The new administration's approach to China

Most foreign governments have rallied behind the call brought forth by President Obama to restore the spirit and the strength of the United States - even the Chinese (though with a few concerns I will outline here). While most are looking forward to a "new chapter" and anxiously awaiting an opportunity to embrace the forthcoming change, there is cause for some nations to wonder what the rejuvenation of America will bring. After just a few days under the Obama administration, it is clear that China has become one of these, cautiously optimistic, nations. No one is overlooking the longstanding issues between China and the US: especially, China's human rights record, environmental standards, public censorship, fixed currency, and increased military spending. Not listed however, may be a bigger and more subtle challenge for the Chinese: both the United States and the Chinese have developed an insurmountable political ego. A renewed global, American presence means these two countries will inevitably step on each others toes.

Not suprisingly, this happened within minutes of President Obama's Inauguration. During the live broadcast of the Inaugural address, Chinese officials moved quickly to censor remarks on communism and fascism, in addition to a call for an end to the "silencing of dissent." For most of us watching in the United States these comments elicited historical nostalgia, but word of the Chinese censorship highlights how drastically the American worldview differs from the Chinese. In a country where a large portion of the population sees their brand of communism as a centerpiece of national pride and lives a separate struggle for prosperity, it is unlikely that such references would have been well received. More importantly, an educated audience would know that President Obama's words had less to do with the communism we see in China and more to do with American history and its historical rival. What is intriguing, is that the omission of these comments may have been a favor to the United States, in addition to a precaution meant to quell a growing sense of nationalism in China that could easily turn on either government. For the Chinese, it is possible that letting a stab at communism pass without notice would just be plain bad form. China would like to display President Obama as the charismatic leader that he has become and avoid the possibility that the public might falsely interpret his comments as opposition to the Chinese political system.

Post-inaugural remarks were decidely more focused, both in tone and detail. Timothy Geithner's statement to the Senate during his confirmation hearing directly accused China of manipulating its currency. Some sources are claiming the statement marks the beginning of a new era - one of hard line approaches to China's economic policy. China's adjustable currency rate has long been an issue among economists, but why did Geithner bother to bring it up now, except to please Senator Charles Schumer? Especially as the response was no small matter - when the Deputy Governor of the People's Bank of China politely reminds you that the widespread consequences of the current financial crisis and the trade imbalance in the United States will not be leveled by a mere currency revaluation, China means business. That friendly reminder definitely cost a few treasury bonds. Of course Tim Geithner wants our "major trading partners to operate with a flexible exchange rate system" and for "market forces [to] determine the value of the exchange rate." But I am certain that in the future, the Chinese will be quick to remind Mr.Geithner that he can't have everything he wants.

There are plenty of other issues for the United States and China to butt heads over, but I believe that the ball is in China's court. Tibet has been off the radar since negotions between the Dalai Lama and the Chinese came to a standstill and the world is already well aware of the floating smog cloud over the entire continent of Asia. (Also, our environmental woes are now officially mutual: note the literal "Collapse of the Clean Coal Myth" just days ago). However, there is one issue that China has made progress on faster than the Obama Administration likley expected. This is affordable health care. On Wednesday, China announced that it will bring Universal Health Care to 90% of the population by 2011 and spend as little as seventeen dollars per person. This is tough to believe, but if China can pull this one off, then touché. We have our work cut out for ourselves.

(Photo of Chinese currency from toesoxluver's photostream)

To the shores of Tripoli...

Condi Rice arrived in Libya today to meet with the country's leader, Col. Muammar Qaddafi. Though he may not house pirates, and is no longer an official terrorist, Libya is still a country with a long way to run. Encouraging as it is that Rice is the first American official to visit since Nixon in '57, the meetings will not, and should not, be all hassa.

Don't get me wrong, Libya is one of the most successful revisions of the past twenty years. Transitioning from nuclear armament and state-sponsored bombings to an embrace of capitalism is a mighty task in any society. But like Cuba, Libya is another example of an authoritarian state embracing market reforms. Leezza, as Qaddafi apparently calls her, must keep in mind that despite their leader's recent change of heart, the Libyan people still face a startlingly high level of oppression.

While it is true that Italy's recent colonial apology "smacks of self interest", that does not mean it should be ignored. Strategically speaking, the US would be irresponsible to ignore Libya's tack to the center just because of Qaddafi's continuing rule. The country controls too much gas and oil that Continental Europe and China are actively pursuing. The US should take measured and sensible steps to engage in this process. Rice must normalize diplomatic relations so American firms can actively participate in the run for foreign investment but attach conditions (human rights, greater press freedom, etc) to any direct government aid. While it may be unsettling for an older generation that remembers Pan Am 103 or, like McCain, the Tripoli pirates (too harsh?), to get used to the idea of Libya as a trade partner, we must welcome Qaddafi into the fold of global capitalism and use the subtle sway of our dollars to encourage greater transparency and freedom.

I personally will follow this with cautious optimism and hope that this story serves as a model for today's failed states that look like Libya did 20 years ago. I'm talking to you North Korea.

Can capitalism and democracy be decoupled?

Frank Fukuyama had a very interesting op-ed in the Washington Post this weekend exploring the limits of authoritarianism. It ties in nicely with our recent discussions of nationalism and globalization. In a nutshell, he argues that, despite recent events, democracy and capitalism have no viable ideological alternatives. Modern China and Russia, he contends, are fuelled by nationalism, not a political-economic ideology like communism. Conversely, the Western combination of democratic capitalism is still winning the global war of ideas.

Mr. Fukuyama makes some excellent points, especially about the need to evaluate states individually instead of lumping them into categories. However, I do think that he is a bit dismissive of the idea of authoritarian capitalism. His writing belies a conviction that capitalism and democracy are natural partners, and that having one without the other is impossible to sustain.

I strongly suspect that this is the case in the 30+ year outlook: it is hard to imagine the Communist Party in China being able to maintain its grip on power when the economy stops growing so rapidly, which it will at some point. However, as Mr. Fukuyama notes, the ‘Beijing Consensus’ of free markets with closed political systems is widely appealing to many developing countries. Granted, he is probably also correct in observing that it would be difficult to replicate the model in many places, particularly states in Sub-Saharan Africa which traditionally have weak, ineffective, and corrupt bureaucracies. But that won’t stop countries like Cuba from trying to emulate the Chinese model, which speaks to its ideational power. While it’s probably impossible to permanently sever the link between economic and political freedom, perhaps it will prove feasible to temporarily decouple them.

If this is the case, is this a development that should be welcomed? In situations where authoritarianism is ‘benign’, where leaders have the long-term interests of the country in mind, it could be beneficial. Centralized governments insulated from political pressure have a freer hand to implement long-term and necessary but controversial reforms. The problem is that, by virtue of human nature, there are very few enlightened despots in the world. If we concede that most leaders have ulterior motives, combined with a monopoly on the political process, authoritarianism looks like a riskier development model. It’s possible that such leaders could engineer necessary reforms and later be forced out of power as the population grows richer and demands more freedom. But it’s also possible that leaders could use the benefits of increased economic growth to primarily reinforce their own power apparatus.

In short, ‘authoritarian capitalism’ is dangerous medicine. Conversely, capitalist democracy is inefficient, because it empowers actors who might be adversely affected by necessary economic reforms and because democracies can be weak at executing coherent long-term plans. However, it has a better human rights record and is more likely to ensure political stability, which is essential for sustained development.

Which would you choose?

(Image from Tinou Bao’s flickr photostream)