Great Powers
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Bottom line: When your grand strategy seems to consist of Hollywood swagger and B-movie revenge plots, don’t be surprised—much less offended—that alternatives are suggested by concerned bystanders. Worse, expect self-serving copycats to emerge over time, offering their own twisted version of “justice” (Thank you for your contribution to global security, Mr. Putin!).
THE GLOBAL ACCELERANT: RUSHING TO SETTLE FRONTIERS
On this one point, the neo-Marxists are absolutely right: For capitalism to succeed, it needs to replicate itself elsewhere. But here’s where Marx and Lenin and everyone that’s followed them since get it wrong: Capitalism is not a zero-sum game, or even one of perpetually diminishing returns. Human ingenuity is limitless, so the upper bounds of economic development are constantly expanding, but only in those economies where entrepreneurialism is given free rein.
Europe, or more to the point, Great Britain (with an important assist from the Dutch in New Amsterdam-cum-New York), successfully replicated its capitalism primarily in those colonies where serious resettlement of populations occurred, meaning essentially “greenfield operations” like Canada, the United States, Australia, and New Zealand. In these sparsely populated wildernesses, the same social trust and institutions that drove Europe’s own rise as a mini-world globalization in the seventeenth and eighteenth centuries were effectively transplanted, with the resulting economic progress and demographic growth essentially dooming the indigenous populations to assimilation or death. Elsewhere around the planet (Latin America, Africa, the Middle East, much of Asia), European colonies made little effort at real replication and instead co-opted select elites into forging bilateral economic ties that facilitated the uncompetitive movement of raw materials from the periphery (colonies) back to Europe. As such, it’s no surprise that most of these surviving states maintain an oligarchic form of capitalism, because that’s what Europe’s colonial powers left behind, often killing off indigenous forms of free markets. As such, colonialism was doomed to ultimate failure, leaving behind a disastrous legacy that we will continue to manage for decades to come.
If Great Britain had not achieved such spectacular success, principally in the North American experiment that begat the American System in its full glory, it’s hard to say just how badly Europe’s civil wars of the first half of the twentieth century could have turned out. As such, America’s system, once projected upon the world’s stage, got its first great chance at replication as the result of wars engaged in Asia—namely, against the Japanese in WWII and Korea immediately following. By successfully replicating capitalism within Japan and South Korea, America proved the transferability of the model.
I don’t want to make too much of this transfer in a nation-building sense, but more in a system-enabling sense. If America hadn’t grown its liberal mini-world trade order in the West across the Cold War, and played de facto Leviathan in the Pacific (including the unsuccessful Vietnam War), it gets hard to imagine how Asia’s “tiger” economies could have peacefully emerged. The same can be said for Western Europe during the Cold War. If America had not been committed to both fostering a Western liberal trade order and shielding NATO’s member states from Soviet aggression or threats, it’s hard to see how the EU could have arisen, much less been so quick to act in response to the Soviet collapse in integrating Eastern Europe. These are enormous peace dividends that arguably include the end of great-power war across the entire Eurasian landscape—a stunning achievement with credit extending across ten American presidencies, from FDR to George H. W. Bush.
If we recognize the limits of the EU’s grand strategic ambition as the reunification of all of the Mediterranean littoral (the Caucasus likely being a bridge too far), which, quite frankly, is all we can ask of them, then the real grand strategic question for America is, Who logically leads the rest of the Gap’s economic integration into the Core? I say “economic” because in a security sense, no nation other than the United States has any hope of fulfilling the Leviathan role anytime soon.
Looking back over the spread of modern capitalism, we see a European “mini-world” globalization that replicates itself successfully only within the so-called Anglosphere colonies, which in turn successfully replicate themselves, primarily as a result of America’s global leadership role, in East Asia, with Japan playing the role of “lead goose,” succeeded over time by South Korea and Singapore, and now collectively superseded by China, which pulls in lagging India by example. It is in Asia now where the global economy’s newest consumer markets are being rapidly integrated through industrialization and urbanization and deep embedding within global producer chains.
Now, unsurprisingly, it’s rising Asia that leads the world in concluding free-trade agreements (FTAs) with the world at large, indicating that this region is the primary driver of globalization’s networking function. There are roughly 300 FTAs in the world today, and approximately 120 of them have been negotiated in the Asia-Pacific region since 2002. The United States is moving up to a dozen FTAs, while the EU is closing in on two dozen. China has proposed or is currently negotiating upward of 30 FTAs.
The countries of Asia, as globalization’s current big “savers,” likewise seek to diversify their holdings by buying American companies and putting their money into American financial networks (stocks and bonds), while simultaneously boosting their investments in those Gap regions (Andean Latin America, sub-Saharan Africa, Southeast and Central Asia) that invariably become their main sources for energy and raw materials but also their inevitable targets for market replication—in other words, the same way America replicated its market dynamic in Asia and before that Europe replicated its market dynamic in North America. In this manner, Asia both integrates itself “upward” into America’s financial networks the same way American savers did with European financial markets in the late nineteenth century and extends our model of globalization “downward” into those regions still left poorly connected to the global economy; Asia serves as bridge-builder in the twenty-first century in the same way that America did in the twentieth century.
So yes, expect Asia, and China in particular, to buy up a lot of American companies in the next couple of decades, but also expect high-saving Asians to allow America’s Boomers to cash out of the American System in their old age, just as we helped Europe age gracefully before.
But here’s where we get into the demographic clock on Asia, and—again—China in particular. By pursuing the one-child policy and basically wiping a slice of their potential population off the books (it is estimated that a population roughly the size of the U.S. population—300-plus million people—were simply never born), China set in motion a demographic wave that currently places them in a sweet spot that they must continue exploiting for all it’s worth. Right now, China’s got few kids and few old people, so just about everybody’s working. But as that leading wedge of the currently vast working population starts edging into its retirement years, China’s elder population will explode. By most calculations, China has already passed or is passing the 10 percent mark in terms of elders over age sixty-five. That cohort will rapidly balloon to the “Florida mark” of 20 percent within roughly a generation’s time—faster than any nation has ever aged in human history. By 2030, China will have an elderly population roughly the size of the United States, meaning, in my opinion, that China is more likely to pass us in age before ever possibly passing us in overall economic strength.
What’s it like for a nation to get old before it gets rich? No one knows, because it’s never really happened before, so the process will inevitably redefine the world’s understanding of how you care for a nation’s elders on a tight budget. But also realize how this demographic time bomb greatly incentivizes China to move as quickly up the production ladder as possible, meaning they need to push off their lower-end, manpower-intensive industries elsewhere. Obviously, China’s going to want to shunt some of that production westward, inside China, and a certain portion will need to go locally, within Asia, to
keep neighbors happy. But it’s just as likely that Beijing will be forced by its growing reliance on African and Latin American natural resources to accommodate local demands that China not just reap their resources and sell to their markets but produce locally as well. Toyota and Honda were forced down this path in America, and it worked out well for them, putting them on the road to becoming what IBM chairman Sam Palmisano calls “globally integrated enterprises” that source local, build local, and sell local.
Then again, that’s going to be the primary role for China and Asia on a lot of economic questions: showing the rest of the world how to make markets work under less than advantageous conditions—meaning resource-constrained. That’s why I view rising Asia as America’s primary strategic asset when it comes to shrinking the Gap economically. If you tell me defense budgets are rising there, I say great, let’s access them. If you tell me that Asian religious missionaries are flowing into the Gap in record numbers, I say great, let’s facilitate that process the best we can. If you tell me Chinese farmers, shut out of opportunity back home, are heading to Africa in an unprecedented wave, I say great, let’s help those foreign homesteaders trigger the same positive development effects there that European homesteaders once helped trigger in America.
Finally, if you tell me the global economy is void of profit opportunities in its mature markets and that its emerging markets are taking in all they can handle, and that therefore we’re watching both Western hedge funds and Eastern sovereign wealth funds move into the less developed Gap economies, then I say we’ve got all the evidence we need to declare that the race is on to see which external players can integrate these economies into globalization’s networks faster. That’s a near-peer competition that I think America should gladly wage with China.
So can greed save Africa, as one BusinessWeek story asked a while back? Only if it’s African entrepreneurial greed properly incentivized and channeled. Because if it’s just America pushing new security rule sets, China simply seeking raw materials, and investors everywhere looking for the newest “frontier market” (the emerging buzz phrase), then we’re arguably looking at no better outcome than the European colonial powers achieved previously. A gold rush mentality is fine, so long as the infrastructure built up—both “hard” connectivity and “soft” institutions—increases Africans’ long-term resilience as well as their short-term profits. But it also doesn’t make much sense for American politicians to start lamenting China’s economic “penetration” of Africa, even when authoritarian states with poor human rights records are involved, because China’s growing economic connectivity becomes an asset to be leveraged, not discouraged, and nothing pushes the human rights agenda better than a rising middle class, something Africa needs desperately. Plus, the more China pumps in Chinese nationals, the more China gets on the hook for protecting their rights and property, not because America says so but because those nationals’ relatives back in China are making themselves known and pressing their demands upon China’s Ministry of Foreign Affairs. In short, anything that increases China’s exposure as a rising great power forces it to develop a foreign policy more in line with ours. If we do it well, we help Beijing explore what it means to be a responsible great power on globalization’s frontiers.
For now, there seems to be a critical-mass interest in Africa that is primarily economic, not merely humanitarian or relief-oriented, and that’s crucial. What we know historically about official developmental aid, or foreign aid, is that it works best in substantial bursts that generate some liftoff but then are reduced in volume, yielding to market-based activities. In many ways, aid is like oil in its detrimental long-term impact: It ruins the incentive structure in the private sector (How does a local farmer compete with free or highly subsidized food provided by outsiders?) while detaching the government from its natural “shareholders,” or taxpayers. If the government doesn’t need your money, it won’t listen to you. So as soon as foreign aid constitutes more than about 15 percent of any developing economy’s GDP, you’ve probably poisoned the economic well the same way oil does. Economist Paul Collier, for example, estimates that 40 percent of military spending in Africa is made possible by official developmental aid flows, and that many military coups are nothing more than periodic “profit-taking” exercises.
As far as where to direct what aid the West offers, most experts come down on the side of improving governance, while others, like Columbia University’s Jeffrey Sachs, argue that there is a clear and widespread health crisis that ultimately keeps far too much of the potential working population offline, and thus a “big push” of aid that specifically targets those issues is most warranted. Frankly, I don’t like to choose between the two, so I advocate whatever “big push” Western governments can manage on health-related aid, so long as money goes directly to the caregiving organizations themselves or, better yet, gets distributed in the same manner as school vouchers are supposed to work in the United States—directly provided to consumers whose subsequent demand for services should create local (or imported) private-sector capacity instead of a temporary influx of foreign aid health workers. Longtime aid expert William Easterly notes that while it’s tempting to impose our definitions of who should live and who should die (i.e., mandating certain relatively expensive AIDS treatment options), the logic of individual empowerment says we should leave such difficult choices up to Africans themselves.
As for appropriately screening governments regarding political and policy reforms, which is basically the philosophy of the Bush administration’s innovative Millennium Challenge Account, I see that as both appropriate and good when it comes to anything above and beyond temporary humanitarian relief and sustained targeting of the health care sector. As Francis Fukuyama has argued, even if the MCA never gave out any money or if the money it did distribute was badly spent, just getting Gap governments to consider policy threshold standards and move in that direction is, in and of itself, a wonderfully positive incentive—in effect saying, Change in this manner and you’ll become that much more likely to attract foreign direct investment.
What we don’t want to assume is that any one mix of policies or political models will work across Africa as a whole. As Easterly notes, China once had all the same problems that Africa suffers today: warlords, civil conflict, unending war, corruption, tyrants, and an imperviousness to past Western efforts to shape events there. And how did China pull itself together economically? Not by following the Washington Consensus of the 1990s, I would argue, but according to a game plan only nineteenth-century American leaders would recognize as fair and just. Plus, as far as Deng’s successful experiment went, it was strictly bottom-up in nature: starting with peasants and then moving up into local and provincial governments. Deng, as Easterly describes him, was a natural “searcher” instead of a “planner.” As Deng’s famous maxim put it, “It doesn’t matter whether the cat is black or white, as long as it catches mice.” Most of what ends up working in Africa will probably come as a surprise, just as it did in China.
The simplest definition of good government, as Easterly points out, is one that gets the pothole fixed in front of your house. Create the environment in which squeaky wheels are unreasonable enough to ask for grease and you’ve got the makings of a bottom-up democracy where politicians, just like businessmen, are rewarded for local knowledge and local effectiveness in meeting demands.
So if we look at Jeffrey Sachs’s list of missing capital in underdeveloped nations, it would seem to me that the best way to take advantage of globalization’s current surge is to follow Sachs’s advice to focus on a direct aid push regarding human health issues while letting a Millennium Challenge Account approach push governments on reform, rewarding them with development dollars specifically focused on encouraging a business climate of trust (e.g., property and contract laws). Let our military in-region focus its activities on increasing the professionalism of national armies, and let globalization’s big push from the East work the infrastructure and
knowledge realms (tech transfer and best practices, primarily). Let the business capital (including the 40 percent of African financial capital currently held overseas for safekeeping) flow according to its own logic, but facilitate P2P programs like Kiva. As for public institutions, nongovernmental organizations are best at building other NGOs, but since less than half of their funding comes from governments, I’d encourage more corporate involvement there and concentrate classic official development aid on the health and humanitarian-relief (postconflict, postdisaster) sectors. In general, I’d get intervening governments out of the business of building anything that requires an operating budget, because if the locals or the private sector can’t build it, they’ll be unlikely to maintain it.
Again, the overarching goal in all of this is to engender a climate of business trust. The reason so many businesses inside Gap nations are limited by family size is the low trust climate. When you can’t tell much about potential counterparties in any deal, you tend to stick with those you know and cash-and-carry with everybody else. Easterly calls this phenomenon a “flea market” economy, but it’s a truism for any frontier environment. One useful way to bridge this trust gap, oddly enough, is to invite in as many clannish outsiders as possible. The Chinese are—yet again—the classic example here. The more Chinese your developing economy lets in, the more trade you’ll see develop with other countries that also feature a high Chinese population density, including, of course, China itself. This is the so-called bamboo network.