BOOK REVIEW

The Beijing Consensus
by
Stefan Halper

FUTURECASTS online magazine
www.futurecasts.com
Vol. 12, No. 9, 9/1/10

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The Chinese challenge:

 The great power challenge of the 21st century may be economic rather than ideological and military. This possibility has been a part of FUTURECASTS forecasts for many years. Will "authoritarian" capitalism prove superior to "democratic" capitalism?
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  In "The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-First Century," Stefan Halper provides a timely in-depth explanation of why China's "authoritarian" model of the capitalist market system is today spreading and the Western "democratic" model is in retreat among third world undeveloped and second world developing nations.
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  Halper recognizes the serious flashpoints that could quickly lead to a more martial or financial contest. These include military threats, especially involving Taiwan, and an economic or financial confrontation building on the growing U.S. dependence on financing from China. These are all quite real, Halper concedes, but they are none of them probable. Moreover, they have all been well covered elsewhere, so Halper is reasonably content to provide brief summaries.

  A more pertinent criticism of Halper's thesis is the use of the term "Will" in the title.
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  Halper follows a long and discreditable tradition of advocacy scholars running back through those of the 1980s who warned that "industrial policy" would enable Germany and Japan to displace the U.S. as the dominant economic power. In the 1970s, prominent advocacy scholars asserted the superiority of socialist systems. See, Modern Advocacy Scholars, reviewing the work of Lester C. Thurow and John Kenneth Galbraith. In the 1960s it was socialism that was the unstoppable "wave of the future" in Latin America, and in the 1930s it was fascism that was the unstoppable "wave of the future" in Europe.
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  This genre runs much further back than that. It always builds on the undeniable degree of decadence always visible in the Anglo Saxon and other democracies and the supposed superiority of autocratic uniformity of will and rational planning. It is only when autocratic and other government managed systems crumble and the smooth hard rock of censorship is overturned that the full extent of the slimy corruption and astounding inefficiency that permeates these systems is revealed.
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  This does not mean that Halper is wrong! However, his thesis is far from the foregone conclusion that justifies use of the word "Will." The weaknesses of  democratic systems are always on display. The strengths of democratic systems are often grossly underestimated, while most of the weaknesses of their autocratic and authoritarian adversaries are hidden from view.
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  The admittedly simplified question at present is whether the unfettered corruption and inept government economic management in Beijing consensus autocracies will prove more limiting than the profligacy and economic demagoguery of legislatures and the entitlement welfare systems that increasingly enfeeble the West. That government management is INHERENTLY inept applies even to China. Also applicable to China is the pronounced tendency of governments to exhibit a negative learning curve in their economic governance. See. Government Futurecast at Part II, "Government management."
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  FUTURECASTS has for many years recognized but made no call on this question. What is your opinion?

Emerging markets:

  The success of emerging market states has been foreseen and welcomed by the West.
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State capitalist systems are not in conflict with the West, they just make the West and its international concerns increasingly irrelevant.

  What has not been recognized, Halper correctly points out, is that so many of these nations would choose a market system without democratic governance - and that they would not only thrive under this model, but would increasingly arrange their international affairs among themselves without Western influence. As Halper accurately puts it, they are not in conflict with the West, they just make the West and its international concerns increasingly irrelevant.

  "Underlying these new developments in non-Western wealth and connectivity is a simple 'neo-Westphalian bargain.' According to this bargain, sovereign states are empowered to settle the terms of existence inside their borders between the government and the governed. Internationally, they deal with each other in a strict market setting and recognize no real rights or obligations other than to fulfill agreed contracts."

  China's success is fostering emulation. It is based on a new form of capitalism.

  "[The Chinese model combines] first, a liberal economic policy that opens the economy to investment and permits the development of a private sector, albeit heavily controlled by the state; second, the persistence of authoritarian rule, which allows the ruling party to keep a firm grip on government, the courts, the military, and the flow of information."

  A socialist ideology is still invoked to buttress Communist party legitimacy. Party leaders assert that they are only using capitalism to build a socialist state, but with recognition that for a huge undeveloped and complex nation like China, the capitalist phase will last for a century or more. However, this view has little popular acceptance. Socialism has little support. The Party remains committed to a system of "consultation under central leadership."

  "Chinese leaders have therefore extracted what they've needed from Western development models in terms of commercial relations, markets, private ownership, and the circulation of assets, and they've rejected what they don't, in terms of liberal norms and political pluralism."

  China's increasing financial strength puts real muscle behind its autocratic capitalism model. China can use dollar diplomacy to pursue its domestic and international objectives as well as to thwart the international objectives of the West. It can do this because of its huge accumulation of dollar reserves, that Halper estimates at about $2 trillion as of 2009. (The basic dollar money supply in the U.S. is about $2.5 trillion. In 2007, prior to the Credit Crunch crisis, it was less than $1 trillion.) Moreover, China's assistance and commerce with second world developing and third world undeveloped countries doesn't come with conditions or hectoring about democracy and human rights.

  "There is no obligation to create a civil society in the Western sense, no requirement to abide by international accounting standards or accepted legal standards -- and certainly no attempt to interfere in the recipient's internal affairs. China, its state-owned enterprises, and its business owners offer an alternative path to economic development. It is, in effect, an 'exit option' from the often intrusive demands of global lenders like the World Bank and the IMF in areas such as good governance, human rights, transparency, and pro-Western political and market reforms."

China's strong support for sovereignty and the rejection of outside interference in the internal affairs of nations is very attractive to autocratic governments that are being pressured to conform to Western standards on human rights, rule of law, and democracy. China's mix of government ownership and influence over major economic entities is attractive to kleptocratic regimes.

 

The "War on Terror" has also seen the U.S. climb into the diplomatic bed with a variety of Central Asian and Middle Eastern despots. Aid going to these nations is now provided by the U.S. without human rights, nuclear non-proliferation and other conditions previously favored. 

  China is not at present seeking control over second and third world nations. However, it is gaining support from them based on their mutual interest in achieving economic advantage within autocratic political systems. China's strong support for sovereignty and the rejection of outside interference in the internal affairs of nations is very attractive to autocratic governments that are being pressured to conform to Western standards on human rights, rule of law, and democracy. China's mix of government ownership and influence over major economic entities is attractive to kleptocratic regimes.
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  There is no one template to the "China model," and the broad concepts can be adapted to fit the desires of individual autocratic regimes to "disaggregate" economic and political freedoms. Many second and third world nations thus have strong mutual interests in supporting the "China model" of economic and political organization.
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  The Credit Crunch has assisted in the rise of the China model by throwing the Western model into disrepute. The extent to which Western governments have felt obliged to intervene in their market economies has not gone unnoticed. The "Washington Consensus" has become tarnished. The decline of American "soft power" during the Bush (II) administration has broadly undermined the attractiveness of the Western model.
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  Meanwhile, the Chinese government is providing infrastructure projects that would not otherwise have been built in many third world nations. The Chinese complete large projects on time and within budget with "few demands on the internal root and branch of client states."
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  Washington cannot complain about Chinese aid and diplomatic support for various autocrats like Hugo Chavez and Mahmoud Ahmadinejad without having its own support for various oil-rich autocracies questioned. The "War on Terror" has seen the U.S. climb into the diplomatic bed with a variety of Central Asian and Middle Eastern despots. Aid going to these nations is now provided by the U.S. without human rights, nuclear non-proliferation and other conditions that were previously favored. Some tactical realism is, of course, inevitable even for the world's super power, Halper acknowledges, but tactical realism is increasingly the rule for the U.S., not the exception.
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China has no practical incentive to give up its advantages with noxious despots in favor of greater integration with the Western system.

  Simply by doing business without tangential conditions, Halper correctly points out, China is reducing Western influence and blocking Western political, environmental and other agendas. Noxious autocratic governments in Iran, Cambodia, Myanmar, Angola, Venezuela and elsewhere have been propped up by Chinese commercial ties and diplomatic support.
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  The China model gains clear competitive advantages in doing business in such nations. China has no practical incentive to give up its advantages with them in favor of greater integration with the Western system.

  "While the current regime survives in Beijing, China can go only so far in assuming the role of 'responsible stakeholder.' China's mercantilist foreign policy mandates that the raw materials and natural resources needed to sustain the nation's growth will be extracted from developing-world countries, regardless of whether China's activities measure up to, or fall short of, Western ethical standards and the governance that accompanies it, or deviate from global norms."

  The rapid rise of China and other nations outside the West supports the China model. While China, India and Brazil prosper, the West struggles with increasingly unsustainable entitlements and other budgetary and financial problems. By the middle of this century, Halper asserts, China and India will have the world's largest economies.  Even technological prowess and innovation increasingly have an Asian complexion.
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Now lacking any ideological focus, Communist party legitimacy and control depend on its ability to provide "economic growth at an unforgiving tempo."

  China is not without problems, Halper acknowledges. Indeed, many of its problems are the product of its rapid economic growth.
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  These problems include "endemic corruption, environmental crisis, income inequity, displaced populations, extreme poverty, an urban-rural divide, inflation, an angry nationalist youth, endemic work-related health problems, and heavy restrictions on the media." Now lacking any ideological focus, Communist party legitimacy and control depend on its ability to provide "economic growth at an unforgiving tempo." Indeed, so far, it has no other answers for these problems than continued rapid economic growth.
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Rise and fall of the Washington Consensus:

  The competing theories of John M. Keynes and Milton Friedman are briefly sketched by Halper. (These sketches leave much to be desired but are merely a backdrop for Halper's book and so need not be examined further here.)
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  Keynesian policies failed broadly in the 1970s so Friedman's "monetarism" became the dominant guide to economic policy in the U.S. Monetarism was a vital part of the mix of policies referred to as the "Washington Consensus." While these policies were broadly successful in the advanced economic nations, attempts to apply them to second and third world nations had many failures.
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The conditions required for success under the Washington Consensus had been poorly analyzed and were largely ignored.

  The Washington Consensus has been summarized as including "ten points:(1) impose fiscal discipline; (2) reform taxation; (3) liberalize interest rates; (4) raise spending on health and education; (5) secure property rights; (6) privatize state run [businesses]; (7) deregulate markets; (8) adopt competitive exchange rate; (9) remove barriers to trade; (10) remove barriers to foreign direct investment."
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  Halper reasonably criticizes the "one size fits all" manner in which Washington Consensus policies were applied by the IMF and World Bank and Western donor nations The unique problems of individual nations and the conditions required for success had been poorly analyzed and were largely ignored.

  "Was there a robust financial system and a strong legal framework? Were there regulatory institutions and provision for oversight? Were there available people sufficiently skilled to administer the new economy?"

  Exposing third world economic systems suddenly to international competition could have devastating consequences.

  "Nascent domestic industries were quickly overwhelmed by foreign competition. Deregulation and liberalized rules on foreign investment opened markets to speculative 'hot money,' causing severe inflation. Rapid privatization of state industries frequently brought fraud that fed the corruption goblin as previously owned state sectors were taken over by political cronies."

  There were successes in places like Uruguay, El Salvador, Tanzania and Uganda. (Many of the Eastern European states previously dominated by the Soviet Union must also be viewed as successes.) However, in other nations, the effort fell on an unready economic and political environment and failed. Difficulties arose in Mexico, Argentina, Bolivia, Peru, Ecuador, Venezuela, Trinidad, Jamaica, Sudan, Zaire, Nigeria, Zambia, Benin, Niger, Algeria, Jordan, Russia, Indonesia and Ethiopia.
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"The only kind of good governance that takes root is home-grown, not imposed from abroad."

  The failures generally involved a lack of good governance. Efforts to impose good governance practices often fail for lack of domestic support. Such efforts often fail to account for the peculiar governance problems in particular states. "The only kind of good governance that takes root is home-grown, not imposed from abroad," Halper points out.
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  Critics point out reasonably that most industrial countries actively protected domestic industries and provided export subsidies during their development phase. Export-forcing policy is still proving successful for development. Indeed, commitment to Washington Consensus policies was hardly uniform throughout the first world advanced nations. The "Anglo-Saxon model" was frequently rejected in favor of social welfare models in much of Europe. Mercantilist and statist models were favored in Japan and South Korea.
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  Now, new forms of "illiberal capitalism" are thriving.
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  Natural resource-based autocratic forms of illiberal capitalism are present in Russia, Venezuela and the Middle East oil states. With financial resources coming easily from oil and other natural resources, these governments do not rely so much on tax revenues and thus need not be overly concerned with the prosperity of their people. The extent of economic freedom and economic good governance varies widely among these nations.

  The prosperity of these states is actually based on the monetary inflation in the U.S. and the copious flow of dollars abroad. Commodity price inflation has been running at multiple double digit rates for well over a year, now. Resort to monetary inflation not only weakens the U.S., it strengthens its adversaries and other natural resource autocracies. The same thing happened during the Great Inflation of the 1970s.

  Export driven, state directed capitalism characterizes an "East Asian" model. Japan, South Korea, the Asian "Tiger" states and now China epitomize this model. Policies may include "cheap labor, undervalued currency, and heavy state subsidies to achieve export competitiveness in international markets; high levels of personal and business savings to fund national investment in industries; high levels of foreign direct investment (FDI) with tax incentives; and an emphasis on improving education and highly protected domestic markets."

  These are modern, more sophisticated variants of the traditional mercantilist model. They still retain many of the strengths and weaknesses of the mercantilist model, but enjoy the additional strengths of market capitalism.

  Economic growth initially replaced political rights as the primary ideology of these states. Political freedoms frequently arose and  matured after economic growth. The question is whether China will retain the illiberal initial aspects of the Asian model.

  "China has become the symbolic leader of a growing world beyond the West, where elites embrace the power of market mechanisms and capitalist economic growth but continue to protect their choices from the demands of foreign interference and Western liberalism. This emergent society of states isn't structured like its Western counterpart. There is no commonly accepted theory of global civic culture, no acceptance of particular moral responsibilities, and no shared obligation to act on global questions such as human rights, good governance, or climate change. It's defined less by what it is and more by what it isn't. There is no community as such, and certainly no common narrative on universal norms. Instead, there are loose relationships that rest only on a firm respect for two things: national sovereignty and international markets."

Chinese foreign policy:

 

Where the World Bank withdraws financial support, China may step in to provide it.

  China thus blunts the "stick" aspects of Western carrot and stick diplomacy. Where the World Bank withdraws financial support, China may step in to provide it. U.S. sanctions against Iran and North Korea are blunted by Chinese initiatives. (Unlike during the Cold War, the China market is now the equivalent of a hard currency market, increasing the attractiveness of trade and financial relations with China.)
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  Western financial institutions find it increasingly difficult to demand improved governance from non-Western states. The advanced economic nations have themselves not always lived up to such values in the past, Halper points out.
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  The extent to which China has expanded its relationships with noxious regimes and has generally displaced Western influence and blunted Western diplomatic efforts is demonstrated by Halper. He mentions a rogues gallery of despotisms, including Chad, Uzbekistan, Venezuela, Angola, Central African Republic, Cambodia, Sudan, Zimbabwe, Myanmar, Iran, North Korea. China is a "key supplier" to all the major "serial proliferators" of nuclear and other weapons of mass destruction.

  These states are all, in varying degrees, traditional kleptocracies or absolute Asian despotisms. Economic development for the benefit of their people is generally of little or no consequence to them. They are not following any "China model" of autocratic capitalism. They are client states, suppliers of natural resources, and markets for Chinese military goods. They also support China diplomatically in international agencies.

  China's policies have had devastating impacts on the unfortunate subjects in its client states. Halper provides details, especially with respect to sub-Saharan Africa. While Chinese infrastructure projects are of undoubted economic value, Chinese merchants and low cost goods and services destroy local suppliers and thus undermine local economies. This traps African nations in poverty by limiting them to being suppliers of natural resources dependent increasingly on China for all their manufactured goods.

  "Beijing pours billions of dollars in gifts and low-interest loans into the coffers of corrupt African regimes. Meanwhile, these regimes provide access to resources and a dumping ground for poor-quality products that would be unacceptable in Western markets."

Recipients appreciated that this assistance came without strings. China has thus made significant advances into the diplomatic vacuum left by Bush (II) administration disinterest.

  The myth that state directed capitalism is superior to private enterprise capitalism is readily accepted by Halper. (The widespread failures of "industrial policy" and "commanding heights" capitalism during the 1980s and 1990s are not even mentioned.)

  "The terms, the conditions and arrangements, of state directed capitalism give Beijing a distinct edge over Western competitors. State subsidies of Chinese firms provide the incentive needed to pursue overseas projects that may not be profitable, but which accomplish long-term strategic PRC investment and commodity access goals."

  Does this sound familiar? The same things were said about Japan in the 1980s.

  However, he is indubitably correct about the weaknesses of democratic political initiatives in the economic sphere. The Chinese government can ignore or push aside domestic interest groups that might object to or seek to block economic policy. Decision-making is thus faster and more efficient.
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  China's huge hoard of dollar reserves now enables it to use dollar diplomacy abroad in Latin America and elsewhere. Loans in the billions of dollars were extended to Venezuela, Ecuador, Argentina and Brazil during the Credit Crunch. Recipients appreciated that this assistance came without strings. China has thus made significant advances into the diplomatic vacuum left by Bush (II) administration disinterest.
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  Actually, China does attach some explicit strings to its assistance. However, they are diplomatic, not political, and of a sort that is not objectionable to noxious regimes. It is not a burden for them to support China's claims to Tibet and Taiwan. Indeed, they have a strong mutual interest in opposing Western intrusiveness on civil rights matters and occasional Western disdain for sovereignty.
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  Support from its numerous client states increases Chinese influence in the U.N. China's opposition to Japan's efforts to gain a permanent seat on the U.N. Security Council has received important diplomatic support from its client states. Taiwan's bids for U.N. membership and World Health Organization membership are similarly thwarted. Taiwan is increasingly isolated.
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  Even Western oriented third world states are not immune to the attractiveness of Chinese commerce. Halper counts about 50 states in the Chinese block that oppose international interventions against human rights  abuses.  The U.N. Human Rights Commission has become an obstacle in combating human rights abuses. Support in the General Assembly for the traditional views on state sovereignty held by China and Russia is now overwhelming. Client states and states with commercial ties to China also increase China's clout in the World Trade Organization. This decade, they have been forming regional associations that don't include the West.
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  The waning of U.S. influence in international affairs has been recognized by the Obama administration which is now in substantial retreat on many diplomatic fronts. Chinese influence is filling the void as U.S. influence wanes.
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The Chinese model:

  The illiberal state capitalist market model is attractive to states like Russia and various nations in Asia and the Middle East.
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  Autocratic governments appreciate the increase in power and control over their own people that control of major economic assets gives them. China provides an example as to how they can enjoy that economic and political power and also have an expanding economic system. Governments are buying strategic economic assets and employing commerce as a tool for diplomatic influence.

  "Sovereign wealth funds from the Gulf, Asia and elsewhere are buying stakes in ailing Wall Street investment banks; natural resources are falling under the control of the state; and in Russia and China, there is an emphasis on economic nationalism."

  The success of China's command and control economic market model undermines Western beliefs that market economics tends to transform developing countries into liberal regimes. The advance of democracy after the fall of the Evil Empire and the crumbling of autocratic socialism worldwide appears to have run its course.

  "The marriage of free politics and free economics is being replaced by governments determined to reassert control over their economies, enhancing both their autocratic base and their global influence."

  Several characteristics of the China model are pointed out by Halper.

  • The development of large energy companies and national champions "heavily in bed with the ruling political elite:" Oil and other natural resource companies, public utilities, transportation companies, heavy industry -- what used to be called the "commanding heights" of an economy -- are frequently brought under state control not only in China and Russia but also in such states as the Philippines, India and the North African states.
  • The need for political patronage for the conduct of private business: Ties with the ruling elite are tight. This always brings political considerations front and center into commercial decisions.
  • Mercantilist export forcing policies: Russia applies Chinese commercial diplomacy tactics through Gazprom to enhance its influence in Europe and Central Asia.
  • The accumulation of financial reserves in sovereign wealth funds: These funds may acquire large stakes in commodities, real estate, foreign bonds, currencies and foreign public companies or take control of foreign public companies. Nations that maintain balance of payments surpluses gain this capacity at the expense of Western debtor nations. The sums involved already amount into the many trillions of dollars and are increasing rapidly.

They all follow the central autocratic principle; "We will let you prosper, you will let us rule."

  Sovereign wealth funds from such nations as Singapore, Kuwait and South Korea have been able to buy significant stakes in prominent Western financial institutions such as Citigroup, Merrill Lynch, Barclays, UBS, Morgan Stanley, Bear Stearns and Canadian Imperial Bank as a result of the Credit Crunch. 
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  Of course there are major differences between China and the other states now pursuing variations on the China model. Autocratic Singapore and Kuwait are far different from the Russian thugocracy or the Chinese party despotism. However, they all follow the central autocratic principle; "We will let you prosper, you will let us rule."

  "The government embraces certain tenets of liberal economic policy, such as opening the economy to foreign investment, allowing labor flexibility, keeping tax and regulatory burdens low, and creating a first-class infrastructure through combined private-sector and state spending. It also keeps a firm grip on government, the courts, the army, the internal security apparatus, and the flow of information."

Political parties and legislatures are widely in disrepute, and experience with corrupt legal systems has undermined belief in the rule of law.

  China spreads this model by example, not by force. Various regional powers are increasingly adopting features of the China model. Halper mentions Indonesia, Vietnam, Nigeria, Turkey, Saudi Arabia, Pakistan, Venezuela, Brazil, South Africa, Ukraine and Egypt. Some of these are shaky democracies plagued by corruption and failed economic governance, while others are autocratic and intent on staying that way. They find much to admire in the China model alternative to market democracy.

  "First, that China's rise demonstrates the ability of a middle-sized power to achieve high global status in a short period without regime change or ideological compromise; and second, that its model offers a path to prosperity and stability that avoids term-limited rule, raucous legislatures, critical media, and the cacophony of the public square."

  China has actually adopted a form of term limits for its top officials to prevent the senescence of government that afflicted the Soviet Union in the late 1970s and early 1980s and has been an especially weak aspect of autocratic monarchical and other forms of despotic government.

  Nations like Syria and Iran explicitly expect that China model methods will enable them to achieve economic growth without political dissent. Central planning methods are attractive even to democratic states like Brazil. For rigidly autocratic states like Ethiopia and Cuba, the China model offers hope for economic development.
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  Moreover, with the advent of the Credit Crunch, public opinion worldwide is shifting in favor of systems that promise economic development and social order rather than democratization. Political parties and legislatures are widely in disrepute, and experience with corrupt legal systems has undermined belief in the rule of law.
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  Democratic elections in poor countries have frequently failed to produce economic development. Meanwhile, autocratic leaders like Russia's Vladimir Putin and China's Hu Jintao who have delivered economic development while retaining social order enjoy widespread public esteem. In short, U.S. and Western "soft power" is in substantial decline while China's is growing.

  Halper ignores the other side of the coin. What is it that undermines the status of the democratic free market capitalist system?
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  It is no mere coincidence that the democratic states that have burdened themselves with excess levels of public and private debt, massive unsustainable entitlement welfare obligations, rigid labor markets and high tax and regulatory burdens suffer massive balance of payments problems and financial decline. These disadvantages are clearly far more important factors than the asserted advantages of state capitalism.

  The many weaknesses of the China model as practiced by China are not overlooked by Halper. However, he concentrates on the sociological and political rather than the economic weaknesses.

  "Coastal areas are growing faster than the interiors, and inner cities are ringed by poverty. Disparities of income and social stratification are deeply pronounced. Exploitation by local elites is endemic, and local authorities are infected with corruption. Moreover, the export-based economy is in a perpetual state of overheating, technological progress has brought an influx of foreign ideas, and the party has permitted the rise of a volatile nationalism to refocus the nation's identity and fill the gap left by a diminished Maoism."

  There are in fact many economic weaknesses that are as yet not evident due to the overwhelming advantage of China's supply of cheap labor. However, this advantage is not as extensive in other nations, and even in China it will not last forever.

Expectations that China will "inevitably" become a "responsible stake holder" in world affairs are thus grossly erroneous.

  China deflects all of its many political and sociological problems by providing rapid economic growth. Expectations that China will "inevitably" become a "responsible stake holder" in world affairs are thus grossly erroneous. China cannot afford to surrender the commercial advantages it gains by its willingness to deal practically unconditionally with the world's most noxious despots. It certainly cannot be expected to cooperate with Western human rights and democratic governance agendas while it determinedly contains those ideas at home.
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"Peaceful development" became a guiding principle to avoid the commercial roadblocks that military conflict might create around the world. 

  Communist party resolve to resist all social and political liberalization was hardened by the Tiananmen Square riots and the collapse of the Soviet Union. The party also strengthened its resolve to push economic reforms as a means of retaining legitimacy and public support. "Peaceful development" became a guiding principle to avoid the commercial roadblocks that military conflict might create around the world. 

  "Above all else, [Chinese] analysts advised the government to concentrate on economic development and productivity growth. [They] urged that the government seek 'not only to strengthen the comprehensive power of the state but, more importantly, the material living standards of the  people.' [They] continued: Leaders must be more 'ideologically flexible' and 'progressive.' Again, the beating heart of the policy was economic growth. The party was urged to understand better the complexity and fundamental causes of ethnic and political tensions, and to expedite economic growth as the most effective way to solve these tensions."

"Those expecting any substantial moves toward democracy would be waiting a long time."

  Thus, China has adopted pragmatism in place of ideology. Its leaders flexibly seek out and do what works. The "bamboo policy" is to bend with the wind instead of standing straight and eventually snapping. Productive interests and creative people, including intellectuals, students and entrepreneurs are today welcomed into the party. Problems like corruption and the rural-urban divide are recognized instead of being covered up. However, this flexibility does not extend to political liberalization.

  "Chinese leaders learned from their analysis of Eastern Europe and Tiananmen Square that Moscow's attempt at half-steps toward political liberalization proved ruinous. - - - The Tiananmen protests had demonstrated how a limited student movement could quickly draw support from other elements and escalate beyond control. The only way forward, therefore, was three cheers for capitalism and absolutely none for democratic reform -- however limited."

  In 2007, even intraparty democratization was completely rejected. "Those expecting any substantial moves toward democracy would be waiting a long time," Halper insists.
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Criticism of individual officials or individual actions or even particular policies is permitted and sometimes effective, but that's as far as it is permitted to go. Party legitimacy or monopoly of power cannot be criticized.

  The Communist party thus actively forbids any challenge to its authority. Criticism of individual officials or individual actions or even particular policies is permitted and sometimes effective, but that's as far as it is permitted to go. Party legitimacy or monopoly of power cannot be criticized.
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  The internet has been increasingly effective in exposing corruption and abuse of power. However, Beijing has 40,000 internet police monitoring internet use. The government now wants to require that all personal computers sold in China include preinstalled software permitting government intrusion and the blocking of web sites that display "unhealthy information."

  "In fact, such public criticism actually bolsters that monopoly by presuming that the authorities will act to clean up abuses when they hear of them, providing these are 'abuses' by individuals rather than symptoms of a flawed system."

   This approach is reinforced by China's Confucian ethic. A "harmonious society" is the primary political objective. This is achieved by subservience to the ruler as long as the ruler "fulfills important duties of ensuring livelihood, shelter, education, and security from foreign invasion." The party thus must provide stability, growth and opportunity. At times when a ruler has failed at these tasks, China has experienced vast "bottom-up" rebellions.
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Patriotic propaganda is now pervasive in school curricula. Japan, Taiwan and the U.S. are widely designated as China's enemies.

  This approach is further strengthened by an appeal to nationalism. Personal success is not just for personal benefit. It helps China regain its preeminent place in the world.

  This view is similar to the "invisible hand" belief that markets direct individual economic activity towards provision of social benefits.

  Patriotic propaganda is now pervasive in school curricula. Japan, Taiwan and the U.S. are widely designated as China's enemies. Halper points out that this propaganda has been successful - perhaps too successful.

  "A violent form of xenophobic Chinese nationalism simmers within the popular psyche. Familiar narratives about the Century of Humiliation, or Japanese atrocities, or Taiwan's splittism and American meddling inform a flow of nationalist themes found on the Internet, in the popular press, in magazines, and on television."

  Widespread nationalist ire can erupt uncontrollably - and even be turned against the party leadership if the leadership appears too weak or ineffective in dealing with some international incident. It can be used to influence the struggle for control within the party, and can disrupt commerce with the U.S. and Japan. A Chinese version of yellow journalism presents a vigorous nationalist line on foreign events as the various media vie for circulation.

  "Nationalism is therefore a double-edged sword for the ruling elite. It provides a crucial way to unite party members, but as a ready source of popular anger looking for a focus, it also threatens to blow back on the government or become uncontrollable. As the government knows, its political survival depends on keeping these groups unified behind the party. In turn, this means upholding the China success story and the economic miracle that is making the nation modern and great once more."

  Considerable social ferment is being driven by rapid economic development, urbanization, and disruption of traditional civil society. Halper summarizes the many demographic, social, class, religious and ethnic crosscurrents that the party has to both accommodate and contain. There were 87,000 protests in 2005, "many violent -- over land disputes, malfeasance, alleged corruption, and extortion." Mass relocations to clear land for development are especially damaging and resented. Corruption is pervasive, and is at its worst in the inland provinces.

  "In this respect - - - China is becoming a decentralized, predatory state, where the center has a limited ability to control the behavior of local officials."

  Environmental problems in China are now notorious, monumental, and getting worse despite belated government efforts to grapple with them.

  "The Chinese story of economic miracle must continue to triumph over the parallel stories of repression, foreign ideas, stratification, corruption, land seizures, and environmental fallout. The record of the last fifteen years suggests that this has been the case and that these problems are not so acute as to threaten CCP's continued rule. But this can only remain the case so long as the government continues to deliver impressively high growth rates. 'Growth' is the engine that generates higher living standards and jobs for the workers leaving state-owned industries, migrating from the countryside and graduating from secondary and higher education."

  The lack of a convincing ideological component is one of the factors that limits the attractiveness of the Beijing consensus. It is limited to economic growth "with everything this implies in terms of a general proclivity for poor working conditions, low wages, corruption, political oppression, environmental irresponsibility, and human rights violations."

  "Add to this the recent and growing problems with local labor, work site disputes, and systemic animosity now evident at Chinese projects from Sudan to Papua New Guinea to Nigeria. Much of this reflects Chinese workers' perceptions of race and culture."

Dysfunctional analysis in Washington:

 

"China has survived the global demise of Communism to become the world's most powerful rising power. Yet it has neither confronted the U.S.-led system nor gradually conformed to the American worldview in the two decades since Soviet collapse."

  China is viewed in a variety of inaccurate ways by Washington analysts.
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  Reality is starkly different than the narrow views
presented by the variety of China "bashers" or "huggers, hawks and doves."

  "The very nature of the China challenge means that no single group has the answer -- or even  a complete definition of the problem. The Chinese are our economic partners, but they are also our political rivals. Thirty years of successful market reforms indicate that the Chinese Communist Party is not about to crumble. But neither is it melting into liberalism. China has survived the global demise of Communism to become the world's most powerful rising power. Yet it has neither confronted the U.S.-led system nor gradually conformed to the American worldview in the two decades since Soviet collapse."

A conflict with the U.S. would imperil the Communist Party's primary objective of continuous rapid economic expansion.

  The possibility of a military conflict between China and the U.S. is not dismissed by Halper, but he asserts that it is highly unlikely. The Chinese military buildup is proceeding at an accelerating pace and is reaching impressive dimensions. This has brought the discredited "neo-con" analysts back out of the woodwork.
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  However, Halper takes some comfort in the fact that China's military preparations at present do not include a world-wide reach.. They are regional in scope, designed to project force in the Western Pacific and South China Sea., around and within China's borders, and to exclude U.S. intervention in these areas.

  China is now extending its military reach into the Indian Ocean. It is thus obtaining an ability to project military power over an area considerably greater than that of Japan prior to WW-II.

  Halper's primary point is that a conflict with the U.S. would imperil the Communist Party's primary objective of continuous rapid economic expansion.

  Halper's view is reasonable but ignores a basic strategic and tactical tenet. Military preparations must cover what a potential opponent "can" do, not just what he is "expected" to do
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  Prior to 9/11/01, every futurist expected some major terrorist strike in the U.S., but the dovish analysts in the Clinton administration refused to seriously consider the issue. The hawks in the Bush (II) administration had little time to alter this mindset and in any event demonstrated an equal capacity for intentional blindness when Paul Wolfowitz and others determinedly refused to take seriously or prepare for indigenous uprisings in Iraq or Afghanistan such as had routinely occurred in the past.
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  The U.S. military has no choice but to attempt to stay well ahead of China's military buildup. Without the U.S. defense shield, China will be able to bully all the nations of the Western Pacific and around the South China Sea and even into the Indian Ocean. This includes South Korea, Japan, Indonesia, and even the Philippines and India.
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  Hopefully, China will be content to engage these and all nations in peaceful commerce under normal contractual arrangements, but U.S. weakness will not increase the likelihood of that highly desirable outcome.

  More convincing is Halper's criticism of the trade hawk position. Fears that Chinese investments in the U.S. will "buy" the U.S. and lead to economic domination are risible. The furor over China's bid to buy Unocal, a minor petroleum supplier, is appropriately denigrated. Unocal provided only 0.8% of U.S. production of crude oil, condensate and natural gas liquids, and in any event could not turn off the taps during a conflict no matter who owned it. (Protectionist fervor routinely does more to undermine U.S. commercial power than anything Chinese commercial maneuvers could possibly accomplish.)
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China is not about to challenge major Western strategic interests. Instead, it is moving around them, forging commercial relationships and security relationships with undeveloped third world and developing second world states like Russia, Brazil and India that are already outside Western influence.

  The history of Western "great power" conflict also fails to provide a convincing guide to strategy with respect to the China challenge. China is not about to challenge major Western strategic interests. Instead, it is moving around them, forging commercial relationships and security relationships with undeveloped third world and developing second world states like Russia, Brazil and India that are already outside Western influence. Chinese commerce with these states already exceeds its commerce with Europe and North America.

  "Emerging markets are increasingly turning to each other for business and aid. Thus, the integration of developing nations with the global economy may not presage greater integration with the West. But neither does it necessarily mean conflict. China is forging a path beyond the boundaries of traditional European history and beyond challenging the hegemon incumbent or conforming to its norms and conventions."

  Halper easily disposes of protectionist arguments. Even Chinese manipulation of its currency does little commercial damage to the U.S. A rising yuan would simply shift production of U.S. imports to other nations, and would increase Chinese imports from nations with lower costs than the U.S. There would be minor U.S. gains, but they would be offset by the increasing cost of U.S. imports.
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  A host of other groups raise alarms of varying validity about a variety of other issues. Human rights, Tibet, food and drug import safety, construction supplies, Chinese hackers, Chinese investments in the U.S., are subjects targeted by various issue groups.
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Belief that democratization inevitably follows establishment of free market  capitalism and prosperity is dismissed as based on "false choices and grand oversimplifications."

  The possibility of liberal political transformation in China is often viewed optimistically by those with commercial ties to China and by a variety of political and academic groups. Halper mentions the U.S. China Business Council, Presidents Clinton and Bush (II) and candidate Mike Huckabee and the American Enterprise Institute. Halper dismisses these views as blind optimism.

  "While this idea could be forgiven as legitimate optimism twenty years ago, prudence now suggests that China's hybrid system of economic liberalism and political autocracy is here to stay, for a generation at least. China's authoritarian political system is proving a durable status quo, with powerful forces at work that preserve its balance and legitimacy and inhibit any far-reaching change."

  Belief that democratization inevitably follows establishment of free market  capitalism and prosperity is similarly dismissed by Halper as based on "false choices and grand oversimplifications." Media coverage of this issue is generally simplistic and often sensationalist.

  "Across a matrix of news outlets, think tanks, policy groups, and political camps of government, the China discussion has an element of the Tower of Babel, with competing lobbies and zealots making a collective noise that suppresses effective discourse. Unlike the foreign policy discussion in China, which is usually focused and integrates strategic and other concerns, the American debate is too often a noisy dirge in which each of the special interests has a part."

  Foreign policy debate in the U.S. is often reduced to two simplistic choices based on analogies with Munich and Vietnam. Withdrawal and peaceful engagement are criticized as appeasement and weakness; military preparation and active confrontation are criticized as creating a self-fulfilling prophecy and entering a quagmire.
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Because of Bush (II) wars and policies and the Credit Crunch, the world has stopped listening to American lectures based on the ideas and norms of Western liberalism. However, withdrawal is not an option. A soft power strategy based on a realistic understanding of the challenges posed by China's spreading influence is essential.

  The actual contest is more of a soft power challenge than a hard power conflict, Halper explains. It is a political and cultural challenge that China poses and is currently winning in emerging markets and the global South. Because of Bush (II) wars and policies and the Credit Crunch, the world has stopped listening to American lectures based on the ideas and norms of Western liberalism. However, withdrawal is not an option. A soft power strategy based on a realistic understanding of the challenges posed by China's spreading influence is essential.
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  Unfortunately, China is so huge and complex that a realistic understanding is almost impossible. Contradiction abounds everywhere. There is a ferment of conflicting forces and trends. However, at present, the Communist party has mastered the task of staying on top of them and keeping them unified.

   "Modern China, then, is an index of contradictions. Notwithstanding this, it is also governed by a ruling elite that has proved its metal in the last twenty years at bending rather than breaking, at adapting to change and constantly adjusting its strategy to maintain the seemingly impossible balance of governing a fragmented and colossal polity."

However, control is not so confidently maintained that it overcomes the fear of losing control - of things coming apart - of political and social chaos.
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Response to the China challenge:

  China offers a political and economic option for third world undeveloped and second world developing nations that is increasingly viewed as more attractive than the Western liberal model.
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Privatization has been displaced by government interventionist and "commanding heights" and state capitalism ownership models as a guiding principle not just in developing countries but  even increasingly among Western countries.

  Liberal market reforms can be chosen and successfully implemented without having to sacrifice political control. Globalized markets can be actively and responsibly accessed to obtain material needs and to market exports without worry about Western efforts to confront noxious despots, rogue regimes, nuclear proliferators or global warming.
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  Indeed, powerful Chinese diplomatic and commercial support is available for those that wish to ignore Western good governance reform efforts and other aspects of the Western agenda. China will do business with "the good, the bad and the ugly -- as long as they pay." China is "an alternative source of aid, trade, loans, and investments."
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  The Chinese model ignores in whole or in part elements of the Washington Consensus model that autocratic governments dislike. These include transparency, rule of law, anticorruption measures, social investment and effective budgeting. The Washington Consensus efforts during the 1980s and 1990s were based on a "free market fundamentalism" that emphasized privatization, economic liberalization and price stability, but that ignored vital political and social factors such as land reform, education, and "bad-governance issues in both the public and private sectors." Numerous failures undermined acceptance of the Western model.
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  International agencies are increasingly being thwarted by China and its supporters or are falling under their control. Privatization has been displaced by government interventionist and "commanding heights" and state capitalism ownership models as a guiding principle not just in developing countries but  even increasingly among Western countries.
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  China is thus both a partner and a rival - and neither. China will use structures of global governance for its benefit and subvert them whenever that provides commercial advantage and assures its domestic stability. There is thus no grand strategy that can apply to the China challenge, Halper again emphasizes. An effective response must flexibly accommodate a wide spectrum of individual details.

  • China is not a reliable partner. It will not play by Western rules. It will not form a G2 with the U.S.. It will respond favorably only so far as its own interests coincide with Western interests on individual issues.

  The bad news is that "Washington and Beijing have fundamentally different priorities."  Halper does see some mutual interests, such as maintaining international commerce and maintaining peace and stability in East Asia and even in halting climate change. However, China and the U.S. differ on questions of sovereignty, sanctions, and conditions justifying the use of force. China determinedly rejects any necessary connection between economic and political liberalization.

  "In the end, our objectives and theirs are not the same, and it's unwise to enshrine the status of U.S.-China relations in rhetoric that pretends such compatibility. The results will lead to recriminations and disappointment more than they will to successful partnership."

All want a stable commercial system, "so that everybody can get on with the business of doing business."

  However, the U.S. still retains leverage within significant parts of the international system that may offer opportunities to influence Chinese conduct. The U.S. remains clearly predominant both militarily and economically, but that predominance is declining and in any event is not sufficient to assure our national interests with respect to such issues as terrorism, nuclear proliferation and climate change. Engaging in international partnerships, "coalitions with key states and quid pro quo horse trading," and the use of soft power are thus essential.
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  Moreover, all the other major nations and most of the smaller ones face the same problems, and most know that they are dependent on U.S. leadership to deal with them. Even China appreciates the stabilizing influence of the U.S. in the Western Pacific and East Asia, without which an arms race with Japan and perhaps others would break out. Even China appreciates the importance of the American market. All want a stable commercial system, "so that everybody can get on with the business of doing business."

  • The U.S. can join favorable coalitions and associations dealing with issues that are important to China that China may want to join to avoid being isolated. Climate change, energy security, nonproliferation, and pandemic disease control are offered by Halper as areas where U.S. leadership could create coalitions and programs that China might want to join.

  Some subjects, like pandemic control, the law of the sea and security of sea lanes, are traditional government projects of broad mutual interest and fit nicely into this framework. However, the institutionalization of industrial policy initiatives will just enshrine inefficient and incompetent political policies. There is already a broad nonproliferation coalition that China sees no practical need to join and often actively thwarts. Indeed, China can thwart the objectives of any coalition that she does join, as she frequently does now in the UN. She will frequently find others of like mind among such nations as Russia, Brazil, Turkey and India that could not be excluded.

  • Criticism that is widespread and widely popular - like the Olympic torch protests - can have considerable impact in China where unilateral hectoring by the U.S. or some small group of nations will be ignored. The U.S. should encourage in a subtle manner broad international opinion to pressure China with respect to some of its most egregious policies.

  "Chinese officials have been unnerved by the broad and unified critique of international public opinion. In various cases, such as Chinese tactics in Tibet, Chinese support of Sudan, and arms shipments to Zimbabwe, coordinated global indignation has brought a reluctant and calculated bow to international pressure and a shift, at least marginally, in the policy."

Soft power:

  The Bush (II) administration was a disaster for U.S. soft power - and soft power will be a determining factor in dealing with the Chinese challenge. That challenge is especially focused in the developing world, and it is U.S. soft power that must be used to meet it.
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Public opinion in second world developing and third world undeveloped nations is increasingly favorable towards China and increasingly negative towards the U.S.

  More than half of global economic growth today occurs in the developing world, making U.S. relations there strategically vital. China has moved vigorously and effectively to fill the vacuum left as the U.S. became mired in the Middle East. Public opinion in second world developing and third world undeveloped nations is increasingly favorable towards China and increasingly negative towards the U.S.
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  In Africa, China deploys agricultural experts and creates agricultural technology centers, builds hospitals, rural school and sports facilities, fights malaria, deploys volunteers like our Peace Corps, trains African professionals and provides scholarships. The U.S. does these things too, but Halper asserts it should do more.
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  China's image is not all positive, however.

  "Chinese market share in the emerging markets has brought 'factory closures and job losses from India to Syria,' and 'export subsidies - - - pegged to the '[declining] dollar have only aided Chinese exporters.' While Chinese firms provide some local employment, training and technical expertise, and numerous public goods -- often in the form of major infrastructure projects -- they tend to use their own imported workforce, leave negative environmental footprints, and bring secondary waves of merchants that put locals out of business. The Chinese presence has already incurred a popular backlash in areas such as South Africa, Zambia, Nigeria, Angola, and Gabon, where many believe the China relationship has benefited the elites, marginalized merchants, and disadvantaged ordinary working people."

Agricultural subsidies and other U.S. protectionist measures are vastly destructive of U.S. international interests and soft power initiatives.

 

Financial and economic decline and loss of economic competitiveness have been vastly destructive of U.S. international interests and soft power initiatives.

  However, the U.S. image also has its problems. Agricultural subsidies and other U.S. protectionist measures are vastly destructive of U.S. international interests and soft power initiatives, Halper properly emphasizes. Halper nevertheless has faith in government development planning. He favors a new government bureaucracy to focus soft power initiatives. He advocates the establishment of a new international organization for U.S. and African relations and development.

  Who will be excluded? Europe? Russia? Brazil? Canada? Will African states have a say in who is included and who is excluded?

  More on point, Halper notes that financial and economic decline and loss of economic competitiveness have been vastly destructive of U.S. international interests and soft power initiatives. Vast debts undermine U.S. finances and failing schools undermine its human capital. Balance in the federal budget and policies that provide incentives for personal savings are needed. Nevertheless, infrastructure, research and development and education need more funding.

  As in the Cold War, it is the U.S. dollar that will be the primary strategic weapon with which the U.S. must meet the Chinese model challenge - and China now has more dollars to spare than we do.

  Halper favors industrial policy to reduce petroleum use and encourage foreign investments in the U.S. It should be government policy to require greater gas mileage for new cars and alternatives to the gasoline engines. (Great! Corn ethanol has been so successful!)
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  Relations with India, Russia and Japan should receive special attention to counter Chinese power and influence in Asia, Halper more realistically asserts. All of these regional powers have reasons to be wary of Chinese intentions. This should involve neither alliances nor containment of China, but should involve relationships based on mutual interests that recognize and accept the many conflicting interests that remain. The U.S. can no long afford to hector Russia about human rights just as it had to recently put aside its sanctions on India's nuclear weapons program.

  "We must learn to minimize deliberate challenges to Russian interests and recognize that where we push -- as with NATO expansion and sponsoring Georgian sovereignty over the disputed regions of Abkhazia and South Ossetia -- they will most certainly push back. We must also accept the end of the neoliberal dream for post-Soviet Russia; it's gone. Just as we won't be housebreaking China, nor will be be doing anything similar in Russia. Last, we must recognize that it's quid pro quo or nothing on issues like cooperation in Afghanistan and Russian hegemony in Central Asia."

  The memberships of international organizations should be expanded to include India, Brazil, Japan, Germany and Russia, and even South Africa. The rising commercial influence of these nations must be recognized.

  This is easier said than done. China will block Japan. Russia will block Germany. With enlarged memberships, how will anything ever get done? Will some of these new nations have veto power in the U.N. Security Council?

  As difficult as this may be, Washington should at least be seen making the effort, Halper correctly advises. (The Security Council is impotent, anyway.)
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Conclusion:

 

 

 

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  The challenge of the China model, Halper asserts, arises "not by virtue of its military power or its accumulation of U.S. dollar reserves, but as the catalyst for a global shift in development economics, away from the market-democratic model and toward a new type of capitalism, which can flourish without the values and norms of Western liberalism." There is no single grand strategy that can be invoked to meet this challenge.

  Halper is essentially correct, but the importance of the dollar and military superiority should not be so lightly dismissed.

  Western values are the most powerful tools available with which to meet this challenge, and they are the weapons China fears the most, Halper asserts further. Using its formidable soft power, the U.S. and the West must devise soft power ways to promote those values.

  The markets will ultimately have the most to say in this matter. The most important policy moves required of the U.S. are the ending of its addiction to deficit spending and monetary inflation, and escape from the entitlement welfare system that is reducing it to a financial weakling. In time, China will have its own economic and financial problems.

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  Copyright 2010 Dan Blatt