The US vs. China: Future Dominance and Common Prosperity

 Matt Pottinger was a Deputy National Security Advisor during the final two years of the Trump administration.  As such, one would expect him to possess a jaundiced opinion of China and its activities.  He does not disappoint, producing a Foreign Affairs article Beijing’s American Hustle: How Chinese Grand Strategy Exploits U.S. Power.  It seems the dastardly deed China is up to is emulating the United States.

“Ever since taking power in 1949, the ruling Chinese Communist Party (CCP) has cast the United States as an antagonist. But three decades ago, at the end of the Cold War, Chinese leaders elevated the United States from just one among many antagonists to their country’s primary external adversary—and began quietly revising Chinese grand strategy, embarking on a quest for regional and then global dominance.”

Pottinger seems to believe that it is the destiny of the US to be globally dominant, and if so, then it must be regionally dominant even if the region in question is China’s back yard.  He further indicates that the US must contend with China to insure it does not attain its goals, posing the necessary conflict as one between good and evil: free people must defeat non-free people.

“The United States and other free societies have belatedly woken up to this contest…” 

Any contest between two countries striving for global dominance would have both military and economic aspects.  Pottinger focuses more on the economic issues, but they cannot be isolated from the military.  When China looks out to sea it sees a US armada posing an avowed offensive threat to the mainland.  From the Chinese perspective, the analogous situation would be for China to have fleets of ships patrolling the US east and west coasts in order to strike quickly should war break out and have sufficient presence to blockade any port to prevent any goods from entering the country.  Is it any wonder that the US is viewed as an antagonist?  And in any economic competition, the US is burdened by the need to maintain a worldwide offensive capability which is extremely expensive, highly vulnerable, and relatively ineffective.

It should not have been new to anyone that China was coming for the US as an economic competitor, and that it would have to upgrade its military to counter any threat from the US.  What Pottinger suggests is new to this competition is that China wishes to promote its governance practices as a better model for other countries to emulate than that promoted by the US. 

“That moment has now arrived, and Beijing is no longer bothering to camouflage its global ambitions. Today, party slogans call for China to ‘take center stage’ in the world and build ‘a community of common destiny for mankind.’ This point was displayed vividly in Alaska in March, during the first face-to-face meeting between senior Biden administration officials and their Chinese counterparts. In their opening statements, the Chinese took advantage of the international TV coverage of the meeting to lecture the Americans. ‘I don’t think the overwhelming majority of countries in the world would recognize that the universal values advocated by the United States or that the opinion of the United States could represent international public opinion,’ the senior Chinese diplomat Yang Jiechi said as part of a carefully scripted diatribe. Yang juxtaposed ‘United States–style democracy’ with what he called ‘Chinese-style democracy.’ The latter, he contended, enjoys the ‘wide support of the Chinese people,’ while ‘many people within the United States actually have little confidence in the democracy of the United States’. 

“Yang was following instructions issued by Xi at the 19th Party Congress, in October 2017, when the Chinese leader called on party cadres to increase their ideological ‘leadership power’ and ‘discourse power’ in defense of Beijing’s totalitarian brand of socialism, according to the China scholar Matthew Johnson. This process of fighting and winning ideological battles on the global stage was also given a name: the ‘great struggle’.”

What seems to be at stake in this contest is which model can impress the rest of the world by producing the best socioeconomic results for its population.  One might assume that the US with its strong economy and long history as a stable democracy would have an unassailable lead.  That assumption could be extremely naïve.

Let us begin with a brief description of the two contestants. The US is, perhaps, the prototypical capitalist, free-market economy.  Its ability to emerge from World War II physically unscathed with an economy running at full speed provided it with enormous power and influence.  It was in a position to impose its economic beliefs on other nations, and as the owner of the world’s reserve currency, the US dollar, it accrued advantages and privileges no other nation possesses.  It used its wealth and influence to assume the role of “enforcer” maintaining a worldwide military presence to influence and occasionally threaten countries who were deemed to be misbehaving.  This role is characterized by a collection of multination assistance treaties.  As time goes on the efficacy of having the US play this military role has become questionable.  To justify military power on this scale one must have enemies or threats to be dealt with.  Russia, Iran, and China make the list of threats that justify the military posture.  These countries have all proved immune to any attempt by the US to force them to conform to its will.  

Recognizing the increasing irrelevance of its military power, the US has begun to use its economic power to influence the behavior of other nations by imposing sanctions on the unruly.  This approach is quick and easy and produces little blowback, but its efficacy diminishes when applied to large, diverse economies such as the three US “enemies.”  In addition, an overuse of this approach has caused resentment as it forced allies to follow the US lead, whether they wish to or not.  The net result is a diminished ability of the US to impose its will on others.

The US economy functioned best during the glorious postwar years.  Jobs were plentiful and wages were good.  A middle class developed.  In Europe the major nations all rebuilt their economies and established strong social insurance programs that provided families with government provided education, healthcare, childcare, and pensions.  This was much more efficient for them than having to provide those things from private vendors.  This stimulated the growth of healthy and secure middle classes.  The US chose to not follow this path leaving families to pretty much fend for themselves.  As a consequence, the middle class in the US grew to a lesser extent, and its security gradually dissipated as oligarchic forces reasserted themselves.  The net result was most of economic growth was to the benefit of the wealthy while the rest of the nation fell further behind.  Similar trends are observed in European nations, but economic disparity has grown to a lesser extent.  There are policies that could be followed to limit economic inequality, but the democracy provided by the vaunted US Constitution has not allowed them to be brought into play.  If either China or the US wished to present itself as a model for the rest of the world to follow, let it demonstrate that it has produced a system that provides more balanced income and wealth distributions.

As an example of a political system to be emulated by others, it must be recognized that the US is not the country that it claims to be to the rest of the world.  Its constitution was designed so that a minority in favor of slavery could participate in that practice even though a majority of the nation might oppose it.  Built into the system are paths by which minorities can control powers of government, not what one expects from a true democracy.  The US has long been a two-party nation.  For much of its history the two parties have been sufficiently diverse that legislation could be accomplished in bipartisan manner.  Distinct differences persist to the present day between the descendants of the pro-slavery regions and those of the anti-slavery regions.  It is as if two nations are trying to coexist within a single border.  Finally, the political parties became closely aligned with those two internal nations.  Both now view the other as an existential threat and cooperation is almost nonexistent, not much of an example to set for other countries.  The fact that someone like Donald Trump could rise to power as a minority president tells the world that the US system is broken.

China produces more plans than one can easily track.  The US, with its belief in market dominance, seems to believe that the best plan is no plan.  The markets will provide solutions to problems.  People that do produce viable solutions are stymied by political obstructions.  If the US is to provide an example to be followed by other countries in the future, it will have to be because a benign wind blew the drifting nation in the right direction.

 China is run by the Chinese Communist Party (CCP).  Referring to itself as having a “Chinese-style democracy” would be deemed misleading by just about the entire world.  It does have a complicated hierarchical electoral system beginning at the village or community level and progressing through higher levels of government, but universal participation is not the rule.  Ultimately, the country’s leader is chosen by the higher ups in the CCP and is accorded much more power than a US president.  The economic model being followed is a form of socialism, not communism.  Its socialism incorporates a strong degree of guidance from political leaders, but individual companies conduct their own business with a significant amount of freedom within broad constraints.  Pottinger refers to the Chinese model as a “totalitarian brand of socialism.”  The Chinese president does have near totalitarian powers if he so choses to use them, but he is still accountable to the other leaders of the CCP.

Totalitarian socialism is China’s advantage in pure economic competition.  It is now a big economy with a huge stockpile of economic resources.  It also has a large population, many of whom are still relatively poor, but also many who are highly skilled in engineering and the sciences.  If China’s leader decides that it must build twenty, five-million inhabitant cities to move 100,000 rural citizens to urban environments, it can make that happen.  It has made that happen.  If it decides to be the nation most adept at artificial intelligence, it can assemble the experts and resources needed to pursue that goal without hesitation.  If it decides to overproduce steel products and dump the excess on the open market driving prices down, it can do that as well. 

China’s leaders have the power to act decisively, and rapid changes occur.  Some people benefit from such decisions, but often many suffer.  Thus far the population seems to be willing to endure difficult transitions as long as general prosperity continues its growth.  China’s leaders are highly motivated to maintain a docile population that would in no way threaten their power.  The state is very intrusive in the lives of its citizens, actively promoting ways of thinking that discourage anti-government sentiments.  They impose limits to what information is available to the average person, not a healthy model in the view of most other countries, but one tolerated at home. 

China seems poised to move to a second phase of its development.  After becoming the manufacturing center for the world and using that approach to expand its wealth, technical capabilities, and influence, a new focus has emerged.  It claims to be moving in a direction that other countries, including the US, recommended to it: to balance its economy by producing stronger local consumption.  However, Pottinger sees it as a newer form of threat to the US 

“Beijing’s economic objectives are couched in a policy called ‘dual circulation,’ which prioritizes domestic consumption (internal circulation) over dependence on foreign markets (external circulation). A close look, however, shows that this Chinese strategy can really be thought of as ‘offensive leverage’—an approach designed to decrease China’s dependence on high-tech imports (while making the world’s technology supply chains increasingly dependent on China), ensure that China can easily substitute imports from one country with the same imports from another, and use China’s economic leverage to advance the CCP’s political objectives around the globe.” 

In any event, this redirection is likely to be of benefit to the average Chinese citizen.  China’s form of capitalism produced a high degree of income inequality.  That is what capitalism seems to want to do.  China’s is about as bad as that of the United States.  If China really wished to impress the rest of the world it would come up with a plan that demonstrated it could produce growth, prosperity, and limited economic inequality.  There is some evidence that that is what is now on their horizon. 

An article in The Economist titled Xi Jinping’s talk of “common prosperity” spooks the prosperous suggests big changes are afoot in China.

“In a speech in 2016 Xi Jinping, China’s president, explored the roots of an idea that is now troubling the country’s tycoons and depressing the stockmarket—an idea that may be motivating China’s crackdown on private tutoring, its antitrust fines on internet firms, its new guidelines on the treatment of gig workers and its steps towards a property tax, as well as inspiring large charitable donations from some of the country’s most prominent enterprises. That idea is common prosperity.”

“The term has appeared 65 times in Mr Xi’s speeches or meetings this year, according to Bloomberg. A recent example is the powerful Central Financial and Economic Affairs Commission, which sets and enforces the party line on the economy. It focused on the idea at its meeting on August 17th.”

The term is ill defined.  It will allow energetic, creative, and entrepreneurial types to be rewarded financially for their efforts, but within limits.

“But the goal also rules out a continuation of the status quo. ‘We must not allow the gap between rich and poor to get wider,’ Mr Xi insisted in January. People in the top fifth of Chinese households enjoy a disposable income more than ten times as high as people in the bottom fifth, according to official figures. Disposable incomes in cities are two and a half times as high as in the countryside. And the top 1% own 30.6% of household wealth, according to Credit Suisse, a bank (compared with 31.4% in America).”

“Common prosperity will require a stronger safety-net for the unfortunate, better pensions, more equal access to public services, including education and health. It will result in an “olive-shaped” distribution of income that is fat in the middle but thin at the bottom and top. China has about 400m people living on incomes between 100,000 and 500,000 yuan (roughly $15,000-77,000) for a family of three or the equivalent. It wants to double that number to 800m people in about a decade, according to the Development Research Centre, a think-tank attached to China’s State Council.”

“The party says it will increase the role of taxation in fighting inequality. It will adjust high incomes “reasonably”. But it has yet to quantify that reasonableness by specifying future tax rates or thresholds.”

China seems to have a plan.  If the world has learned anything, it is that China pays attention to its plans.

“Just because common prosperity remains nebulous does not, however, mean it is vacuous. ‘Achieving common prosperity is not only an economic issue, but also a significant political issue,’ Mr Xi said in January. The party hopes that reviving this ancient ideal will help strengthen the foundations of its rule. Confucius again got there first. ‘Where there is contentment,’ the sage says, ‘there will be no upheavals’.” 

If China can rein in its growing economic equality while maintaining a healthy economy and a satisfied citizenry, it will have demonstrated that a highly regulated and directed economy is a viable model for other countries to follow.  It is easier to see China accomplishing that than the US.  But that doesn’t necessarily make it the best example to follow.  The Scandinavian countries have already provided the appropriate socioeconomic conditions without an overbearing state presence.  The models to emulate already exist.

You can learn a little about a lot of things or you can learn a lot about a very few things. Guess which is the most fun.