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"Victory will never be found by taking the line of least resistance." Winston Churchill

If people no longer expect objectivity from their political and legal systems, then all justice will be reduced to a power struggle between conflicting and irreconcilable perspectives, a struggle in which the most dominant and pervasive bias will replace fair and impartial process as the character of justice. But if objectivity in law and politics is everywhere supplanted by conflict between subjective interests, then the side of economic privilege and established authority will always retain dominance. A society in which people no longer expect representatives of its major institutions even to attempt to render objectivity in their professional demeanours is a society whose major institutions are in a crisis of ethical legitimacy. In such a society, there is wide spread cynicism regarding the possibility of fair political process because it seems impossible that impartial, unbiased dispositions could exist to enact such processes.

Robert Nicholls

Language and Logic

Thursday, April 1, 2010

Political implications of China’s economic condition

There has been a lot of speculation lately as to whether China’s economy is in the midst of a bubble that may burst. To put the question in such simplified terms does not do justice to the importance of the events occurring right now. Policy makers must not only asses the current economic situation and plan for contingencies but re-asses our entire approach to China in light of the massive foreign policy failures suffered over the past 20 years. Large returns on select groups of private capital with out concern for the hidden costs is not the foundation for national policy. The way the west has conducted its relations with China during its rise has ultimately been detrimental to western interests. Without an understanding of the larger events and issues news of a possible Chinese bubble can lead to out of context assumptions regarding the implications.

Speculation on risk in the Chinese economy is primarily focused on a possible credit fuelled real estate bubble. A growing body of literature published focuses on the statistics emerging out of china today. Admittedly there are some troubling but possibly misleading figures. In response to the global financial crises the regime in china implemented a program of stimulus spending equal to approximately 15 percent of GDP. Supplementary to that spending banks were ordered to massively expand lending. In 2009 bank lending increased by 30 percent to equal approximately $1.4 trillion. The strategy was to massively stimulate the domestic economy to compensate for falling exports. Supposedly GDP grew by approximately 8.7 percent in 2009 despite the fall in exports leading many to come to the conclusion that the stimulus measures had succeeded in keeping growth levels high. Property sales have increased 76 percent in 2009 in what looks to be a result of the increased lending and stimulus measures. As prices rapidly rise the assumption is that no increase this large and fast is sustainable, it must be a bubble. A quarter of properties bought are paid for in cash and it is common practice if a loan is needed to pay a 50 percent down payment. The minimum down payment is 20 percent and on investment properties its 40 percent. These practices have a stabilising effect on the market. The size of the population means demand for housing will be high supporting prices, however much of the population is priced out of the market. If there were to be a meltdown in housing the contagion would spread to the stock market and banks. Estimates from china state one quarter of the increased lending was used to play the stock and real estate markets. Keep in mind that many loans in china are to meet government mandates and are inefficient. Savings from workers are deposited in state controlled banks and lent on no consequence terms at below market prices to state controlled enterprises with the goal of increasing employment. There is no incentive for efficiency of capital and therefore waste is rampant. There is a lot of information that could be used to support an argument for or against the china bubble. This question is of secondary importance to wider trends. Anyone who knows china knows the numbers produced by the government are unreliable. Even the stated procedures for gathering economic statistics exhibit irregularities. The GDP is calculated with projected values of developments instead of the real selling price. Growth targets are set and officials strive to make those targets regardless of the real costs or the issues of sustainability. Regardless of all these traditional economic indicators used by economists to forecast future events one thing seems to be overlooked. A large volume of analysis does acknowledge the unreliability of statistics but regardless predicates their conclusions based on those statistics and disregards the political realities. Both economic and political events have mutual feedback on each other. I have yet to see an outlook that properly takes into account the influence that political actions have on economic events. All economic decisions involve an underlying often hidden political action of participation in the trade and acceptance of the implications of the terms. The less informed a participant in trade is, the more advantage the rival participant has over the terms. Trade is often a zero sum game as for it to be truly mutually beneficial both participants would have to exhibit a similar degree of altruism. Statistics charts and graphs are not effective substitutes for a logical reasonable understanding of the world around us. China is by no means in any way an altruistic political actor. It is a self interested unenlightened materialistic mafia state.
In order to understand the economic situation the political reality that the west has completely mismanaged its relations with China for the past twenty years must be acknowledged. It is debatable that the initial American engagement with china under the Nixon administration was necessary or a wise move. Of coarse the goal was isolation of the soviet union. However after the fall of the soviet union American policy failed to re-orient to the new world order. The theory behind Bretton woods was that America would open its markets and accept trade deficits in order to build up the broken economies of the allies after world war two. The cost to the American economy was rewarded by giving America a great deal of influence over the foreign policy of the states recipient of such favourable terms. The allies were provided security and economic recovery while the American led alliance was maintained beyond the war with the objective of countering the soviet union. In this way open markets were used to political ends, and the rejection of mercantilist policies were not based on economics but political considerations. Ironic that the new twisted ideology of open markets and anti-protectionism has taken on a life of its own in recent years, this is spurred on by the short term profit seeking of the industrial elite who have not concern for the triumph of the rights of man over the forces of savagery and barbarism. They see the philosophy of the enlightenment only as an obstacle to their power over their fellow man and in this way are no different than the communist regime in china. The greatest miscalculation in the history of American policy was to keep American markets open to china beyond the fall of the soviet union. By doing so America the greatest force for the advancement of human liberty in the world has created a vastly more powerful china, the greatest force for Orwellian control. After the fall of the soviet union America should have rapidly changed its focus to isolating china. Markets should have been closed and capital controls should have been enacted. New Marshall plans for Russia and the Eastern block should have been implemented and open market like Bretton woods agreements should have been given in exchange for our new partners participation in an expanded alliance whose goal would have been the economic isolation and implosion of the last authoritarian center of power remaining on the globe at the time, china. Instead Russia was left alone to stagnate and disintegrate into chaos in the 90s giving its citizens the notion that democracy and increased freedoms equal disorder and economic hardship. In the midst of this they abandoned their pursuit of freedom and turned to a new authoritarian power to take away their liberties in exchange for comfort. Much like Germany post world war one turned away from the Weimar republic and to the Nazi party, Russia post cold war turned away from democracy and to the KGB(FSB). This development only made matters worse for containment efforts with china. Instead of closing ties, under both the Clinton and Bush administrations trade with china skyrocketed and with it the wealth, power and technological prowess of the communist regime. The goal of American foreign policy should have been neutralising the china threat and bringing to justice the perpetrators of acts like the Tiananmen Square Massacre and countless others where people have been systematically imprisoned tortured and murdered to maintain the one party state. Instead the primary objective of American foreign policy was to massively enrich china and increase its power in the hopes that eventually it will be so wealthy it will become a more open and free society and less of a threat. It appears America got it backwards in more ways than one. With the increase in wealth china has become more oppressive and acquired the technology to monitor its citizens to a greater extent. This has given the state new tools to stamp out dissent. With the proceeds of the economic boom based in exports to America and American investment capital, technology and know how the regime has also spend a considerable amount on upgrading the Chinese war machine. New advancements in anti satellite, anti ship ballistic missiles (carrier killers) and cyber warfare have increased the china threat as these asymmetric capabilities can massively damage American assets. Furthermore weaponry can and has been proliferated to other problem states. After the cold war American policy makers got the equation wrong. Increased Wealth does not bring Increased liberty. This fallacy of the short sighted pursuit of wealth was no doubt helped along by the elite industrial lobby in Washington pressing for pro china policy orientation in the hopes of making a buck. While the American market has been kept open to Chinese goods china has manipulated its currency keeping it low to increase exports. On april 15 lets hope the treasury department does the right thing after years of denial and labels china a currency manipulator. This will hopefully spur congress to take anti china protectionist moves that would be massively beneficial to America and the world. A state that does not act in the interest of the freedoms of its people should not be given access to the largest market in the world. We have created a monster out of our own inability to manage the post cold war world. Much like our inability to manage the world post world war one which brought us world war two.

Many will look to possible economic calamity by way of the china bubble mentioned earlier as reason to dismiss the china threat. At this point no matter what happens economically the threat is real. We are faced with a number of scenarios some better that others but all containing risk. The worst and best are as follows:

1. The worst scenario is that china’s economy keeps humming along and does not experience a bubble bursting or a bubble bursts but does not have a significant impact on the wider economy leading to a fast recovery. America does not take protectionist measures and continues to let itself be exploited to the detriment of its interests. Over time china becomes the dominant force in the world and uses its significant economic and political power along with its military might and large population of single young males (due to the fact that through the one child policy many couples opt to abort females) to force its will on the world. By this time technological development will have allowed the regime to watch us all more closely. All political actors who pose a threat to the regime will be targeted. The spread of democracy will be reversed (a process some say is already under way). Under such a new world order the west and its values based in enlightenment philosophy of the rights of man will be systemically undercut and open to both soft and hard power attacks. The earth would descend into general barbarism as the few centers of political power left based on reason, decency, human rights and the rule of law would shift to base self interested groups of criminal demagogs who maintain their legitimacy not by ideals of morality but by force. The experiment of democracy would eventually implode and the world returned to the way it was before the enlightenment.

2. The best case scenario is that due to a change in American policy shutting china out of markets and controlling capital flows combined with a burst in the china bubble the Chinese economy destabilizes and wreaks havok on the regimes finaces. After an intiatal shock to some elements of the American economy due to a sharp drop in growth in china, the American Economy Rebounds strongly in the long term due to the loss of a jobs and capitol sucking competitor. Economic collapse in china would neutralize that last superpower threat to democracy and human decency and would be an ultimate foreign policy victory. Democracy and the values of enlightenment philosophy would reign supreme to the benefit of all mankind. Human rights abuse and the forces of genocide and injustice would be dealt a severe blow. Even after economic collapse brought on by the loss of exports and capital inflows the regime may or may not implode. This creates sub scenarios:
A. The best case: a rapid revolution based on discontent for conditions overthrows the regime before it can take action. A democratic government is installed.
B. The worst case. Either the regime stays in power or a revolution brings about the instalation of an unfriendly new dictatorship.
Either way China’s power and influence will have been greatly reduced and therefore the threat is reduced.

Of course the question of war must be addressed. If china gains dominance in the world it will wage war whenever it pleases on whomever it wants. China has made claims on many territories around it. In the words of Thucydides “the strong do what they will the weak suffer what they must.” China must not be allowed a position of strength. Hovever if china sufferes a reduction in strength it will be detered in the long run from waging wars and will be less capable of wining them. Innitialy after economic colapse the regime may start a war if it feels it has to in order to stay in power. It has spoon fed its children on a heavy deit of ultra nationalism and visions of racial superiority and glorius reclamaiton of territories lost at the hands of the west. Its propaganda has created a strong streak of hostile imperialistic nationalism. Nothing rallies the people behind the flag more that war. And to keep a populace disproportionately full of unemployed single young males without any political freedoms or outlets of expression from rebelling, war is a solution bejing will have no problem implementing if it means the party maintains its monopoly on power. If the facists declare war as a result of economic and political conditions so be it. It is not the fault of the west. America must stand up for its interests and not appease such a regime under the threat of force. We can give them everything that they want and still eventually, when they have us where they want us they will make war. We must reorient our trade policy to serve our interests and if that iks china to the point of making a move on Taiwan the responsibility for their actions will be thiers and thiers alone. Not ours for failing to crumble to their demands. Nothing can be gained by surrendering to the perpetrators of genocide.

The forces of justice find themselves in a precarious position. Even if we do not reorient our trade policy the burst china bubble alone could seriously damage the Chinese economy and be enough to prompt the regime to rally the nation to war in order to preserve its power monopoly. When we speak of war in the west we hold our leaders to account that they may make every effort to stop the outbreak of hostilities. We must understand that in this time it is not our leaders who have any control over war. We can appease china and let it continue to feed on us until it becomes strong enough to eliminate us. Or we can put up trade barriers and block them out of our markets. If they choose to attack the free world as a result of a fair trade environment that is their decision. To all those who would argue that we must maintain current policy in order to maintain so called “good relations” with china consider what is good about an economically damaged America acting on behalf of a hostile foreign dictatorship. The failure to respond to the post cold war realities has created the current situation of a hostile nation rapidly growing in power. We must not allow China under its current leadership to continue to grow.