The Battle of the Fading Hegemons
Oct 21, 2019 Arvind Subramanian
Traditionally, a strong rising power has challenged a weakening incumbent, making the outcome preordained. But the outcome of the current struggle between China and the United States is far from inevitable, because the powers of both the aspirant and the incumbent are eroding – albeit in different ways.
CAMBRIDGE – Almost a decade ago, China bulls like Martin Jacques and I predicted the rise of the People's Republic at the expense of a declining United States. Today, with the two superpowers unabashedly jostling for hegemony – their trade war being just one sign of this – it is time for a fresh assessment.
It is tempting to view the US-China rivalry as just another superpower transition in a long line going back to the classical shift of power from Athens to Sparta. But this case is different.
Traditionally, a strong rising power has challenged a weakening incumbent, making the outcome preordained. The only question was whether the transition would be peaceful or violent.
This question also applies to the US-China struggle. But the outcome is far from inevitable, because the powers of both the aspirant and the incumbent are eroding – albeit in different ways.
Let's start with the more obvious case of America. Previous predictions of US decline were based on unfavorable domestic economic and social trends such as slowing productivity growth, declining social mobility, and worsening income inequality.
In recent years, however, America has faced the additional problem of a precipitous decline in its soft power, which Joseph Nye defined as a country's ability to get others to want what it wants. Today, that soft-power currency, more valuable than the dollar itself as a source of US hegemony, has been debased beyond recognition. US global leadership is now associated with disastrous wars, repudiation of the collective commitment to address climate change, sabotage of the global trading system, and unraveling international security arrangements.
In addition, America has damaged its own political institutions. It currently has an erratic and unbalanced president, a gerrymandered Congress, a politicized Supreme Court, and a system of rulemaking rigged by the elite. Over the past century, US institutions often inspired awe and invited emulation in much of the world. Now, they have become an object of mockery, while the 2008 global financial crisis similarly tarnished the American model of finance-driven, winner-take-all capitalism.
Moreover, whoever wins the 2020 presidential election will find it hard to restore the luster of US political and economic institutions, owing to America's deep polarization and entrenchment rather than attenuation of adverse economic trends. This raises increasing doubts about America's ability to project its power externally.
What about China? If the Chinese economy remains on track, it will challenge US economic supremacy in the medium term. However, the risks of a Chinese economic derailment have increased, as domestic debt has climbed to vertiginous and unsustainable levels while export opportunities have shrunk.
Perhaps most worryingly, Chinese President Xi Jinping has – bizarrely – turned away from the private sector-led growth model that served as the country's transformational golden goose for over four decades. As a result, China's economic prospects seem far less bright than they did a few years ago.
Because China is an undemocratic and closed society, its hegemonic rise has always been hobbled by a lack of soft power. In an attempt to rectify that deficiency, China launched the Belt and Road Initiative (BRI) to promote the international transfer of its impressive expertise in building infrastructure effectively and expeditiously.
At the same time, China established the Asian Infrastructure Investment Bank to challenge international financial institutions that it (and many other emerging powers) regards as increasingly discredited by outdated governance mechanisms. As if to reinforce that view, the US and Europe have yet again asserted their monopoly on control of the World Bank and International Monetary Fund, respectively, through an undemocratic process that was established 75 years ago. Although there have been no formal objections to the recent changes of leadership at both institutions, this has not gone unnoticed in the rest of the world.
Tragically, however, all of China's accumulation of soft power is being fatally undermined by its political and strategic turn under Xi. The cult of personality has returned, anti-corruption campaigns often target political opponents, and Chinese actions in Hong Kong and Xinjiang reek of political repression.
Even the BRI risks turning sour as participating governments struggle under the weight of huge Chinese loans. In Gabriel Garcia Marquez's magical realist novel The Autumn of the Patriarch, the defaulting Caribbean dictator repays his "Gringo" creditors by giving up the sea, piece by emerald-green piece. In the real world, acquiring land, natural resources, and sea lanes could prove China's undoing as a debt collector.
In short, in the current struggle for global pre-eminence, China is depleting its accumulation of soft power, while America is as well – and losing its economic strength in the process.
This hegemonic rivalry thus differs sharply from previous historical episodes. From the Athens-Sparta transition to the handover from the United Kingdom to the US in the twentieth century, the challenger's credentials were undeniable. It was as if a young, vigorous boxer were challenging and defeating a flabby, middle-aged opponent.
Today, by contrast, China and America look like two tired boxers who go at each other for 15 grueling rounds, not to determine who will stay upright, but rather to discover who will be the first not to go down. With such wannabe and reigning hegemons, is it any surprise that the world finds itself in a leaderless and rudderless drift?
Arvind Subramanian
Arvind Subramanian, a former chief economic adviser to the government of India, is a non-resident senior fellow at the Peterson Institute for International Economics and a visiting lecturer at Harvard's John F. Kennedy School of Government. He is the author of Eclipse: Living in the Shadow of China's Economic Dominance.
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John Hardman Oct 22, 2019
Hmmm... what's not being discussed here is the rather arrogant assumption that China, as it modernized, would migrate towards Western individualistic capitalism (AKA "liberal democracy") over capitalistic socialism. Yes, China will continue to "challenge U.S. supremacy in science and technology", but both China and the U.S. will end up at the same challenge - what to do with billions of humans when human labor is no longer needed. China has a population that is five times larger than the U.S. and it has been forced to face up to these challenges and develop some realistic plans to meet the basic needs of humans when computers and robots do all the work.
It is not by accident that the happiest and most satisfied citizens live in modern socialistic societies: Denmark, Sweden, Norway, Finland, and... China. As human labor is devalued, some sort of social safety net must step in and provide basic social services and a sense of group compassion for fellow citizens. Unfortunately, we are discovering that Western individualistic capitalism increases wealth disparity and ignores the plight of its "human capital". The U.S. is technologically advanced but sociologically retarded. Technology increasingly displaces workers and concentrates wealth in the .1% who have the money to own the technology. This leads to extreme polarization which we are now witnessing and a very unstable economic system as the consumers are starved for wages yet production capacities become more efficient by shedding human labor. When the middle class collapses, the whole foundation of the Ponzi scheme crumbles.
China embraces state-owned corporations, not because they are efficient, but because they provide jobs for millions of workers. The Belt and Road Initiative is not about making money or generating "goodwill", but about using abundant human capital to build infrastructure in third world regions unable to access modern technology. They know this will take decades, but the Chinese have time and human labor needing focus on something worthwhile while robots build our iPhones in some "black box" factory somewhere largely devoid of human labor. The beauty of Chinese capitalist communism is it knows everything is about the people and not about profits. They are working on providing the social safety net grand enough to support billions of Asians for decades to come. The U.S. and most of Europe have yet to realize their bubble is about to burst and they have no way to respond to the crisis to come. China has no desire to be a "hegemon" but only to care for its citizens.
j. von Hettlingen Oct 21, 2019
Arvind Subramanian says, the US and China may well avoid the "Thucydides Trap" – which refers to the theory that when "a strong rising power has challenged a weakening incumbent," the result is often war. But China, the rising power, and the US, the ruling power, do not seem to be headed there, because "the powers of both the aspirant and the incumbent are eroding – albeit in different ways."
The author says almost a decade ago when China rose at the expense of the US. Today amid the ongoing tug-of-war, it is time for "a fresh assessment." The current struggle between the two "fading" hegemons has made "the outcome preordained. The only question was whether the transition would be peaceful or violent."
America's decline could be traced back to the end of World War II, when the US had half the world's wealth and incomparable security and global reach. In the course of decades, the decline continued. By 1970, US share of world wealth dropped to about 25%. From the 1970s, there had been a significant change in the economy. The new phase proved to be a conscious self-inflicted decline. The economy was shifted toward financialisation and the offshoring of production, due to falling profit in domestic manufacturing. Wealth became highly concentrated in small elites, yielding concentration of political power, with fiscal benefits benefiting the rich. Meanwhile, for the majority, real wages stagnated, and people – grappling with unsustainavle debt – could get by only by sharply increased workloads. In parallel, the political system has been increasingly shredded as both parties pander to corporate elites to finance their campaigns. Yet they have failed to tackle the "unfavorable domestic economic and social trends such as slowing productivity growth, declining social mobility, and worsening income inequality."
Today under Trump, "soft-power currency, more valuable than the dollar itself as a source of US hegemony, has been debased beyond recognition. US global leadership is now associated with disastrous wars, repudiation of the collective commitment to address climate change, sabotage of the global trading system, and unraveling international security arrangements." At home he has demoralised the institutions, and trashed the Constitution, making the US the global laughing stock.
The author believes, if Trump be removed from office, "whoever wins the 2020 presidential election will find it hard to restore the luster of US political and economic institutions, owing to America's deep polarization and entrenchment rather than attenuation of adverse economic trends. This raises increasing doubts about America's ability to project its power externally."
China had seen phenomenal growth in recent decades, but it has enormous domestic problems not faced by the West. China is the world's major manufacturing hub, but largely as an assembly plant for its advanced industrial powers and for western multinationals. President Xi Jinping's "Made in China, 2025" plan seeks to focus on high-tech manufacturing over time. China's economic growth had relied substantially on a very large working-age population. But the window for harvesting this demographic bonus may close soon, due to an aging population and low birth rate. Excess cheap labour supply - one of the major factors driving China's economic miracle - will no longer be available.
There is criticism that the leadership in Beijing invited trouble with its unabashed projection of economic and military might. China seeks to challenge US supremacy in science and technology amid growing hostility to Beijing across the American political class. The author says "the risks of a Chinese economic derailment have increased, as domestic debt has climbed to vertiginous and unsustainable levels while export opportunities have shrunk."
Morever, Xi has abandoned the private sector-led growth model "that served as the country's transformational golden goose for over four decades. As a result, China's economic prospects seem far less bright than they did a few years ago."
But what is unsettling is China's increasingly repressive turn at home. Xi's pet project, the Belt-and-Road initiative has not generated as much goodwill as intended. This nearly one-trillion-dollar project has become a debt-trap for countries that have borrowed heavily from China to develop their infrastructure.
Trump's erratic and bullying behaviour, his ignorance and the isolationist polices he pursues have given Beijing a unique opportunity to cement its position as the next global hegemon. The two countries "look like two tired boxers who go at each other for 15 grueling rounds, not to determine who will stay upright, but rather to discover who will be the first not to go down." And the world is watching, while finding itself "in a leaderless and rudderless drift." It remains to be seen whether China will prevail in this struggle for global hegemony, despite their diminished potential and capacity.
Um! No meat in Aravind Subramanian's colomn! Just interesting thoughts emanating after few good pre-dinner drinks with good friends on a saturday evening. 😃.
Godfree Roberts Oct 21, 2019
Interesting, but a few quibbles:
1. "If the Chinese economy remains on track, it will challenge US economic supremacy in the medium term." China's economy is 30% bigger than America's and growing 300% faster. There is nothing on the horizon that will change those ratios.
2. "However, the risks of a Chinese economic derailment have increased, as domestic debt has climbed to vertiginous and unsustainable levels while export opportunities have shrunk." Domestic debt-to-GDP is the same, 240%, as the US but China's is entirely domestic and, as we see in #1, above, eating up its debt by growing.
3. The cult of personality has returned." Nonsense. Nothing close to Trump's or even Modi's.
4. "anti-corruption campaigns often target political opponents." No, they do not. Besides, unlike America's Roman-style leaders, China's Confucian leaders don't have 'opponents.'
5. "Chinese actions in Hong Kong and Xinjiang reek of political repression." Twaddle. Beijing his not been involved in Hong Kong and the World Muslim Council praised its Xinjiang policies. The only people criticizing them are the people who are currently bombing Muslims: NATO.
6 "the BRI risks turning sour as participating governments struggle under the weight of huge Chinese loans." No. Of 42 countries with Chinese development loans, only nine owe more than 20% of their total indebtedness to China.
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