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China's Century?
Why America's Edge Will Endure

Original Article By: Michael Beckley
International Security Winter 2011/12 vol 36 no 3
Major Topic: Politics
Minor Topic: Economics

Précis:

         There are two schools of thought about the future of America and China. The first and more popular school uncritically accepts two notions concerning America's future in the age of the rise of China: the first notion is that America is in decline and China will soon surpass America; the second notion is that America's decline is due to the great price America pays as a hegemon and in its role in keeping world order in the age of globalization. In contrast to this view is the school of thought that America's leading place in the world is very secure because America is the hegemon and acquires the greatest relative benefit from a globalization which it controls and exploits.

         The stakes are high because if the first school is correct then America's best policy toward China should be retrenchment (or a more confrontational foreign policy now rather than later when China is stronger). However if the second school of thought is correct then America's best interests are not in confronting China with the goal of subduing her rather America's best interest are in engaging her and bringing her deeper into the network of the globalized world on America's terms.

         The Author's thesis is “Over the last two decades, globalization and U.S. Hegemonic burdens have expanded significantly, yet the United States has not declined; in fact it is now wealthier, more innovative, and more militarily powerful compared to China than it was in 1991.”

         Three points are usually made by the Declinist school: 1) China has a much faster growing GDP and will likely pass the USA in the next three to thirty years; 2) China now exports a larger amount of high tech products than any other country including the US and China now produces and employs more engineers than any other country; and 3) China is a creditor nation whereas the USA is a debtor nation. All three are acknowledged as true by the author however 1) historically GDP has not determined national power – consider Britain’s domination of India and China in the 19th century where both had much larger GDPs than Britain. 2) China's production of engineers and high-tech equipment has not lead to any signs of increasing innovation relative to the USA. Finally 3) the author believes that China's fiscal and demographic situation is far worse and harder to solve than America's fiscal and demographic problems.

         One simple mathematical error lies in looking only at growth rates: China appears to be beating the USA because it started off so low. However the main issue is one of history. Does the present resemble the past enough so a deterministic historical cycle will repeat or is the present sufficiently different from the past to warrant a different outcome? In other words, do the similarities between America today and all the great empires of the past mean the America is in decline or is the world different enough today to say that America is not in decline because of the differences between it and all past empires?

         On this issue of history the Declinists claim that the hegemon in any era must provide common goods to all in order to maximize its own benefits (some examples of common goods would be a secure environment, and a finance and trade regime). However, the upkeep for these common goods eventually becomes cost ineffective. At which point the hegemon suffers a net loss on its empire – weakening it over time relative to the other contending powers. The author accepts that the role of hegemon is expensive however the benefits outweigh the costs and do not seem to be eaten up by the costs of maintain hegemony. Due to the exceptionality of the US position compared to past hegemons, the unique privileges the hegemon reserves for itself and the rewards and punishments it can deal out the US position is much more durable than that of past hegemons.

         The American exceptionality is tied to globalization: globalization is either a positive or a negative process for the US depending on the nature of the diffusion or polarization tendencies it engenders. Both these tendencies are well documented however Declinists focus on the negative aspects of diffusion. They claim that diffusion makes it easier for developing countries to imitate technology and then innovate new technology; attract investment due to low wages which provide a competitive advantage in the labour force; and gain the best discipline in terms of weeding out inefficiencies in the economy.

         However these possible advantages are diminished in the new global network production paradigm. Where most rich countries grew rich with a protectionist trade regime. Today such regimes are highly discouraged by the US and the WTO. This reduces the benefits of diffusion because rich western companies that can expand abroad will almost always compete better than less sophisticated companies in developing countries. Additionally the liberalized trade regime of the current world allows for lead companies (always from the US and/or a rich developed country) to break up the production process into many locations and into many parts that are individually useless until assembled. This means that the spread of technology to the developing world is not useful except as a service to the developed world's corporations. Developing countries including China are competing against each other to produce for the developed world. Lastly there are intangible assets (which cannot be copied easily nor sold: like the legal framework, skills and culture) that make diffusion of technology more likely. These intangible assets are predominantly concentrated in the western developed world especially the USA. Therefore the best minds and their new technology is more likely to move to the US than to stay in a developing country.

         The empirical evidence backs these theoretical claims. The author considers three factors to measure the US – China international power change over the last 20 years (1991 -2011): wealth, innovation and conventional military capabilities.

         In the case of wealth the measure that is most relevant for international power is surplus wealth (that is wealth above subsistence) which can be measured roughly by per capita income. In this respect the average American citizen's per capita income has risen by $17,000 more than the average Chinese citizen's has risen over the last 20 years. In other words, relative to each other, America has grown richer and China has become poorer. Furthermore, China's growth was fueled by cheap labour, expanding export markets abroad, and enough water supplies at home; factors that are increasingly becoming unreliable. Additionally, China faces their man-made demographic crisis which will dampen their wealth creating efforts. China's economic future seems to be increasingly dismal due to these factors.

         In the case of innovation in basic research, although China is training more engineers and has increased spending on research and development, the US has more than doubled the the difference in R&D spending over the last 20 years. Furthermore it seems that the best and brightest Chinese students come to the US to study and the greater proportion of these stay and join the US labour force. In other words China seems to be suffering a massive brain drain to the US's advantage.

         In the case of innovation in technology the author measures the granting of triadic patents (patents recognized in the US, Europe and Japan) and finds that the US has had a huge lead and has increased the difference in the number of its triadic patents over China by about 40% in the last 20 years. [Judging from the graph provided in the article: in 1991 US firms applied for just over 10000 triadic patents; Chinese firms applied for around 100. In 2008 US firms applied for just over 14000 triadic patents; Chinese firms applied for around 250. – China's triadic patent applications have increased 150% to the US's 40%. This is an example of how China's low starting position makes it appear as if it is going to catch up when in reality it is falling further behind.] The same seems to be true in future high-tech industries such as nanotechnology, biotechnology, waste management and renewable energy technology: the US has an overwhelming lead and is increasing its distance.

         In the case in conventional military capabilities the US currently out spends China by a factor of 8 and growing. The US has been increasing its defense spending lead over the last ten years. The US's higher development level gives it an advantage in integrating weapons such that the US derives more force per dollar spent than China. The author stresses that China is not toothless. In the event of a confrontation, China can and has impose high costs on US forces however in the sense of war winning capabilities the US is gaining strength relative to China.

         The most likely future scenario is that China will continue to grow in absolute terms while simultaneously declining (or at best maintaining) relative to the US. However if Declinists win the argument there are a lest two potential pitfalls: the US could cut itself off from trade with China in a vain attempt to reverse the perceived economic decline; this would in fact be cutting off one source of US power. The second possible pitfall is the myth that war now would be better than war later or that retrenchment now would be better than retrenchment later; both bad options for the US and the world.

Added on: 2012-12-29 16:13:14
Précis by: James Jeff McLaren
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