern reality. Time will tell. More troubling is the fact that much of what threatens China is also happening in America: rising debt, pervasive propaganda and surveillance (though not necessarily by the government), and a widening gulf between classes. We are even trying out our own version of the Red Guards, struggle sessions, and officially sanctioned infanticide. Not long ago, Americans dared to hope that trade and the Internet would bring about a “convergence” in which China would become more like us. It seems instead that we are becoming more like China.

As a bonus, Red Flags includes a discussion of the One Belt, One Road initiative, which Magnus tries to consider fairly without uncritically accepting its advertising. But there are indications—which came out, I believe, after the book went to press—that this ambitious project is even more self-serving and exploitative than the author indicates.

The Limits of Expertise

It’s a useful and interesting book, but it is not wholly satisfactory. For someone so well-informed, Magnus makes curious mistakes.

After accurately describing “China’s looming water crisis,” he writes: “Yet water figures almost nowhere in the policy and political rhetoric of Chinese leaders.” In fact, as long ago as 1999, Wen Jiabao, then Deputy Prime Minister, described the water crisis as a threat to national survival. An enormous infrastructure project has been under way to divert billions of cubic meters of water each year from the South to the North. As of 2018, more than 400,000 people had been relocated and almost $50 billion had been spent on this project, which is functioning but unfinished and continues to prompt debate within officialdom as well as among citizens and environmentalists. (There are other examples that suggest caveat lector. I will put two somewhat technical ones in an end note.[1])

A certain worldview suffuses the work. Magnus finds President Trump deplorable and rarely misses a chance to say so. As a former chief economist for one of the world’s largest banks, he is a distinguished member of the global elite that has managed the Western world into its present condition. Experience has not dimmed his confidence in free trade with mercantilist counterparties, or made him less sanguine about the alignment of interests among social classes and among Western nations. Although his book conveys many a sign that China has adopted an aggressive intransigence, his recommendations imply that all we need is more of the same policies that have brought us to this pass, except perhaps now implemented with greater refinement.

The United States “should look to persuade China,” he writes. “The US should seek a dialogue with China . . . The Comprehensive Economic Dialogue is an appropriate forum . . . If calmer heads prevailed, the US would sit down with allies and try to work out a collective approach.” He doesn’t seem to realize that U.S. voters chose Trump’s confrontational style because they judged the modulated counsels of the experts to have failed; or probably he dismisses their views, like Trump’s, as “petty and misinformed.” After all, this British economist knows America. He describes towns near “Fort Meyers” in Florida (p. 112). Yet some of us believe that Trump, rather than turning away from the rest of the world, is negotiating with it—and not ineffectually.

Of Gold and Steel

Yet even though his globalist certitudes had me rolling my eyes, Magnus has written an astute and nuanced assessment of the economic challenges facing the Chinese dictatorship. I think he is right that, while there is no reason to anticipate collapse, the regime’s leadership style will compound the difficulties and ensure that stress will rise.

Early on, he weighs a basic question, namely why is it that China is so actively stepping up its centralization of power at this time: “Centralization of power can speak to pressing demands in the face of perceived threats for either military preparedness or economic reorganization. The latter seems overwhelmingly likely, and so it is plausible that China’s main purpose is economic transformation.”

That word—“overwhelmingly”—seems like a bit of hand-waving. Isn’t it remarkable that he raises two possibilities, at the highest level of strategic thought, and dismisses one of them in five words? Should we not consider the possibility that centralization was undertaken to facilitate both economic transformation and military adventures?

He writes more soberly near the end of the book:

China’s military might and naval build-up, along with the militarization of reefs and atolls in the South China Sea, are not hidden, and nothing would please China more than to drive the US Seventh Fleet away from the island chains off China’s coast and back across the Pacific. . . . [Xi Jinping] has pledged to return Taiwan to the Motherland during his rule, and we are left to wonder how China might contrive to make this occur.

And wonder, we do. Yet the author envisions only two ways the story might end: China bestriding the world as an economic colossus, or China entering a phase of slow growth, maladroit administration, and economic instability. He leans toward the second outcome.

Your reviewer considers it likely that economic developments, about which Magnus has written a fine book, will be overtaken by military ones that he doesn’t want to think about. If the Editor permits, I hope to address this question with you in a future essay.

  

[1] Magnus says the U.S. tax cut of 2017 worked at cross-purposes to professed concerns about the trade deficit: “Since the Trump administration and congress agreed to substantial cuts in taxation in 2018 and 2019, a much wider fiscal deficit will emerge. This is the equivalent of a fall in US savings, and since the external deficit is the outcome of the relationship between savings and investment, it follows that the wider fiscal deficit will simply expand the external or trade deficit.”

Not so fast. The national-income accounting identity [Y = C + I + G + (X-M)] , which Magnus relies on here and elsewhere, applies to a static snapshot of economic activity. To predict an economy’s changing behavior over time, we need a causal model, which the identity itself doesn’t provide.

To be sure, there is a classical, causal explanation which supports the view expounded above, but it depends on feedback loops involving both the interest rate and the exchange rate, which must be free to vary in response to market forces. (See a good discussion here.) But in fact the interest rate in the United States has been kept near zero by means of those policies known colloquially as “financial repression,” and the exchange rate can’t play its natural role if significant trading partners such as China peg their currencies to the dollar.

I mention these facts not to impute all our troubles to them, but to explain my skepticism toward macroeconomic axioms that derive from an idealized model of reality.

A third example of his occasional imprecision: The author distinguishes between utility patents and design patents (p. 152), terms of art in intellectual property law, but the definition he offers for design patents is actually the definition of utility patents, and his explanation of design patents relies on the wrong meaning of “design.”

A. E. Clark translates and, through Ragged Banner Press, publishes the literature of a few independent writers in the People's Republic of China who address social and historical topics deemed sensitive by the regime.