The Levelling

by Michael O'sullivan

  China

  Once finished with Europe, Hamilton might cast an eye over the geopolitical atlas and turn to China. He would appreciate that when he became treasury secretary the United States was but an emerging, even frontier economy and that at that time China accounted for nearly 40 percent of the world economy. In 1950, 150 years later, America made up a third of world economy, and China’s share had shrunk to 10 percent, according to the Maddison Historical Statistics database.7 In a nutshell, the idea of the Chinese Dream is to reestablish China as a world power to the magnitude it enjoyed when Hamilton was alive.

  Correspondingly, many accounts of China from an American perspective paint it as a threat, a view that was made official in the 2017 document “National Security Strategy of the United States of America.”8 There is also a growing sense that the American public is becoming alert to the rise of China and to the strategic threats it poses and that the trade dispute between the United States and China is a manifestation of this realization.9 A speech in October 2018 by Vice President Mike Pence underlined the harsh and uncompromising view of the Trump administration on China, and as a diplomatic statement it will probably prove to be a milestone.10

  If Hamilton were to study China today, he would probably see a rival to the United States. He might appreciate that, like his own approach, the Chinese way of doing things takes into account the interlinkages among economics, technology, and hard military power. He might have several pieces of advice for the Chinese.

  To start with its economy, Hamilton would point out that China’s path into the future may need to surmount a few obstacles. The first is the need to become used to a lower trend rate of economic growth and to understand the implications this has for government spending, wage growth, and consumer behavior. The manner in which China digests and overcomes its debt and property bubbles will have enormous consequences for the internal and international narrative of its future.11 If China can vault the hurdle of high indebtedness, then it will reemerge with confidence and momentum. If not, it may have to contend with a very large cohort of disenchanted citizens, in the same way that the aftermath of the eurozone crisis has bred disenchantment in countries such as Italy, Ireland, and Greece.

  The second, more human obstacle relates to the consequences of the development of a consumer culture in China. Though the political instincts and desires of the Chinese people have been curbed during the course of the rise of its economy, the flourishing of consumer tastes is beginning to unleash genies: a more open approach to sex and sexuality, curiosity for Western brands and media, and, it should be said, the reinforcement of a Chinacentric culture.

  In Western societies over the past eighty years, economic growth and the development of a consumer culture have gone hand in hand with a greater desire for a more open society and for a more sophisticated and generally open political system. The emergence of a consumer culture in the West has also brought counterreactions, such as the rise of more radical political parties. In particular, in China today there is a deeper consciousness of environmental issues, which can be seen as a reaction and a consequence of a rise in consumer culture and industrialization.

  China has so far, to its credit in many respects, not followed the pattern of development of Western nations in that it has, remarkably, so far failed to mimic the boom and bust of Western economic cycles,12 nor has it followed the pattern of political development of Western nations. It may well continue to confound its Western skeptics, but at some point the tension between control, economic growth, and stability may become acute. The challenge for the Chinese authorities, then, in the context of China’s goal of winning greater national prestige, is to maintain social stability. Historically, political leaders and some governments have co-opted the forces of nationalism and religion, the dream of economic progress, and the fear of external threat to corral societies. In China’s case, the underlying social, technological, and economic changes may be too great to be contained by words and images alone. China is already investing heavily in technologically based social control mechanisms that employ algorithms and facial and pattern recognition to gauge which citizens are misbehaving, or are likely to misbehave.

  Another, perhaps less heavy-handed approach is to develop social infrastructure that encompasses many of the elements of intangible infrastructure, such as health-care spending, education, pension plans, and broader financial services. One indicator of the lack of social infrastructure in China is the very high household savings rate (as a proportion of GDP), which, at close to 37 percent according to the OECD, is nearly six times higher than that of many developed countries (6 percent in the United States). The high rate of savings suggests that many Chinese save on a precautionary basis in order to be able to meet health or proxy pension costs in the future. Consider that in China today out-of-pocket health-care expenses are 72 percent of GDP (compare this to just over 27 percent in France) and that from a pensions point of view China has the lowest pension and mutual fund assets as a proportion of GDP (in the low single digits) of the major emerging markets and significantly lags developed economies.13

  Motivation for building social infrastructure in China may come from stress points uncovered during China’s next recession, which will probably diminish property values, cause controversy with the collapse of wealth-management products, see unemployment rise, and consequently see many people questioning the willingness and ability of the government or Communist Party to maintain order and social cohesion. The call by President Xi at the 2017 Communist Party Congress for the party to focus more on providing people with a “better, happier life” is a nod in this direction.14 As such, it would be a logical chapter in China’s path to development, and not at all unlike Franklin D. Roosevelt’s New Deal. The New Deal was a watershed in the United States in many respects, one of which was that it marked the full evolution of the United States from an emerging to a developed nation.

  Some of the measures proposed by Roosevelt administration members such as Frances Perkins—a minimum wage and unemployment compensation, for example15—are already in place in China or are incarnated in the form of “iron rice bowls.”* But the Chinese system is not as comprehensive, or one might say generous, as those in other developed countries. China’s Ministry of Civil Affairs website shows that a relatively low number of rural households (approximately 20 million) receive subsistence allowances (about USD 50 per month).16 This is tiny compared to the benefits in more developed socioeconomic models (e.g., Denmark) and underlines the fact that very high saving rates in China exist on a precautionary basis, so that people have cash available for medical and economic emergencies.

  Broadening financial services in simple, transparent savings and mortgage segments (in financial technology and traditional banking areas), broadening health-care coverage, and sponsoring reskilling within social security programs are some ways in which new forms of growth can be stimulated and newer sections of the Chinese economy opened up in a postcrisis or postrecession economic climate.

  Such a plan may also be the political consequence of a slowing Chinese economy and of evolving views and factions within the Communist Party. In light of the postcrises experiences of the United States and Europe, a political response that addresses the absolute losers in a recession would appear expedient. It may also offer Chinese authorities an opportunity to redress some of the economic and wealth imbalances across regions of China and between some of its cities.

  China faces another challenge. In recent decades it has had the luxury of sitting back and studying the complexity of other regions’ engagements in Syria, Ukraine, and Iraq, to name a few trouble spots. China’s imperial past is sufficiently well buried in history that relations between China and emerging countries (notably those in Africa) do not (yet) have an imperial veneer. (Compare that to, say, an economic engagement between the Democratic Republic of the Congo and its former colonizer, Belgium.) China is now more confidently proposing a “China solution” to issues beyond its bord
ers. However, as its economic imprint in Africa grows and as the One Belt, One Road project rolls forward, it may find that in many developing countries, it will become a focus for friction and resentment, and indebtedness. Hamilton, who was instrumental in sharpening the military tactics that helped George Washington during the American Revolution and in shaping the role of the US Navy and Coast Guard, might have some advice to add.

  From a technical point of view, Hamilton—were he to take the Chinese view of the world—would be excited by the acceleration in the buildup of the Chinese navy: its experimentation with fitting out aircraft carriers, with ultra-high-speed shore-to-ship missiles, with rail guns on ships, and with the use of swarming drones. He might at the same time point out that the growing presence of a large and increasingly sophisticated Chinese navy creates its own risks. Unlike during the eighteenth and nineteenth centuries, much of the world’s trade today does not need naval protection (arguably, it does require cyberprotection).

  Though China will feel that, like the other large regions of the world, it is entitled to a sizable naval fleet, development of the Chinese navy may cause other nations—from Vietnam to India—to react in kind. India, as mentioned, is now part of a relatively new defense group, the Quad.

  Bearing this in mind, Hamilton, were his advice sought in Beijing, might advise two related approaches. The first would be for China to set out very clearly the role of its navy and, where it could, to use the navy to solve regional collective action problems, such as piracy, humanitarian missions, and environmental protection. The second would be for China to position itself better in terms of its role as a diplomatic power. America has built its diplomatic power as the supporter and architect of many of the world’s public goods—institutions like the United Nations are an example. Robert Kagan’s book The World America Made discusses this in fine detail, sketching the accomplishment of the world order crafted by America and then warning of the dangers to this order, and to the world in general, of a more isolationist and insular American foreign policy. Kagan, in fact, compares the consequences of an American retreat from global diplomacy to the disintegration of relations among European countries before the First World War and, dramatically, to the collapse of the Roman Empire.

  The beginnings of American power struck a very different note. In 1906 the Nobel Peace Prize was awarded to President Theodore Roosevelt, the first time an American was granted any Nobel Prize. Roosevelt’s contribution to peace was the clever way he brokered the Treaty of Portsmouth in 1905, between the two parties in the Russo-Japanese War. At the time, the award was controversial because America’s power was rising across the world stage (notably in South America) and also because many suspected that the awarding of the prize by the Norwegian government helped bolster the place of Norway, then newly independent from Sweden.

  Today it is worth considering the words of Norwegian statesman Gunnar Knudsen during the award ceremony (Roosevelt didn’t make it to the Nobel Foundation until 1910): “The United States of America was among the first to infuse the ideal of peace into practical politics. Peace and arbitration treaties have now been concluded between the United States and the governments of several countries.”17

  Yet with America now pulling back from an internationalist stance—for example, recently cutting its contribution to the United Nations, pulling out of the Paris Climate Accord, effectively ignoring Latin America (e.g., ignoring the Venezuelan refugee crisis), degrading relations with neighbors and trading partners from Canada to the European Union, and maintaining ambivalent relations between the White House and Russia, to name just a few developments—it may fall to China to perform the role of underwriter of international public goods. Or, at the very least, there is a lacuna opening up in international relations that China may choose to fill. Some experts, such as Harvard professor Joe Nye, fear that in this respect China may be wanting. He refers to this as “the Kindleberger Trap.”18 Charles Kindleberger, whose book Manias, Panics, and Crashes I have already commended, was one of the intellectual architects of the Marshall Plan and was devoted to the idea of public goods and international institutions. The trouble is that, though China is intent on increasing its international influence, it is yet not well practiced in soft power. In this respect, the One Belt, One Road project, though economically impactful, may prove double-edged. For example, the financial quid pro quo for countries (notably Pakistan, Sri Lanka, and Cambodia) that participate in the project is that they are obliged to take on cripplingly large amounts of debt to finance construction projects and as a result may end up losing control of strategic assets such as ports.19

  Finally, though Hamilton may accept that in a multipolar world large countries will develop their own approaches to governance, he might remind China that the system of checks and balances he put in place, and the institutions that govern the United States, have in general stood the test of time. He would emphasize that these checks and balances, and the very clear approach to the rule of law, are greater than any individual and that once an individual begins to rise above the institutions of state, the state itself becomes compromised.

  The United States

  Should Hamilton return to the United States, the above-mentioned checks and balances might be one of the first things to come to his mind, and he would be pleased that they still work well today. Indeed, he would still have much to admire in his own handiwork. He might not be surprised to discover America’s rise to primus inter pares during the twentieth century, and he would be pleased that vital elements of its power, such as its navy, army, and the Treasury, were of his making. Some complain about the tone and ferocity of political debate in the United States today; Hamilton might also deplore it but would recognize that little has changed from his time.

  Should he survey the land today, he would be concerned about the dip in and threats to world trade and the rise of the indebtedness of nations. He might also side with those who in today’s world see immigration as a necessary part of international economic vitality. He might also recognize the need to rebuild physical infrastructure across the United States (fast trains, sleek airports, and smooth roads) but could see that achieving that is probably just a matter of time. What might pique his curiosity are the laws and institutions that need to be built in the United States to equip it for the twenty-first century. The legal frameworks around technology, impactful investment, and equality are just some of things he might focus on.

  To start with, given that he was a military man, Hamilton would be impressed that America has become so mighty militarily, but, to follow his writings in the Federalist Papers, he might argue that a strong president should balance might with a sense of diplomacy, at least when relations with conventional foes are considered. Military power is one of the areas where the United States is predominant,20 though conflicts in Iraq and Afghanistan have shown that when pitted against military might, unconventional warfare can produce an outsized impact. Against this, the US military is outstanding for the schooling of its soldiers and officers in strategy, history, and tactics and for the ways in which sociology and economics are considered as elements that can shape modern battlefields.

  In the United States today, the expansion of the military appears set to continue under President Trump, and in time the United States, with perhaps Russia, China, the United Kingdom, and France following behind, will be the only country to have a suite of “total warfare” capabilities. Some countries, such as Russia, are already practicing war by “many means”—that is, where traditional military force is mixed with covert action, propaganda, and disinformation. The Russian doctrine of maskirovka has roots that go back to the fourteenth-century Battle of Kulikovo and was further developed more recently, beginning with its use in the Second World War. In a very basic sense, it involves the use of decoys and deception to distract and destabilize an enemy, though the doctrine of maskirovka has broad applications, stretching to disinformation, propaganda, and politically related tactics. A significant element of
the thinking that reflects the new doctrine of warfare in Russia is that wars do not follow the same boundaries and time lines as they did historically.21 This means that they are not officially declared—in the way cyberattacks happen—and that they can rely on many different types of force (e.g., information, humanitarian, and media) and can rely on the subversion of states on a continual basis using mercenaries and special operatives. The United States has the capability to take this to a higher level, adding a financial arsenal, space-based warfare, private military contractors, massive cyberwarfare, and robotic military capabilities to its already formidable set of capabilities.22

  What is not so clear, and where Hamilton might be curious, is how the rise of new military or strategic capabilities and the way in which these are deployed together change the rules of war, the realities of trade, and the international flow of information. In particular, the possession of such a vast capability by a democracy places the onus on the United States to lead the recrafting of a modern Geneva Convention on rules of war. Such a convention could touch on many topics, such as the extent to which cyberwarfare can be used (what right does a country have to retaliate with a conventional military response following a cyberattack?), the rules governing space war, and the legal framework governing the deployment of robots in the battlefield.