Saturday, November 23, 2013

China! China! China!

By Alan Caruba

“Doom is one of the oldest stories of mankind,” says Josef Joffe in his excellent new book, “The Myth of America’s Decline: Politics, Economics, and a Half Century of False Prophesies.”

As long as I can remember I have read and heard that America is in decline beginning when Sputnik was launched in the 1950s. We were all told that the Soviet Union was to be the next great superpower. It collapsed in 1991. The Federation that replaced it was the shrunken loss of many of its former captive satellite states. Throughout the 1960s and 1970s, we were told a resurgent Europe would overtake the U.S. and in the 1980s that Japan would become an economic superpower.

Now we are being told that the future belongs to China and the emerging economies there and in India. Joffe, a Fellow at Stanford University’s Hoover Institution, publisher-editor of Die Ziet, and frequent contributor to Foreign Affairs, has gathered together the facts of America’s economic ups and downs to present a realistic and optimistic view of the future.

The news is filled with reports on China’s 18th Central Committee’s Third Plenum, citing promises of expanded property rights, transparent market regulation, and prices set by the market. The Wall Street Journal, however, noted that “China’s new leaders are tightening political repression”, the mark of every Communist state. There was also news of China’s loosening of its “one-child” policy that restricted couples from adding too much to its population of 1.3 billion.

Joffe demonstrates why China has many problems that will keep it from overtaking America’s economic dynamism and before you fall the latest version of America’s decline, you should definitely read his book. He asks, “Who would actually want to live in a world dominated by China, India, Japan, Russia, or even Europe, which for all its enormous appeal, cannot take care of its own backyard? Not even those who have been trading in glee and gloom decade after decade would prefer…to take over as housekeeper of the world.”

As for China, Joffe notes that it “has the largest population on earth, half of which is still living in the countryside.” Half the population “remains poised to go urban and sell its labor at low wages”, but he also points out that, in terms of its demographics, “China is getting older and America is getting younger.” Its fertility rate has dropped and “Aging is not good for growth and so China will inevitably slow down, with rapid aging adding pressure to all the other growth brakes embedded in an economy that remains resolutely statist.”

And that is China’s problem. While introducing reforms, China is still a nation where the state owns and operates much of its economy. This is an object lesson and warning to Americans who are now rising up to demand that Obamacare, the takeover of one sixth of the U.S. economy, be repealed. Governments cannot and should not run various elements of a nation’s economy because decisions are based in politics, not the marketplace.

“China’s working-age population will reach its peak at the end of this decade and decades before the People’s Republic is supposed to overtake the United States.” Meanwhile, thanks to our fertility rates and immigration, the U.S. will have a population of younger workers. It has not escaped the attention of observers that, by 2025, China would account for less than a fifth of the world’s population, but almost a fourth of the world’s senior citizens.”

“A burgeoning army of pensioners and infirm will eat up investment funds as a fire will consume oxygen,” says Joffe. Aging populations worldwide, including our own, put enormous strains on growth and, as we have seen here, social programs such as Social Security and Medicare are threatened with insolvency unless reformed. Nothing scares the political class more as the aging citizens who represent a major voting bloc.

“Economic growth could soar or falter tomorrow, but populations change slowly because they are rooted in long-term trends and culture,’ says Joffe.

Joffe also cited China’s educational system that places its emphasis on learning the answers to tests as opposed to the ability to think creatively and question government dictates. This reflects in part our own educational system that has been tending toward “teaching to the test” and a national curriculum such as is being imposed in the current “Common Core” program that the Obama administration has introduced.

“In a one-party state that is China, the government is the ultimate guardian over what students and scholars may read, say, and even write, in schools for the elite.”

Education is the basis of “human capital” because an educated population is a major contributor to economic growth. “One quick, but effective, way is to look at education expenditures as a share of GDP, where the United States beats China and India hands down.” They spend around 3.5 percent while the U.S. spends 7 percent. And this on a population one-quarter the size of China’s and one-third the size of India’s, and with a GDP that dwarf the economies of China and India by factors of 2.5 and 10, respectfully.

Militarily China may pose a problem for Asian nations; it is unlikely to pose a threat to the United States whose military power, though being reduced by expenditures and other factors, is still the greatest in the world.

“In his Rise and Decline of Nations, Mancur Olson argues that closed societies freeze up-victims of rent-seeking elites who capture political power to cement economic privilege and stifle the competition that fuels rejuvenation.”

America’s problem is not so much China as it our out-of-control spending and the dangerous increase in our indebtedness. Until this is gotten under control we will be borrowing too much and, China, that purchases much of our debt will do its best to compete economically with a system that does little for its own and which depends on our financial stability.

All of this argues for an America, for all its current problems from an administration trying to “transform” America into a Communist worker’s paradise, that will replace the backward steps that have been taken and make the changes necessary to remain the world’s only true superpower.

That is the payoff of capitalism and freedom.

© Alan Caruba, 2013


Ronald Barbour said...


Another excellent article that I agree with 100% - the "Doom And Gloom Club" always gets it wrong, because they focus on the downside of events in America, which they ignore in countries like China.

Yes, I know that some people think I'm Cassandra making terrible predictions about America's future; however, I've always said that even if the worse happens - and a Second U.S. Civil War were to break out - at the end of the day, the United States would rise again to heights we today cannot even imagine.

Like motto on the wall of my barrack in boot camp said, "That which does not destroy us makes us stronger."

Alan Caruba said...

Thanks, Ron. The real trick will be to avoid having Iran nuke us.

Now all we have to do is survive Obama.

Rich Kozlovich said...

I also tire of hearing how China is now a ‘super power’.


China houses most of its massive population in an area that is about the size of everything east of the Mississippi River in the United States, and they are ethnic Han. The rest of China is sparsely populated and mostly occupied by other ethnic groups that hate the Han and consider the central government illegitimate, and the general population has grown to doubt the legitimacy of the central government as a result of all the incompetence and corruption.

The government’s one child policy has created a large male/female imbalance in the population as a result there isn’t enough women to go around. This creates serious social consequences and dissatisfaction.

Pollution is terrible and the government is spending huge amounts of money to keep everyone working, including building cities that no one occupies, and the banking system has troubles the government hides.

China isn’t likely to start any serious war with anyone outside their borders. China prefers the “object lesson” conflict” as they did with India in 1962. That was on their border and short. So in order to stabalize a population that considers the government illegitimate they may start a ruckus with Japan over a handful of tiny Islands off the coast of China known as the Diaoyu in China and the Senkaku in Japan.

By pushing this they then bring into play far more than these islands and its potential wealth. They create a Munich Moment. The real goal of the Chinese government is to be the big dog in the South China Sea and ultimately all of South East Asia. If they push this and win; it seriously weakens American influence, militarily and economically. The rest of the countries in the area can be much more easily bullied into falling into line, including India and the Philippines, and of course even Australia.

The really overwhelming difference between China and the U.S. is we are capable of eliminating regulations and government agencies that are stifling American capitalism. When we decide enough is enough American capitalism will be turned loose like a force of nature.

China will still be a bureaucratic behemoth.

Alan Caruba said...

Thanks, Rich. You added a lot of worthwhile analysis and usual!

TL Winslow said...

If the U.S. can make the Muslim World go poof, China and India can never overtake it. But if the Muslim World chews it up, then they'll be waiting in the wings. Too bad, a world run by China or India won't be one we want to live in.

Bhaskar Menon said...

There is little chance of China or any other nation taking over America's global leadership, but I think that is not the important concern. Unless the American political system comes to grips with an elite willing to cheat and manipulate for its own benefit, the benefits of Washington's leadership will dwindle rapidly.