In the Jaws of the Dragon (Fingleton)

The following may or may not (or should that be Mao or Mao not:-)
provide some appropriate background music :-)
By the way, all twelve videos run for about two hours.

When I see those marching cadres of The Revolution,
I am inescapably reminded of the faculty of America’s modern universities,
marching on with their undying devotion to their sacred cause,
Political Correctness!

Can’t you see the “enlightened” faculty and donors of Harvard rising in anger
against the reactionary pig, Summers?

For a cheerier side of Chinese culture, see this or this (Lion dances).

Now on to the serious business of this post:

Here are some excerpts from the 2008 book
In the Jaws of the Dragon:
America’s Fate in the Coming Era of Chinese Dominance

by Eamonn Fingleton.
The emphasis is added.

A brief note on when the book was actually written:
The author’s acknowledgments section is dated 2007-11-08.
Thus the book was completed well before
the epic Wall Street failures of early 2008,
such as the March collapse of Bear Stearns,
but during the housing bubble and the larger financial crisis.

Chapter 1
A Dragon on Steroids

Two bets are on the table.
One has been placed by the Washington policymaking establishment;
the other, by the leadership of the Chinese Communist Party.

Analyzing China’s prospects in terms of
the currently fashionable globalist ideology,
the Washington establishment is betting that
a rich China will be a free one.

The theory is that

the only way China can continue to grow
is by embracing Western democracy and capitalism.
Moreover, the very process of China’s enrichment
is supposedly serving to
undermine the Beijing government’s authoritarianism.
Thus a feedback effect is said to be at work:
more wealth means more freedom means more wealth....

This view has been championed by many American political figures
in the last fifteen years.
Here, for instance, is how President George W. Bush [43] put it in 2005:
“As China reforms its economy,
its leaders are finding that
once the door to freedom is opened even a crack,
it cannot be closed.
As the people of China grow in prosperity,
their demands for political freedom will grow as well….
By meeting the legitimate demands of its citizens for freedom and openness,
China’s leaders can help their country grow into
a modern, prosperous and confident nation.”

Similar optimism is poured forth daily by the American press,
not least by the Wall Street Journal.
Here is a typical Journal comment from 2006:
“Sooner or later China’s economic progress
will create the internal conditions for a more democratic regime
that will be more stable, and less of a potential global rival….
China’s burgeoning middle class,
created and buoyed by economic growth,
will drive internal change.”

Abroad too the Washington view is increasingly prevalent.
In Britain, for instance, it has now been embraced not only by the media
but by many top politicians.
After visiting Chinese premier Wen Jiabao in 2005,
then British Prime Minister Tony Blair, for instance
cited the rise of a huge Chinese middle class and the spread of the Internet
as factors that had produced
“an unstoppable momentum…towards greater political freedom
[and] progress on human rights.”

The Washington view’s prevalence probably owes something to
its implicitly flattering regard for Western culture.
After all, it is founded on the premise that
Western philosophy constitutes universal truth.

Those who espouse it, moreover,
often loudly claim to occupy the moral high ground.
Skeptics are made to feel either that
they do not fully comprehend
the perfection and universal salience of Western values

[this is surely the canonical position of the Washington Post editorial board]
or that they are denying the Chinese people’s essential humanity.

Claims to the moral high ground apart, however,
the Washington view has also been propelled by
something more reliably persuasive: money.
The fact is that various powerful interests,
most obviously countless multinational corporations,
see profit in promoting the Washington view.
Thus vast amounts of money have been pumped into
a propaganda program to win over key opinion makers,
not least elected officials, top editors, press pundits [No!],
government bureaucrats, and think-tank scholars.

As more and more money has been applied to the task,
the Washington view has come to be accepted by
more and more erstwhile skeptics.
In particular many hawkish Sinologists from the cold war era
have now reversed themselves.
Up to the late 1990s they had generally held that
China’s economy diverged too sharply from Western capitalism
ever to amount to much.
China’s continuing export surge in the new century
has forced a total rethink—
and corporate America’s lobbying money
has sweetened this bitter ideological pill.

So widely accepted has the Washington view become that until recently
almost no one had noticed there was another bet on the table.
This second bet—that of the Chinese leadership—
is on a disturbingly different proposition:
that a future China can be both rich and authoritarian.

If the Washington view is right, the future is unclouded, and
a fast-rising, fast-Westernizing [I think the term “modernizing” is more accurate] China
can readily be accommodated within the existing Western-defined world order.
But what if it is wrong?
What if—surprise!—
China’s top leaders turn out to understand the Chinese character
better than anyone in Washington?
What if in, say, 2025 or 2030
the United States finds itself facing off against a China so rich
that it has surpassed all other nations in military technology,
yet a China that remains resolutely opposed to Western values?
The implications are hard to exaggerate.
Yet so far they have received remarkably little consideration.
It is past time that this oversight was corrected.

Section 1.1
New China:
Rich Because It is Authoritarian

In the great debate over China’s future,
Chinese leaders have more at stake than most.
After all, their jobs, if not their heads, are on the line.
It is reasonable to conclude that
they have considered their options carefully.

Moreover, they enjoy the priceless advantage of local knowledge.
They read and speak the language.
They have studied their nation’s history and know its mind.

By contrast, those on the other side, with virtually no exceptions,
are pathetically uninformed.
As they have never lived in China—
or in any other part of the Confucian world for that matter—
they have had no practice in the mental gymnastics
often needed to make sense of the distinctly Confucian way
modern China explains itself.
Even worse, the fundamental ideological framework
within which newcomers to the Confucian region try to understand China
is completely wrong.

For a start, contrary to all conventional wisdom,
the Chinese economic system is not capitalism,
nor is it converging toward capitalism.
Thus any deterministic Washington analysis
based on the history of Western capitalism
is doomed from the start.

The truth is that China is operating an adaptation of the so-called
East Asian economic system.
Launched in the then Japanese colony of Manchuria in the 1930s,
this system was perfected in Japan proper in the 1950s and 1960s
and has now been widely copied throughout East Asia.

As James Fallows has pointed out,
the Chinese version differs from the Japanese original
in being more atomized;
hitherto at least,
the role of government in micromanaging outcomes is far less in evidence
than in the mature version of the model seen in Japan.
Nonetheless in its key elements it is the same system.
As itemized by the authors Richard Bernstein and Ross Munro
in their 1997 book The Coming Conflict with China,
these are just some of the obvious features
of the Chinese version of the East Asian economic model:
  • A labyrinthine system of trade barriers

  • An artificially undervalued currency

  • An industrial policy
    that focuses on developing so-called pillar industries
    and uses export subsidies and other unfair tactics
    [things Boeing, for example, would never scruple to :-)]
    to give them a competitive advantage in world markets

  • Systemic pressure on foreign companies
    to transfer their most advanced production technologies
    to China

While the East Asian approach to economic development
resembles capitalism in some ways
(it makes extensive use of markets, for instance,
particularly at the level of small business),
its fundamental logic is quite different.
A key difference is that
whereas authoritarian political controls
constitute a hindrance to the full efficacy of capitalism,
such controls are really essential to the functioning of the East Asian system.

The ability of top officials to keep tabs on everything
is greatly enhanced by the fact that,
as James Fallows has pointed out,
Confucian econo-political culture diverges fundamentally from the West
in its approach to power.
In his 1994 book
Looking at the Sun:
The Rise of the New East Asian Economic and Political System
Fallows wrote:
“Anglo-American ideology views concentrated power as an evil
(‘Power corrupts, and absolute power...’).
Therefore it has developed elaborate schemes for
dividing and breaking up power when it becomes concentrated.
The Asian-style model views concentrated power as a fact of life.
It has developed elaborate systems for ensuring that the power is used for the long-term national good.”

One critical way in which power is deployed to economic advantage in China—
as in other East Asian economies—
is in savings policy.
However counterintuitive this may seem to Westerners,
China’s famously high savings rate is imposed on the nation from above.
By dint of various authoritarian policies
[detailed in Section 1.6 and, in more detail, in Chapter 4],
vast savings surpluses have been generated.
These have provided the principal driver of China’s rise,
making possible a superfast rate of growth in investment
not only in industry
but in the sort of advanced infrastructure
needed to maximize the nation’s exports.

Top Chinese leaders have been inspired by the now voluminous evidence
that in modernized form,
authoritarian Confucianism
almost effortlessly outperforms Western capitalism.

The impact of the East Asian system on the world economy
has already been massive.
Based on figures cited by the Berkeley-based political scientist T. J. Pempel, between 1960 and the early 1990s alone,
East Asia’s share of the world economy multiplied sixfold—
rocketing from less than 5 percent of total world output to about 30 percent.
For several decades to come we can expect East Asia’s share to continue to rise
as China rapidly catches up with earlier Confucian industrializers
in deploying the most advanced production technologies.

Section 1.2
Understanding Why We Misunderstand...

As we will see in detail in chapter 2, the West faces special difficulties in understanding the Confucian world.

Part of the problem is ideological.
Almost without exception,
American opinion leaders hold as a matter of high ideology that
Western logic is universal and this is
destined to sweep the world.

It is an assumption that repeatedly down the centuries
has led to disastrous miscalculations.
[A process sometimes called The March of Folly.]
In our own time only the most obvious instance has been
the tragic quagmire in Iraq.
It is a striking fact that many of the top neoconservative commentators
who so insistently sold the Iraq war to the American people
have been similarly insistent in promoting the Western view of China.
They include the New York Times’s chief foreign affairs commentator, Thomas Friedman,
the Economist magazine’s erstwhile editor in chief Bill Emmott,
and both Paul Gigot and the late Robert Bartley of the Wall Street Journal.
Perhaps the most remarkable instance of the “invade Iraq/appease China” syndrome was Francis Fukuyama.
In his famous essay “The End of History” in 1989,
he was one of the earliest proponents of the view that
China was converging with American values.
In late September 2001—just days after the September 11 attacks—
he called for the United States to invade Iraq
even if no evidence existed to link Saddam Hussein “directly” to the atrocities.
It is also striking that
the main architects of the Iraq disaster, George W. Bush [43] and Tony Blair are,
as we have noted [paragraphs 1.0.4 and 1.0.6]
leading proponents of the Washington view.

(Conversely, many prescient opponents of the war
have been outspokenly critical also of the Bush-43 administration’s China strategy.
They include James Fallows, Pat Choate, Patrick Buchanan, Paul Craig Roberts, Chalmers Johnson, and Ralph Nader.
They also for that matter include me [Fingleton]....)

[What a fascinating correlation.
As a clue as to the underlying basis for the correlation,
note that most, if not all, of those Fingleton just listed
have been described, sometimes quite vehemently, as “anti-Semites”.]

History will record that
the major problem with the Bush administration’s Iraq strategy has been that
ideology was allowed to overrule common sense.
The same is true, if for the moment less obviously, of its China strategy.

Another key problem is that
few interpreters of today’s China have had any experience
in analyzing the rise of the earlier East Asian “miracle” economies.
Anyone familiar with the Japanese economy in particular
has a major advantage because
Beijing is now so clearly copying
policies pioneered decades ago by the Japanese.
For the most part, however,
today’s China watchers have paid little attention to Japan.
The result is an American approach in China that,
to long-term observers of the Confucian world, seems distinctly Sisyphean.
This point has been made in particular by Iran Hall, author of
Bamboozled! How America Loses the Intellectual Game with Japan
and its Implications for Our Future in Asia
A Harvard-educated cultural diplomat and Japan historian
who lived most of his professional life in Tokyo, Hall comments:
“We seem to go on repeating with China all the mistakes we made with Japan,
having learned nothing from them.”

That said, the West’s comprehension problems
do not spring primarily from ignorance or feeblemindedness.
Rather, they reflect a remarkable policy of obfuscation—
and sometimes outright deception—by East Asian leaders,
and even more so by their many stooges
in the Western expatriate communities of the Confucian world.

Some of these stooges have clearly succumbed to
illegitimate blandishments or pressures.
Others have been confused by
the Confucian world’s aptitude for Potemkin village-style dramatics.
Not only have East Asian leaders not explained
how their economic model works
but they have often gone to extraordinary lengths
to keep Western policymakers and commentators misinformed about it.
For good reason.
If this model were more widely understood,
it would long ago have been comprehensively opposed in the West.
The point is that, like the Soviet system before it,
the East Asian model is incompatible with Western capitalism.
In fact, precisely because the East Asian model
is so much more successful than Soviet Communism,
it entails an even greater problem
of political and economic incompatibility for the West.

Seen from a Western point of view,
the most immediately obvious problem with the East Asian economic system
is its mercantilist approach to trade.
To that subject we now turn.

Section 1.3
Closed Markets and Tall Stories

The fact that East Asian markets are largely closed
is, of course, hardly news to American labor activists,
let alone to American industrial exporters.
Nonetheless, the elites who set American foreign policy
have long chosen to pretend otherwise.
Every step of the way
as the United States has unilaterally opened its markets
to East Asia’s concept of “one-way free trade,”
these elites have argued that continuing East Asian protectionism
does not represent a failure of intent by East Asian policymakers,
let alone a fundamental philosophical divergence.
Rather, it supposedly reflects temporary political glitches
that East Asian policymakers have been sincerely trying to rectify.
The principal problem has allegedly been that
petty vested interests in East Asia—“backwoodsmen” in the jargon—
have been obstructing their more enlightened fellow citizens’ efforts
to embrace Western economic ideals.
In the long run there is no doubt that
enlightened leadership will prevail.
Thus the right thing for the West to do
is simply to be patient, considerate, and statesmanlike
while the East Asians work to remove remaining obstacles to free trade.

In reality, as this book will show,
this train of logic is disastrously wrong.
Opposition to Western-style free trade in East Asia
is hardly confined to a few self-serving “backwoodsmen.”
On the contrary, it is all-pervasive and is quietly led by
the very top officials who are assumed to be the West’s greatest allies
in bringing Western economic ideas to the region.

Faced with evidence that top leaders in Beijing
are backsliding on their commitments to open the Chinese market,
advocates of the Washington view tend to urge yet more patience.
The evidence from America’s previous experience
with other mercantilist East Asian nations, however,
is not encouraging.
Take, for instance, Japan.
As the first Confucian nation to become rich,
Japan was also the first to profess
a commitment to Western-style open markets.
That was more than forty years ago.
Yet all the evidence is that even today Japan continues,
in so-called targeted industries at least,
to pursue a comprehensively protectionist trade policy.
True, in some product categories,
foreigners in recent years have been permitted a share—
usually a small share—of the Japanese market.
But in many other foreigners find the door slammed in their face.

The Japanese car market, as we will see in chapter 7,
provides a particularly chastening insight into Japan’s true trade policies.
Thirty-five years after Japan’s trade lobbyists
first proclaimed the Japanese market “one of the world’s most open,”
carmakers on three continents agree that
it is still one of the world’s most tightly closed.
Even Paris-based Renault has never been able to sell in Japan
though it ostensibly controls, through a major stake in Nissan,
Japan’s second largest car distribution network.

It may be that China will prove more sincere
in its commitment to free trade than Japan—
but a close look at the logic of China’s economic strategy
suggests otherwise.

In any case,
from the point of view of the Western-defined world economic order,
there is, as we will now see,
another crucial problem—
the system’s parasitical approach to technology.

Section 1.4
Heads We Win, Tails You Lose

Throughout the East Asian region,
governments pursue remarkably similar technology policies.
On the one hand,
they avidly suck in advanced technologies from all over the world.
On the other hand,
they allow few homegrown advanced technologies to leak abroad.

Again Japan, as by far the region’s richest economy,
has hitherto been the most important exemplar.
The Japanese economy has been built largely on foreign technologies,
particularly American ones.
Yet Japan strictly prohibits its own companies
from transferring their most advanced technologies abroad.
In the electronics industry, for instance,

Japan now monopolizes the manufacture of
many of the most sophisticated materials and production machinery
that has made possible
the unparalleled miniaturization of today’s electronic gadgets.
The techniques for making such products
are regarded as national secrets
that must not be allowed to leave the country.

For now China has few technological secrets to guard.
But it is already benefiting handsomely
from the other side of East Asian technological policy in that,
even more than nations like Japan and Korea before it,
it has been expertly winkling key technologies
out of the United States and Europe.

[There is an informative endnote to that last paragraph.
Here it is, as a separate paragraph in its own right.]

As quoted by Manufacturing & Technology News (July 24, 2006),
here is how one consultant described the process:
“The Chinese government puts down technology transfer as a condition.
You can’t get in unless you give up your technology.
You can’t get in unless you get into a joint venture with a local partner.
Then those American companies’ core competencies get hit—
that core competence
that they put a lot of money and time and energy into—
is gone.”

[That is an exceedingly important observation.
It shows what a lie
that collection of scum that constitutes our “elite”
performs when they proclaim so repeatedly that
innovation is the answer to America’s employment and competitiveness woes.
As the observation above notes,
what good does it do for Americans
to develop productive and worthwhile innovations
when their corporate bosses then
transfer those innovations to lower-paid, but equally able, production workers
in East Asia?
So innovation, by itself, will not solve the problem.
For the same reason, education alone is not sufficient.
Those in the “elite” who fail to note that
are only pulling a cruel ruse on America.]


Section 1.8
Eastern Values:
The Group Rules, OK

In China as throughout most of the rest of East Asia,
the political ethos has been greatly shaped by Confucius
or at least by ideas attributed to him.
Born in what is now the Shandong province of northeastern China,
Confucius (Kong Fuzi as he is known to the Chinese) was a philosopher who lived about five centuries before Christ.
While he seems to have emphasized the importance of benevolence in rulers,
the reality is that
most of the governments that ostensibly espouse his ideas today
are strongly authoritarian.

While scholars may argue that such governments are not truly Confucian,
for the sake of convenience (and with due apologies to Confucius)
we will use the term Confucianism here to refer to
modern East Asian authoritarianism.
We feel sanctioned to do so in part because
Confucius’s ideas unquestionably play a crucial enabling role
in modern East Asia’s political structuring.
While the modern philosophical edifice built on Confucian foundations
may differ in important respects from what Confucius might have prescribed,
the structure could not exist in the first place without these foundations.
In truth, as interpreted in modern East Asia,
Confucianism’s principal political significance is that
it enjoins the populace to obedience, loyalty, and self-sacrifice.
Hence it clearly plays an important role in legitimizing
the undemocratic, unaccountable forms of government
we see throughout East Asia.
[Well, such governments are hardly unique to East Asia!]
Its most important effect is precisely
to perpetuate the governmental status quo,
and it does so in large measure
by enlisting millions of ordinary citizens as collaborators.

We draw support for our usage, moreover, from the fact that
all the major East Asian societies
attribute their political cultures principally to Confucius.
This goes these days even for China, which, as we will see in chapter 5,
officially rehabilitated Confucius in the 1990s.

Confucius had previously been an intellectual whipping boy,
particularly in Mao Zedong’s heyday.
As recounted by Will Wo-Lap Lam, author of The Era of Jiang Zemin,
the move back to Confucianism received a strong push
from former Chinese president Jiang Zemin.
Quoting an unnamed source,
Lam reported that Jiang,
who became president of China [cf. paramount leader of China] in 1993, was
“impressed by how traditional virtues have been a stabilizing factor
in Asian countries influenced by Confucius
such as Japan, South Korea, and in particular, Singapore.”

Confucianism has generally been held in high regard in the West
since it was first described
by the Italian Jesuit Matteo Ricci four hundred years ago
(it was Ricci who Westernized Kong’s name as “Confucius”).
But, as the New Zealand-based China scholar Xiaoming Huang has pointed out,
it is not all benevolence.
In a recent book in which he traced
the Confucian origins of the East Asian economic system, he wrote:
“Over time the Confucian model of moral conformity
increasingly requires a level of suppression of private interests,
mainly through state coercion and social discipline.”

The ultimate question here is the seemingly merely mystical one
of the relationship between the group and the individual.
In China, as in other Confucian societies,
the rights of the group are strongly emphasized.
Sympathetic Westerners often present this as merely meaning that
a Confucian individual is expected to be “considerate”
in taking account of the impact of his actions on the community.
Stated this way,
group ideology may seem little different from the Christian principle of
“Do unto others as you would have them do unto you.”
Unfortunately Confucianism—
at least the version of Confucian ideology
espoused by top officials in modern East Asia—
goes far beyond this.
Too often its concern for group solidarity
tends to crowd out all other ethical considerations.
This opens the door to quasi-fascist policies
utterly at odds with Western ideas of freedom.

A key reason Westerners are not more alert to the implications is
they fail to understand the East Asian idea of a group.
Whereas in the West we think of groups as
amorphous, generally leaderless hordes
[I certainly don’t limit the notion of “group” to such!]
(exemplified perhaps by the baying mobs of the French Revolution
or the throngs of wild-eyed speculators on Wall Street),
the assumption in the East is that a group is
a disciplined, hierarchical entity.
Not only are its leaders well defined,
but their right to lead is carefully reinforced by
various institutional structures and conventions.
Not only are subordinates expected to follow loyally,
but robust methods are available to pressure anyone who wavers.
Moreover, the whole of society is seen as composed of
hierarchical arrays of groups.
Thus, superior groups are entitled to lord it over inferior groups.

As a matter of the highest priority, the top group—
in the case of modern China that means the Chinese Communist Party—
makes it its business to maintain powerful levers of control
over every other group.
Any group not under control
presents a potential threat to the established order
and must quickly be brought to heel.

[Say, wait a minute.
That sounds an awful lot like what goes on in America too.
Just try and talk truthfully about anything the PC consider a threat!
Issues involving blacks, Jews, women and homosexuals
cannot be addressed truthfully and accurately.]

It should be noted that, contrary to its presentation of itself
as a paragon of radical egalitarianism,
the modern Chinese Communist Party is a highly elitist organization
and membership is by invitation only.

A key tool of control in Confucian societies is group punishment.
If one individual steps out of line,
his entire group can expect to be punished by some higher entity.
In premodern China one manifestation of this was the practice of
a whole family being punished for the offenses of a single member.
This powerfully concentrated the minds of, in particular,
political dissidents.
Anyone who challenged the established order
risked an excruciating death not only for himself
but for his entire family—wife, parents, children, even in-laws.
Punishing a family for the offenses of a single individual
was revived in the Maoist era,
and even today in diluted form it is widely used
throughout the Confucian world.
An important variant on the concept is the punishing of an entire work group
for the lapses of an individual member.
(We should note that
though group punishment is a characteristic of the Confucian world,
its origins are attributed not to Confucianism but to
a more authoritarian early Chinese political philosophy known as Legalism.)

Because modern Confucian societies are structured as hierarchies of groups,
administration is far more top-down and authoritarian than in the West.
Leaders not only practice a highly manipulative managerial style
but preside over societal structures that for untold generations
have been honed specifically to cow or at least brainwash the individual.

The result is a degree of intellectual claustrophobia
that no one who has not lived long term in a Confucian society
can fully credit.
Few writers have captured
the Orwellian implications of group logic in present-day East Asia
more graphically than Steven Mosher.
In his book A Mother’s Ordeal,
he provides a devastating account
of how the Chinese establishment whips up societal wrath
against couples who would flout China’s one-child policy.
Among other things, the government threatens pay cuts for all workers in an enterprise or division
if any one of them has a second child.
The effect often is to co-opt dozens if not hundreds of workers
in pressuring a woman to have an abortion.

In recent years,
this side of Chinese reality has had less attention than it deserves
because for the most part
foreign correspondents tend to cast developments in China
as being grounded less in Confucian authoritarianism
than in its polar opposite, Western globalism.
Any aspect of Chinese reality
that jars with the media’s globalist background music
tends to be downplayed or misrepresented.

In any case,
historically greater wealth has tended to hide from Westerners
the less acceptable aspects of Confucian reality.
Western residents of the Confucian world
have traditionally lived in wealthy ghettos far removed from ordinary life.
To the extent that such residents have ever experienced
the more negative aspects of Confucian group logic,
they have tended to dismiss the problems as merely transitional ones
that will soon be swept away
by the supposedly inevitable triumph of Western individualism.
Yet, as is now becoming clear,
the richer the region becomes,
the more difficult it is to accommodate
within the traditional Western-defined world order.

All this said, it is only fair to note that
top Chinese leaders have been working in recent years
to shake off their reputation as a brutal dictatorship.
Luckily for them,
it is possible for an East Asian government to have its cake and it—
it can aspire to an increasingly liberal image abroad
while maintaining an authoritarian grip at home.
It is time to look at state-of-the-art Confucianism

Section 1.9
Age-old Tool of Chinese Power

The key to modern Confucian power
is a characteristically Machiavellian concept called selective enforcement.

In China these days, as in most of the rest of the Confucian world,
the standard regulatory pattern is a paradoxical combination of
strict laws and lax enforcement.
Enforcement is indeed often so lax that the more naïve sort of Westerner assumes
the inmates are running the asylum.
For anyone who understands the Confucian bureaucratic mind, however,
the coercive implications are obvious:
the point is that enforcement is not always lax.
On the contrary, officials retain the right to crack down hard
on anyone who displease them.

[The remaining eleven paragraphs (three pages) of this section are omitted.]

Section 1.10
Last Days of the American Order?

If the rise of Chinese power were the only thing to worry about,
America’s geopolitical quandary would be serious enough.
But there is another concern here that is at least as significant:
American political and economic decline.
It is fair to say that
the United States is undergoing probably
the fastest power implosion of any major nation in history.

The economic side of America’s predicament alone is far worse than
almost anyone in Washington realizes.
As I have been outspokenly critical
of America’s economic strategy since the late 1980s,
I may be perceived as biased.
But it is not necessary to take my word for it.
In recent years several of America’s most perceptive business leaders
have, if anything, been even more outspoken.

Few witnesses to American decline are better placed to testify
than Andrew Grove, chairman of Intel Corporation.
As quoted by Newsweek in 2006, he said:
“America … [is going] down the tubes and the worst part is nobody knows it.
They’re all in denial, patting themselves on the back
as the Titanic heads for the iceberg full speed ahead.”

Then there is the world’s most successful investor,
Omaha-based Warren Buffett.
He has said:
“The U.S. trade deficit is a bigger threat to the domestic economy
than either the federal budget deficit or consumer debt

and could lead to political turmoil.”

Even Jeffrey Immelt, chief executive of General Electric,
has joined in the clamor.
A trenchant critic of the American educational system, he has said:
“More people will graduate in the United States in 2006
with sports-exercise degrees than electrical engineering degrees.
So if we want to be the massage capital of the world,
we are well on the way.”


Nowhere is American weakness more apparent
than in advanced manufacturing.
Leadership in this category has long been
a sine qua non for a superpower.
Indeed America’s effortlessly assured dominance
of the mid-twentieth-century world order
was based on little else.
That leadership has now been thrown away
as smart-aleck pundits
[Exhibit A: this Ezra Klein column] in Washington,
many of them funded directly or indirectly by the foreign trade lobby,
have embraced
an ephemeral intellectual fashion to scorn manufacturing.
As we will see in chapter 2,
this fashion flies in the face of fundamental economic logic.
The truth is not everyone can be a software engineer at Microsoft
or an investment banker at Goldman Sachs.
For the broad mass of ordinary workers,
advanced manufacturing
(that is,
the sort of manufacturing that is conducted in
expensively equipped factories
that are well endowed with
ultra-sophisticated, generally secret production know-how)
is a far better source of highly productive, well-paid jobs
than the service industries
that Washington has come to consider America’s salvation.
It was on the world-beating productivity
of this broad mass of ordinary workers
that America’s erstwhile economic dominance was based.

Unfortunately, so many of America’s advanced manufacturing industries
have already been eviscerated by foreign—principally Japanese—competition
that a U.S. Department of Defense report in 2005
pronounced America’s security at risk.

“There is no longer a diverse base of U.S. integrated circuit fabricators
capable of meeting trusted and classified chip needs,”

the report said.
“From a U.S. national security view,
the potential effects of this restructuring
are so perverse and far reaching and have such opportunities for mischief that,
had the United States not significantly contributed to this mitigation,
it would have been considered
a major triumph of an adversary nation’s strategy
to undermine U.S. military capabilities.”

To anyone who takes it for granted that
corporate America is destined to dominate the world economy in perpetuity,
the reality on the ground abroad these days is chastening.
Quite simply,
apart from a few toke American brand names such as Coca-Cola,
America’s economic influence has long since disappeared.

Other nations have been quick to fill the void,
and among them China is increasingly to the fore.
Here is a sample of how fast
China has been turning the tables on the United States:
  1. China’s foreign currency reserves
    are now not only the world’s largest
    (China passed Japan in this respect in 2006)
    but the largest in world economic history.
    Totaling $1.2T as of May 2007,
    they had multiplied more than sixfold just since the end of 2001.

  2. In partnership with other major East Asian central banks,
    the People’s Bank of China effectively controls both
    the level of American interest rates and
    the value of the American dollar.
    This follows from the fact that
    in an effort to finance America’s trade deficits
    it has become a huge purchaser of American treasury bonds.
    Absent this buying, the dollar would collapse and
    American interest rates would rocket.
    While China is unlikely to force the issue,
    it holds the upper hand in a vast game of chicken in which
    weak-willed, easily divided American government officials
    consistently come off second best.
    [Another reason:
    the desire to obtain China’s support for sanctions against Iran.]

    No nation has enjoyed this much power over the world’s currency system
    since America’s greatest days of economic influence
    in the early decades after World War II.

  3. Chinese interests have now established effective control
    of the formerly American-owned Panama Canal.
    In particular, the key ports at either end of the canal
    have been quietly bought by Li Ka-shing,
    a Hong Kong-based tycoon widely regarded as a Beijing surrogate.
    For those who know their history (and Chinese leaders certainly do),
    America’s loss of control of key ports is strikingly reminiscent of
    what happened to China in the mid-nineteenth century,
    when the Western imperial powers
    seized control over major Chinese ports
    such as Hong Kong, Shanghai, and Amoy.

  4. Chinese and other East Asian interests now largely control
    the vast network of communications satellites and undersea cable
    that make up
    the world’s international telecommunications system.
    Up to the early 1990s, the system had been under American control.
    Indeed it was considered a cornerstone of American power
    (among other things it provided American intelligence services
    with a unique ability to listen in on the world’s telephone conversations).
    All that changed as a result of
    America’s high-technology stock crash of 2000 and 2001,
    when dozens of key telecommunications companies
    teetered on the verge of bankruptcy
    and were bought out by East Asian interests.
    (War on terror note:
    American intelligence officials still listen to telephone calls
    but for the most part these days
    they are limited to calls to and from the United States.
    For calls from the Arab world to, say, Europe or East Asia
    they increasingly depend on the grace and favor of other governments.)

  5. Considerably more of the next Boeing plane, the super-advanced 787,
    will be built in East Asia than in the United States.
    This will constitute the big-league debut for
    China’s ambitious and fast-rising aerospace industry.
    Of the 787’s components,
    only the vertical fin will be made in Boeing’s erstwhile manufacturing base in Washington State.
    Even the wings, considered to be the most technically difficult manufacturing challenge, will be made in East Asia [in Japan].
    Up to the late 1990s Boeing officials had said that
    wing making was such an important function that it would never be outsourced.
    Full disclosure:
    for now the Chinese continue to play second fiddle to the Japanese
    in the East Asian aerospace challenge
    (the 787’s wings will be made in Japan).
    But it is affair bet that China is already planning for the day when
    it will match or surpass Japan’s high-precision engineering skills.

Of course many commentators insist that
the United States is finally turning the corner.
In particular they often argue that American corporations
are holding their own or even gaining
in the most advanced areas of manufacturing.
Such claims are rarely backed up with convincing figures
but are, instead, based on anecdotes, often flimsy or highly misleading ones.
Many of the “American manufacturing revival” stories cite, for instance,
the Caterpillar bulldozer company.
What is rarely mentioned is that
much of the most serious added value in its products these days
is created by Japanese workers employed by
its Japanese-managed joint venture with Mitsubishi Heavy Industries.

The test of all optimistic manufacturing talk is
the international trade figures.
Unfortunately these tell a particularly bleak story.

In former times the United States was by far
the world’s strongest trading nation.
On virtually every yardstick it was number one—
from the volume of its exports to the strength of its surpluses.
It also generally ranked as the largest source of other nations’ imports.
No longer.
With its trade surpluses now a distant memory
(the last recorded American trade surplus was in 1991),
the United States ranks number one in a very different category—
as the world’s largest deficit nation.

As of 2007, the United States had been passed by China
in the total value of its exports.
By contrast as recently as 1996
the United States outexported China by four to one.

As for the United States’ former status
as the largest source of other nations’ imports,
in many cases China has now taken its place.
The trend has been particularly marked in East Asia,
where only Malaysia buys more from the United States than from China.

The turnaround has been particularly momentous in Japan,
which as recently as 1991
bought nine times as much from the United States as from China
(spending fully $92G on American goods versus just over $10G on Chinese).
As of 2006
it bought more than 50 percent more from China than from the United States.

Measuring both imports and exports,
China has now displaced the United States
as Japan’s largest overall trading partner.
As recently as 1992,
Japan did more than five times as much business with the United States
as it did with China.

America’s loss of position has been even more shocking
in South Korea, Taiwan, and Thailand
(all of which now buy far more from both Japan and China
than from the United States).
Moreover, the United States no longer even ranks
as China’s largest source of imports.
That role has been taken by Japan,
whose exports to China are now twice America’s.
This despite the fact that the Chinese are supposed to hate the Japanese.
As we will see in chapter 7,
Sino-Japanese relations are much closer than is generally understood in the United States,
and one aspect of the Sino-Japanese rapprochement in recent decades
has been a fast-burgeoning trade relationship—
a relationship in which the United States has increasingly been treated as
a spare wheel.

Perhaps the most devastating point about America’s loss of position is that
it is not reflected in any similar trend among other advanced nations.
Indeed for the developed nations of East Asia,
China’s rise has on balance been a boon,
as evidenced by the fact that
not only Japan but South Korea and even Taiwan
enjoy broadly balanced two-way trade with China.
China actually runs a deficit with Japan,
despite the fact that factory wages are now higher than in the United States.
Even ultra-high-wage Germany exports almost as much to China as it imports.
The fact is that unlike the United States,
Japan and Germany have fought hard to maintain and indeed enhance
their position in advanced manufacturing.

America’s trade position has worsened catastrophically not only with China
but with virtually every other major nation.
As of 2006,
America’s current account deficit
the widest and mot meaningful measure of the trade position—
represented 6.5 percent of gross domestic product.
This was not only a record for the United States
but represented a more than three fold rise on
the 1.9 percent ratio recorded in 1989.
Indeed the latest figure was
the second-worst recorded percentage trade deficit
ever incurred by any major nation in peacetime.
The one worse performance was a figure of 7.7 percent incurred by Italy in 1924,
the year before Benito Mussolini seized dictatorial power.

For our purposes let’s simply note that
a nation that cannot balance its trade
must rely on other nations to keep its economy afloat.

As Paul Craig Roberts, a former top Treasury Department official
who was chief architect of the Reagan [40] administration’s economic reforms,
has pointed out,
all that saves the dollar from total collapse
is its role—for a few years longer—as the world’s reserve currency.
“When the dollar loses its reserve currency role,
America will not be able to pay for the imports
on which it has become dependent,” he has written.
“Shopping in Wal-Mart will be like shopping at Neiman Marcus.”

No other major nation in modern times
has become remotely so dependent on foreign creditors.

indeed the closest parallel to America’s predicament today is
that of the Ottoman Empire a century ago.
American presidents these days, like the Ottoman sultans of old,
are surrounded by flatters uttering soothing words.
[Not just American presidents.
Much of the MSM, for example,
seems to downplay the significance of the trade deficit,
also its true causes (i.e., not just the failure to innovate.]

Such assurances are no more reliable today
than they were in the Ottoman Empire’s twilight years.

Section 1.11
March of the Chocolate Soldiers

The updated Confucian values by which China is ruled
are not only fundamentally incompatible with those of the West
but, in head-to-head competition, prove strikingly more robust.
At first sight this statement may seem surprising,
but it requires no more than a moment’s reflection to see that
more and more Westerners who do business in China
are already modifying their behavior—
often quite troublingly—under Beijing’s influence.

This is part of a larger pattern in which for decades
American have increasingly compromised themselves
throughout the Confucian region.
Westerners arrive confident not only of the superiority of their values
but of the region’s receptivity to those values.
Their expectations undergo rapid adjustment.
As a general rule,
Westerners either find an early exit,
or they end up espousing the very Confucian values they once scorned.

The pattern is so marked and consistent
that it can be aptly compared to a phalanx of chocolate soldiers
marching into a blowtorch.

Several Confucian societies have now had generations of experience
in breaking the resolve
of even the most apparently strong-willed Westerners.
Though China has been slower than Japan and Korea
to learn the subtleties of this art, it is catching up.
For a start, the Beijing authorities provide plenty of carrots
for those who compromise themselves.
The carrots range from the merely delicately corrupting to the blatantly so.
In a society where everyone is just a bit compromised,
it is hard for a Westerner to hold the line—
but once he succumbs,
he is perpetually thereafter in the authorities’ thrall.

The most common way Westerners compromise themselves
is simply by doing business “the Chinese way.”
Peter S. Goodman of the Washington Post
has pointedly illuminated the problem.
Writing from Shanghai in 2005, he commented
“American business leaders often describe their China operations idealistically,
suggesting that their presence here
will compel Chinese competitors to adopt more ethical business practices.
But in one key regard, the dynamic operates in reverse,
with U.S. companies adopting Chinese-style tactics to secure sales,
as they compete in a market in which
Communist Party officials routinely control businesses,
and purchasing agents consider kickbacks part of their salary.”
In an effort to escape criminal liability,
many American corporations use Chinese “consultants” to deliver bribes
but such intermediaries are never completely reliable
and, subjected to suitable pressures (or offered suitable blandishments),
might well be induced to incriminate an American client.

When Chinese leaders feel the need to get tough, moreover,
there is little in the Confucian ethical code to hold them back.
As the former Wall Street Journal Beijing bureau chief James McGregor has pointed out,
they believe the end justifies the means—
and not just sometimes, as in the West, but all the time.
This view can be invoked to legitimize the use of
a multitude of highly manipulative, even Orwellian, techniques
for ensuring the citizenry’s support in pursuit of national goals.
Many such techniques involve entrapment or blackmail or both.
Such techniques can readily be extended to the Westerner community in China—
and the evidence is that increasingly they are.
Certainly many Western residents assume their phones are tapped.
The evidence is that they are not imaging things.

What is beyond question is that
the carrot alone has already worked wonders
in inducing one American corporation after another in China
to embrace the Confucian way.
As we will see in chapter 6, in their eagerness to make money in China,
American corporations have consented to conduct—
let’s put this delicately—
mendacious public relations on Beijing’s behalf.
They have even acted as enforcers of Beijing’s one-child policy,
and in that endeavor have coerced women employees into having abortions.

In the words of Carolyn Bartholomew,
chairman of the United States-China Economic and Security Review Commission,
many American companies have struck “Faustian bargains” with Beijing.
She has cited such respected American corporations as
Yahoo!, Google, and Microsoft.
As we will see in chapter 6, these companies have agreed to abide by China’s censorship rules in serving Chinese Internet users.
Moreover, Yahoo! voluntarily handed over evidence
that led to one Chinese Internet user being sentenced to ten years in prison.
Bartholomew commented:
“Far from capitalism changing the Chinese government,
it is the Chinese government changing capitalists.
Rather than the birth of freedom with telecommunications and the Internet
serving as the handmaiden of democracy,
we have the Internet entrepreneurs selling rope to the hangmen.”

If our concern were merely that Americans in China
were being induced to forfeit their values,
it would be serious enough.
But, as we will now see,
Beijing is increasingly changing the way Americans behave in America.

Section 1.12
Introducing Reverse Convergence

What does the future hold for Chinese foreign policy?
It is useful to consider first the historical context.
China’s instincts, in common with those of the other Confucian nations,
are strongly isolationist.
For centuries before the arrival of Westerners,
all the Confucian nations kept to themselves.
This policy was broken only with
the coming of Westerner gunboats in the mid-nineteenth century.
First China opened up under pressure from the British in 1842,
and a few years later Japan succumbed to pressure from the United States.

It is a fair bet that if it were possible,
both China and Japan would be happy to return to
the isolationism they insisted upon before the rise of the West.
With the best will in the world, however,
traditional Confucian isolationism is no longer an option.
The world is just too small and too dangerous.
Most if not all of the world’s principal nations, after all,
possess the power to launch nuclear war at a moment’s notice.

The position is further destabilized by
the mutual incompatibility of Confucianism and Western individualism.
In a world that has been drastically shrunk by
fast travel and cheap telecommunications
(not to mention intercontinental missiles),
it is hard to see how the two ideologies can continue to exist as equals.
[I think Fingleton is being far too pessimistic here.]
One will increasingly dominate the other—
and if the authorities in Beijing have anything to do with it,
Western individualism will not emerge the winner.

One thing is certain: assuming no change in present policies,
Beijing and Washington are headed for confrontation.
Seen from Beijing’s point of view,
Washington’s instinct to “change China” implies, of course,
the eclipse, if not the demise, of
the existing Chinese Communist Party leadership.
Moreover, by insisting that Beijing abandon its own institutions and values
in favor of American ones,
Washington stands accused of interfering in China’s internal affairs.
This, of course, in the eyes of Chinese leaders,
legitimizes a response in kind by Beijing.

Chinese leaders hardly need to be reminded of Clausewitz’s maxim that
attack is the best form of defense.
Indeed an ancient Chinese proverb, Yi gong wei shon, makes the same point:
“Use attack as a defense.”

Certainly, by proclaiming American institutions and values
not only more desirable than those of any other nation
but also inherently more robust.
Washington has virtually guaranteed that Beijing’s rejoinder will be
a sotto voce “We’ll see.”
Faced with an overreaching Washington,
Beijing is provided with a pretext to do what it probably aches to do anyway:
change America.
If the world is to be run on Confucian principles, after all,
outcomes everywhere will have to be fixed in advance,
vested interests will have to be squared,
the media will have to be muzzled,
dissidents will have to be suppressed, and
the public will have to be bamboozled—
in perpetuity.

To put this in pugilistic terms,
it is as if an American boxing champion challenged a Chinese kung fu master.
Confident that the world is converging to Western values,
the American assumes his Chinese adversary will fight by Queensberry rules.
The kung fu master, however, sees nothing wrong with kung fu rules,
Particularly as they give him an unbeatable advantage.

Given the troubling nature of these matters,
it is important at this stage to enter some qualifications.
For a start, it should be noted that while this book will pull no punches
in exposing the Chinese leadership’s duplicity and authoritarianism,
no hostility is, of course, intended toward the Chinese people.
Quite the reverse.
It would be ungracious to say the least
for the West to begrudge the Chinese people their increasing prosperity
or their wish to play a larger role on the world stage.

It should also be made clear that however Machiavellian their intentions,
Chinese leaders are not looking for war,
at least not against the world’s major nuclear powers.
That said, they are greatly influenced by
the ancient Chinese military theoretician Sun Tzu,
one of whose aphorisms seems particularly relevant:
“To subdue the enemy without fighting is the acme of skill.”

The betting is that China will penetrate American society by stealth
in ways that will slowly but surely
undermine American values and institutions.
In other words, instead of China becoming more like the United States,
the United States will become more like China.
It is a process that is best called reverse convergence.
Building on the extensive if unobtrusive groundwork laid by earlier East Asian industrializers,
China can, for instance, be expected in the fullness of time to become a major factor behind the scenes in shaping outcomes in Washington.
Indeed this can be expected to happen will-nilly, given the extent to which American elites have already embraced the doctrine of globalism.
The effect of globalism has been to create a political vacuum in Washington,
where an alert eye to the American national interest was once present.

[Fingleton views globalism as the cause. But what caused it?
I claim the answer is clear: the Jewification of our “elite.”]

Of particular concern is
how well Western intellectual organizations stand up under the strain.
Take the Western media.
The idea that they might be vulnerable to pressure from Beijing
may seem preposterous,
but there is plenty of evidence that things are already going the wrong way.
Certainly other East Asian nations
have long been known to influence Western media coverage.
This explains why key media organizations in the United States have rarely investigated protectionist practices in nations like Japan and South Korea
in recent years.
Whey was the last time a major American newspaper
took a searching look at the car markets in Japan or South Korea,
for instance?
When, for that mater, did CNN’s otherwise refreshingly frank Lou Dobbs
produce such a report?
In truth, any attempt by the American media
to focus serious attention on Japanese or Korean protectionism
would raise the specter of a boycott by key advertisers,
probably acting in concert under covert government leadership
(the fact that
government-guided cartels dominate both the Japanese and Korean economies
makes coordinated action easy).

In the fullness of time—give them fifteen to twenty year—
the Beijing authorities will enjoy similar clout in the American media market.
It is a fair bet that the American media will prove similarly selective
in their coverage of the underside of Chinese economic policies.
The key thing here is that Confucian nations enjoy an ability to forge
a degree of group solidarity in pursuit of national goals
that is rarely if ever matched by Western nations.

[This is obviously also due to the greater racial homogeneity of those nations.]

We are still in the early stages, but it is clear that
the United States is highly vulnerable to illegitimate Chinese influences.
So much so that
key elements of American society are already Confucianizing themselves.

Allegations of reverse convergence have been around for awhile.
As far back as 1998,
the [neocon] policy commentators Robert Kagan and William Kristol
thought they detected such a pattern
in the actions of the Clinton [42] administration.
Writing in the New York Times, the commented:
“The [Clinton] administration has always argued that
its policy of engagement will make China more like us.
In fact it is making us more like them.”

Harsh words indeed—but actually all the evidence is that
the administration of George W. Bush [43] has shown even less fortitude
in the face of Confucian pressures.

Then there is the ever malleable American business community.
Already, as we have seen [¶1.11.8],
top American Internet companies have reneged on Western values
in pursuit of lucrative business in their Chinese subsidiaries.
How long will it be before
they prove similarly malleable in their American operations?

Meanwhile, as Tina Rosenberg has pointed out,
the wider American business community also seems dangerously unreliable.
Writing for the New York Times on a conference in Shanghai in 2005,
she recounted how top American business leaders
openly fawned on Chinese Communist Party officials.
She added:
“Let’s not pretend that foreign investment will make China a democracy.
That argument was born out of desperation and self-interest.
Because China is too lucrative a market to resist,
American and European businessmen have ended up
endorsing the party line through their silence—or worse.
They are not molding China: China is molding them.”

Any American who understands the power dynamics
by which the Chinese empire has been held together
over the last three thousand years
will not be sanguine about the outcome.
It is time Uncle Sam looked over his shoulder:
his coattails are caught in the jaws of a dragon.

[End of chapter 1.]

Chapter 6
In a Confucian America

Section 6.12
A Trade Litmus Test for the American Press

In all major Eastasian societies, self-control is the hallmark of the local media.
As the [U.S.] China lobby has grown in influence in the last two decades, this tradition has not made the jump to the United States.

Starting with China’s late-1990s campaign for permanent normal trade relations, virtually all the key editorial personnel who have shaped American media coverage of China-related economic issues have been openly in Beijing’s camp—either that or, in classic Confucian fashion, they have kept their reservations very private indeed.
The pattern has been apparent not only among top newspaper editors, particularly those who look after the editorial and business pages, but among columnists.
It has also been apparent in a biased choice of “experts” interviewed on television.

The effect has been that key issues such as human rights, layoffs in the American heartland, and China’s previous record of reneging on trade commitments have been swept under the carpet.
The press thus played a decisive part in winning the permanent normal trade relations (PNTR) vote for China.
In so doing it not only broke decisively with its vaunted tradition of fairness and balance but abdicated its venerable role in
“comforting the afflicted and afflicting the comfortable.”

What is so surprising about the press’s insistent support for the China lobby is that it contrasted so sharply with the views of ordinary Americans
(in the face of a gale-force wind of pro-Beijing propaganda,
79 percent of Americans in the spring of 2000 opposed the terms on which China was granted entry into the WTO).
Of course, there is no reason why any particular press commentator should slavishly reflect his or her readers’ views.
But it is strange that so many media organizations that pride themselves on their balance on other issues are so one-sided on an issue that puts them directly at odds with their readers.
[I would note the readers of the three main East Coast newspapers, the NYT, WSJ, and WP, are hardly representative of the typical American.]

The media’s pro-Beijing position was out of character in another highly significant sense: although many media commentators are reliably Democratic on other issues, in their support for the China trade lobby they sided with the Democratic Party’s arch-bugbears in big business and the K Street lobbying community.

To be sure, some Democratic politicians came out for China, not least the Clinton [42] administration.
But the true voice of the Democratic Party was heard not in the administration but in the U.S. Congress, where Democrats, turning their backs on vast favors offered by the China lobby, voted two to one against PNTR.

Many anti-PNTR Democratic congress people were outraged by President Clinton’s reneging on his strong election commitment to press Beijing on human rights.
Most of the rest were concerned—and rightly so, as subsequent developments have indicated—with the impact on ordinary Americans.

The Democratic Party’s concerns were echoed by countless left-leaning grassroots organizations such as
Friends of the Earth, Global Trade Watch (an organization principally associated with Lori Wallach and Ralph Nader), the Economic Policy Institute, the Institute for Policy Studies, and the AFL-CIO.

Concerns for human rights in China and for the economic welfare of ordinary Americans are normally emphasized in the American media.
Of course pro-Beijing press commentators can point out that their views consistently reflected those of almost the entire top tier of the American policy-making establishment.
In the spring of 2000 President Clinton could boast that virtually every former Secretary of State, Secretary of defense, Trade [Representative], and Transportation Secretary, not to mention almost every former National Security Advisor, had come out for PNTR.
But the reason so many former top policymakers backed the China lobby was because they were the China lobby!
Only the most notable of the former policymakers who were paid to push PNTR were
Henry Kissinger [37/38], Alexander Haig [40], George Shultz [40], and Lawrence Eagleburger [41].
[Notably absent from that list is Jim Baker [41].]

From the point of view of a vigilant press, the story was not that these erstwhile respected publish servants should be listened to, but that they had been bought.

In truth, as Eric Alterman, author of What Liberal Media? The Truth About Bias and the News, has pointed out, an openly elitist American press has sold out on the trade issue.
In an impassioned commentary in the Nation in 2007, he wrote:
“why does the opinion of the majority of the country get nothing but contempt in public discourse? …
Why are the arguments of economists like Frank Taussig, Dani Rodrik, Dean Baker and the folks over at the Economic Policy Institute considered beyond the bounds of rational debate? …
Wealthy people and their corporations own newspapers and fund think tanks, public affairs television, university chairs, advertising campaigns, lecture series and the like.
Ordinary people do not.
With a few exceptions, these same organizations and institutions represent the views of the wealthy and well connected.”

A closed-shop mentality has prevailed in the major American media, in which experts and commentators on the other side of the trade issue have systematically been shut out.
This has applied even though in many cases their credentials are far more impressive than those of the establishmentarian commentators, and what they have to say is often fresh, interesting, and extremely well informed
(in contrast with the tired platitudes and doctrinal blathering of the establishmentarians).

Perhaps the most telling aspect of the debate has been the discourtesy of the establishmentarians.
In championing the “one-way free trade” cause, Thomas Friedman, for instance, has denounced “knaves like Pat Buchanan” who are already duping the American public on the issue.
In reality, as Friedman surely knows, few participants in the trade debate are more disinterested than Buchanan.
Certainly history will credit Buchanan as one of the most prescient.
[I personally found Buchanan’s 1999 book The Great Betrayal most informative and written with the interests of the average American foremost.]

The way the American press conducted itself on the PNTR debate was a disgrace to its own traditions.
Certainly it was something new for the United States.
That said, it was hardly new in the larger context of world journalism.
It was, in fact, exactly how the press functions in the Confucian world.

The American press is Confucianizing itself.
A key factor is that increasingly in the last twenty years, media professionals have been subjected to a litmus test on trade.
Those who embrace laissez-faire ideology have seen their careers flourish.
Those who don’t haven’t.

The litmus test is applied by various players with considerable power to influence a journalist’s career.
Take, for instance, high-placed news sources in government, in business, in the think tanks, and on Wall Street.
For top journalists, easy access to such sources is often critical.
It is fair to say that many of the most important sources have long been aggressively in Beijing’s camp.
In the classic Confucian fashion known throughout Eastasia, such sources seek to marginalize and indeed ostracize any reporter who tries to uphold the freedom of the press on China-related issues.
The better placed the source, the more likely he or she has been to take a consciously and systematically punitive line against independent-minded reporters.

Even before reporters get the chance to talk to sources, they are already subjected to a litmus test by media proprietors.
As a general rule, reporters and editors who indiscriminately support free trade enjoy an inside track in the promotion rat race
(or should we say mouse race, given the lack of courage that characterizes so many of the successful contestants?).
Proprietors who apply the litmus test include not only Rupert Murdoch’s News Corporation
(we will consider Murdoch’s role in the China debate in more detail in chapter 8) but also General Electric (the ultimate owner of NBC) and Viacom.
It is no coincidence that these companies have assiduously cultivated business links with China over the years.

In the long run the outlook is not just for elevation of Beijing-friendly media commentators but increasingly for direct Chinese control of the American media.
For the moment [i.e., as of 2008] the most obvious evidence of such control is among Chinese-language periodicals published in the United States.
As recorded by Richard Bernstein and Ross Munro,
China puts money into several Chinese-language publications in the United States and into Chinese-language cable-television stations.
In their book The Coming Conflict with China,
Bernstein and Munro added:
“These media organizations are run almost in the same way as their counterparts inside China itself.”
(It should be noted that Beijing does not reciprocate by allowing any American influence over the countless English-language newspapers and magazines now published in China.
Although such publications serve mainly American and European expatriates, they are almost invariably controlled by front organizations for various arms of the Chinese government and are run and edited by Chinese nationals.)

The tactics used by Beijing to control America’s Chinese-language publications will undoubtedly be extended to the English-language media.

The experience of the Hong Kong publisher Jimmy Lai represents a frightening preview.
When Lai’s Next magazine offended Beijing in 1994, he found that the Beijing branch of his Giordano fashion chain was closed down on a selective enforcement pretext.
Although Next was not a major publication and the incident thus received little attention in the West, the action was a classic example of the Chinese bureaucrat’s precept
“Kill the chicken to scare the monkey.”
In other words, it was intended not only to deal with Lai but to “encourage” others in the Hong Kong publishing industry.
By all accounts the warning was heeded, and it is an open secret that virtually the entire press in Hong Kong these days, including the once staunchly independent-minded and pro-Western English-language daily, the South China Morning Post, now takes editorial “guidance” from Beijing.
Meanwhile Next was subjected to an advertising boycott by both mainland advertisers and by many Hong Kong companies intent on currying favor with the Chinese leadership.

Of course, it will be a while before Beijing resorts to similar tactics to silence the New York Times or the Christian Science Monitor.
That said, the net will gradually close on American press freedom.
Business, after all, is business, and the suits who answer to shareholders are perennially intent on squeezing the last cent of profits out of the media “properties” they manage.
If pandering to Beijing in editorial policies helps the bottom line, so be it.
The more heavily American media conglomerates invest in China, the more dependent they will become on Beijing for regulatory favors.
The concept of regulation in China gives the Beijing authorities almost infinite power to lean on those under their purview.

In former times when American trade diplomacy with China was done on a bilateral Washington-Beijing basis,
American officials enjoyed some power to talk back.
But with the coming of the World Trade Organization, that power is now gone.
Instead, all trade complaints must be presented to the WTO’s “independent” adjudication panels.
Any redress the United States might hope for will at best prove symbolic rather than real.
WTO adjudication panels are composed largely of representatives of Second and Third World nations
(many of which are notorious not only for their corruption but for their hostility to the United States).

Although so far American media corporations’ exposure to Chinese commercial blackmail has been relatively limited, this will probably not remain so for long.
Already several American media organizations have eagerly made a start on the China market.
Viacom, for instance, has partnerships with China Central Television, which is better known as CCTV and is the official conduit for Chinese Communist Part propaganda, and has extended both its MTV and Nickelodeon operations into China.
Questioned in 2004 by Time magazine,
Viacom chief executive Sumner Redstone blandly sidestepped the extent to which Viacom’s Chinese operations kowtow to Beijing’s censors.
He explained:
“The programming on our channels in China is co-produced with a Chinese company.
We are very conscious of the taste of the Chinese people and the Chinese government.
And therefore we don’t produce material that invites criticism from China.”


[End of chapter 6.]

Chapter 9 (the last one)
Globalism or Democracy?

Section 9.1
The Times Are Out of Joint

Section 9.2
China: Fastest Export Growth in History

Section 9.3
American Power: Implosion at Lightning Speed

Just sixty years ago [i.e., just after World War II]
the United States was not only by far the strongest power of that time
but of any time.
Neither the Roman nor the Chinese empires ever came close to
the global influence America held then.
[Curiously he omits the British Empire.]
But the speed of America’s relative decline in subsequent years
must count as a record in world history.

It is chastening to recall that
it was precisely because its economy was so strong
that the United States had won World War II.
American troops may have been no less brave than those of Germany and Japan,
but what made the difference was that,
thanks to the then seemingly unchallengeable American lead
in advanced manufacturing,
they enjoyed a wide edge in material.
[Another advantage, of course, was the overwhelming numerical superiority
the combined USSR/US/UK forces (the “Allies”) held over those of the Axis.]

Even though the war had been the most destructive in history
the United States seemed to have little difficulty
financing a tremendous worldwide postwar industrial economy.
These days, by contrast, the burden of financing recovery merely in Iraq—
a Third World nation with fewer than 30 million people—
is adding visibly to the strains on the United States budget.
Just how weak the United States had become
was already evident even earlier in the fact that,
as Paul Craig Roberts has noted,
the United States could never have gone to war in the first place
without the implicit say so of its main creditors,
the governments of China and Japan
(which could have brought financial markets up short
had they signaled their disapproval
as the United States moved its troops into position for the coming hostilities).

True, not every aspect of America’s economic predicament
looks equally disastrous.
America’s share of world output, for instance, still seems respectable.
Measured at market exchange rates,
America’s output recently represented fully 28 percent of the world total.
Although this is a mere one-half of the proportion in 1945,
it nonetheless seems to represent incontrovertible evidence that
the United States remains—as the globalists love to assert—
by far the world’s greatest economic superpower.

The trouble is that
this calculation, based as it is on
an unrealistically inflated value of the dollar,

is a statistical illusion.
For well over a decade
the dollar has been on the economic equivalent of a heart-lung machine.

With each year that passes,
the scale of the necessary East Asian support has increased.
Absent such support,
no floor would be in sight for the erstwhile “might” dollar.

As William Holstein, author of The Japanese Power Game
and a former top editor at Business Week,
observed on a visit to Japan in 2007,
it is fair bet that, if allowed to float freely,
the dollar would fall by at least half against the Japanese yen.
And an even greater fall
would appear to be necessary against several currencies,
not least the Chinese yuan.
This, of course, would bring a commensurate plunge
in America’s stated share of world output
[not to mention in the American standard of living]
and would further curtail America’s ability to project economic power abroad.

Any analysis of America’s economic weakness must start with trade.
America’s imports now exceed its exports by nearly two to one.
This is a truly extraordinary position for any nation,
let alone for one that thinks of itself as the world’s sole superpower.
Each dollar by which imports exceed exports
represents an extra dollar the United States must somehow borrow abroad.
America’s current account deficit,
at 6.5 percent of gross domestic product in 2006,
represented the largest percentage deficit incurred by
any major nation in peacetime since Italy in 1924.

Moreover, whereas Italy’s 1924 performance—a deficit of 7.7 percent—
was temporary and was cut in half the following year,
there is no solution in sight to the American trade problem.
Quite the contrary, absent a wrenching policy reversal
that would be disruptive not only for the United States
but for the entire world economy,
the problem is set to get progressively worse.
Even with such a policy reversal
it would take at least ten years, and more like fifteen,
of economic restraint by the American nation
to restore America’s trade position to the black.

At the root of America’s trade problem is
an implosion in America’s once world-dominant manufacturing base.
If America is ever to dig itself out of its hole,
it must stage a massive renaissance in manufacturing
and thereby win back lost market around the world
[starting, one would think, with its own internal market].
Manufacturing industries are crucial because in general
their products are much more exportable than those of service industries.
As I pointed out in my 1999 book
In Praise of Hard Industries:
Why Manufacturing, Not the Information Economy,
Is the Key to Future Prosperity
American manufacturers have historically exported
about eleven times as much per unit of overall output as service companies.

Advanced manufacturing in particular is key
because it not only is highly capital intensive,
but also
offers great potential for a sophisticated nation
to accumulate large amounts of secret production know-how.

Capital-intensive, know-how-intensive manufacturing
powerfully leverages each worker’s productivity
and thus makes possible disproportionately high wages—
wages that are invulnerable to undercutting
by the less-well-equipped workers of poorer nations.

The United States used to dominate almost right across the board
in advanced manufacturing.
Now leadership has passed to Japan and to a lesser extent to Germany—
and the results are stunningly apparent in the ability of those nations
to maintain and enhance their position in world trade
even in the teeth of a rapidly rising Chinese challenge.
Indeed, manufacturing industries in both Japan and Germany
have continued strongly to boost their exports
despite the fact that they now pay factory-floor wages above American levels.
Between 1999 and 2006,
Germany’s trade went
from a current account deficit of $21G to a surplus of $135G,
while Japan’s current account surplus jumped from $107G to $174G.

Although the United States should long ago have acted decisively
to shore up its manufacturing base,
the sad fact is that in the last twenty years
total American manufacturing jobs have fallen by about one-third.
No revival is even remotely in prospect.
On the contrary, given the prevailing combination of
an overvalued dollar and a totally open domestic market,
American manufacturing companies are rapidly shutting down what little remains
of their domestic production capacity and shifting it abroad.
Just since George W. Bush [43] took office in 2001,
3 million manufacturing jobs have been lost [through 2007].


The aerospace industry provides a particularly compelling example.
This used to one of America’s greatest net exporters
and as such represented on of four main manufacturing pillars
underpinning America’s seemingly effortless economic superiority
(the other pillars were electronics, automobiles, and production equipment).
Even with wages twice to five times those in Germany and Japan
in the first decades after World War II,
American aerospace companies were dominant virtually right across the board,
and they remained a major contributor to the balance of payments
into the 1980s.
[The names of those aerospace companies are now fading into oblivion:
McDonnell, Douglas [A-4, John McCain’s light attack aircraft],
Convair [F-102, this was flown by George W. Bush!],
North American
[F-100, XB-70 Valkyrie, B-1 Lancer, X-15, Apollo Command/Service Module],
Fairchild [A-10], Republic [F-105, the famous “Thud” :-)],
the independent Northrop and Grumman, to name a few.
(The image above, of the North American XB-70 Valkyrie,
does not show an exportable aircraft of course.
It just shows the technological sophistication of the U.S. industry in the 1960s.)]

Today, however, more and more of the advanced components and materials
on which the industry depends
are being outsourced from other advanced nations,
particularly Japan, but also Germany, Italy, South Korea, and Britain.
This has resulted in major layoffs of American workers.
Between 1990 and 2004 alone,
the industry’s total workforce fell from 1.12M to a mere 593K.

The most spectacular manifestation of the trend
has been in the new Boeing 787, which will be largely foreign-made.
Outside experts calculate that
only about 30 percent of the plane’s manufacturing
will be conducted in the United States.
By comparison the 777, which was launched in 1994,
was about 70 percent built in the United States,
and the 727, launched in 1963, was about 98 percent.

The same pattern of rapidly falling employment
is apparent in almost all the formerly strong exporting industries.
Electronics, for instance, is another disaster zone.
So is the automobile industry.

America’s trade problem has been exacerbated by
the increased outsourcing of advanced services.
The trend has been driven in part by
a plunge in the cost of international telecommunications.
Another factor has been that, with ever-cheaper computing,
advanced services have become ever more labor-intensive.
Formerly, many advanced services—
the writing of computer software, for instance—
were extremely capital-intensive
and thus there was little incentive to move jobs abroad.

As low-wage countries have become rapidly more proficient
in tackling more and more complicated service tasks,
their exports to the United States have soared.
The trend has been led by India,
which started in the 1980s by doing humble data-entry work.
This involved mainly keying handwritten and printed materials
into computerized form.
Then the Indians got into software and call-centers.
Now they are moving into medical testing, accounting, and legal work.

All this is more disconcerting considering that
many commentators in the 1990s raised false hopes that the New Economy
[remember that? Haven’t heard much about it lately :-)]
would prove America’s economic salvation.
As I pointed out in In Praise of Hard Industries, however,
such hopes were unrealistic, as already then the United States
had lost whatever comparative advantage it may once have enjoyed
in the more important areas of advanced services.

With outsourcing now undermining the American job base
from both the manufacturing and services ends,
the picture that emerges is reminiscent of
Barry McGuire’s rollicking hit song from the mid-1960s—the one that went
“Three wheels on my wagon and I am still rolling along…”

In the song, all the wheels eventually came off.
The American economy is headed the same way.

Section 9.4
Biggest Change Agent Since the Caravel?

The contrasting economic fortunes of the United States and China in recent decades are closely related.
In large measure they reflect the fact that
the Confucian economic system is engaged in
a zero-sum game with Western capitalism.

The key to the entire Confucian economic phenomenon is a revolutionary new savings regimen in which consumption is systematically suppressed.
This creates enormous savings surpluses
that are then, by virtue of detailed industrial policies,
deployed in boosting productivity in key industries—
in the jargon, targeted industries.
Not the least such industries are ones
that were previously mainstays of the American economy.

Manifestations of China’s version of the suppressed-consumption policy
run the gamut.
Consumer credit is tightly curtailed.
A wall of trade barriers and an undervalued yuan
block the Chinese people’s access to foreign consumer goods.
Much consumption potential is choked off by the simple expedient
of allowing government-controlled companies to fleece the consumer.
By charging exorbitant prices,
such companies suppress the sales volume of key consumer goods.
Their high profit margins are then channeled into investments
in the latest production technologies.
Meanwhile zoning restrictions keep housing both
extremely cramped and extremely expensive.
This enables government-owned land development companies
to skim off huge profits from China’s booming housing market
and in one way or another
this money too generally goes into improving industrial productivity.

Following in the footsteps of the earlier Confucian industrializers,
Beijing uses the banking system as its main instrument
in directing savings flows into favored industries.
To this end it maintains majority stakes in most of China’s significant banks.
The banks favor industries where,
because of the ready availability of new, more advanced production technologies,
investment promises to yield disproportionately large productivity increases.
Suitable cartelization
enables manufacturers to maintain strong pricing in consumer markets
while moving in lockstep to ever more advanced production methods.
A key point is that the cartels ensure that
older, less efficient production capacity is shut down,
thus minimizing the risk of dangerously destabilizing capacity gluts
and bouts of below-cost selling.

China’s epic version of suppressed consumption
has generated savings rates of
typically more than 40 percent of gross domestic product
in recent years.
Saving on this scale has hitherto been virtually unheard of
not only in the West but even in other parts of the Confucian region.
In the short run the suppressed-consumption policy’s effect has been
to condemn the Chinese people
to much lower living standards than they would otherwise enjoy.
The upside is that the resulting boost to investment means that
the rate of increase in productivity—and by extension in living standards—
has probably been the fastest in world history.
In the long run therefore the Chinese people
can aspire to an excellent return on their involuntary sacrifices

(at least those of them who survive to collect the social dividends).

Because the suppressed-consumption concept
blatantly violates China’s WTO commitments,
it has had to be hidden from Western view.
One key consequence is that
the Chinese authorities—
and their spokesmen in the Western economics community—
have invented an entirely misleading explanation for the high savings rates:
the Chinese people, it is said,
are exceptionally concerned about the future
and thus salt away an exceptionally large amount of their incomes in savings.

The truth is, of course, that
if insecurity were all that was needed to boost a nation’s savings rate,
the whole Third World would long ago have saved its way into the First.

In the early decades after World War II,
it was perhaps understandable that
there was little curiosity in the West
about the unnaturally high savings rates
that were beginning to emerge in East Asia.
Given that China boasts more than six times the population
of all the earlier Confucian industrializers combined, however,
the emergence of the Confucian savings regimen
now clearly represents one of the great turning points in history.
Economic leadership of the world is passing
from nations that have long championed individual freedom
to others that often pursue diametrically opposite policies.

In the fullness of time the rise of the Confucian savings phenomenon
may well induce the biggest transformation of the world power map
since the first Portuguese and Spanish voyages of discovery
[in the fifteenth century].
Yet, far from comprehending the scale of the Confucian challenge,
the American establishment persists with policies that assume it away.

Section 9.5
America’s Road to Ruin

If madness is doing the same thing over and over again
and expecting different results,
future historians are going to ask sharp questions about
the American nation’s psychological state in recent decades.

Up to the early 1980s
it was perhaps reasonable for experts and non-experts alike
to defer to David Ricardo’s wisdom on trade.
Certainly most professional observers, this writer included,
took it on faith that Ricardo’s early-nineteenth-century trade model
would work in the end for the United States.
But with every trade agreement that was signed,
the evidence that, in modern conditions,
there was something wrong with Ricardo’s theory
became ever clearer.

The pattern has been depressingly predictable.

Each trade agreement was first presented to the American people as
a marvelous opportunity for American manufacturers
to win new markets and
generally advance their position against foreign competitors.
Then, with negligible exceptions,
the big export opportunities never materialized,
and America’s trade position just ratcheted into
an ever weaker position.

By the mid-1980s the writing was unmistakably on the wall.
It was at this time that,
in a desperate measure to try to turn around the trade trend,
the Reagan [40] administration acquiesced in
a massive devaluation of the American dollar.
In the subsequent two years,
the dollar fell by nearly half against the Japanese yen,
and almost as much against other key currencies.
Yet the U.S. trade deficit not only did not disappear but actually worsened.

the Washington establishment continued to ignore the warnings
and instead in the mid-1990s pressed ahead with
the most ill-advised one-way free-trade deal yet:
the creation of the World Trade Organization.

The WTO was established as
the successor to the General Agreement on Tariffs and Trade (GATT),
which had previously governed America’s trade relations.
As Chalmers Johnson has pointed out, the shift from GATT to the WTO
constituted a historic, if well-hidden shift in American trade policy.
GATT had promoted a quite limited and pragmatic agenda in which
the United States opened its markets to a select group of allies
and in return received their support in the cold war.
By contrast,
the WTO was founded on an ideological commitment to universal free trade.
It was dogma for the sake of dogma and thus constituted
a far larger, less focused, and less manageable economic experiment—
and from the point of view of the American national interest,
one that was much more gratuitously risky.
Moreover, it was being undertaken despite obvious evidence that
the original GATT arrangement had,
contrary to all expectations at the time of GATT’s founding in the late 1940s,
proved costly to America’s economic prospects.
(The assumption behind the GATT quid pro quo had been that
the United States was so superior in its fundamental culture and institutions
that it could afford to indulge the allies
without risking any serious diminution in its lead.
By the mid-1990s most of the allies had broadly caught up,
and both Japan and Germany clearly had leapfrogged ahead
in key areas of advanced manufacturing.)

In espousing the WTO,
Washington was giving away the store.
In a devastating article in the American Prospect in 1997
[“Breaching the Great Wall”],
Chalmers Johnson showed how clearly
the WTO would work to America’s disadvantage.
On the one hand,
the WTO did not outlaw the nontariff barriers
that East Asian nations use to protect their markets;
on the other,
it did outlaw direct attempts by the United States to retaliate against
such protectionism.

Johnson explained:
Tariffs are no longer important in international trade,
but so-called nontariff barriers such as
national industrial development policies,
regulations with differential effects on foreign and domestic firms,
unique standards,
collusion among a country’s firms to keep out foreigners
(China’s state-owned sector, Japan’s keiretsu, South Korea’s chaebol), governmental administrative guidance of privately owned enterprises,
and the failure to enforce anti-monopoly laws
are all beyond the scope of the WTO.
On the other hand,
Section 301 of the American Trade Act,
which allows the U.S. government to assist American firms
facing access barriers in foreign markets,
is explicitly barred.
Unless and until the WTO faces up to the Catch 22 in its charter,
it remains a menace to the livelihoods of all working Americans.

Of course,
the WTO has ostensible mechanisms for punishing nations that break its rules.
The operative word is ostensible.

The founding of the WTO led directly to
America’s next major trade fiasco:
the opening of the American market to China,

a nation that both economically and politically stood for
values utterly at odds with those of the United States.

The decision to throw the American market completely open to China
was wrong on several counts.
The first of the problems was on the American side.
The United States had not yet
even begun to digest previous trade liberalization measures
vis-à-vis other nations.
With the Commerce Department
and the United States Trade Representative’s Office
already grossly overextended trying to make earlier trade agreements work,
a new one with China was the last straw.

In any case, as Chalmers Johnson pointed out in 1997,
China’s economic arrangements were so incompatible with America’s
that the whole concept of a balanced, fair Sino-American trade relationship
was out of the question.
Referring to the Ricardo case for free trade, he commented:
“It sounds great but to work in practice,
free trade requires tolerable symmetry—
a mutual commitment among participating nations
to disavow promotion of domestic industry
at the expense of trading partners.”

He added:
“In a sense, the China trade problem is not a trade problem at all
but one of ‘systems friction’…
One of the secrets of China’s development strategy,
which borrows heavily from the experience of
Japan and other successful Asian nations,
is to bend the rules and norms of capitalism
in order to achieve national wealth and power.
In this view, economics is inevitably a zero-sum game,
in which some nations win and others lose.
China has never aimed at becoming a ‘market economy’
but rather at engaging and exploiting other economies
to become a great power.”

Even setting aside the fact that the Chinese system is fundamentally mercantilist,
a key problem is that
there are many internal barriers to trade within the country—
with the farcical result that it is often easier for a manufacturer
in, say, Shanghai
to ship his output to the United States than to Guangdong or Chongqing.
Moreover, as became clear in a spate of tainted-food scandals in 2007,
China is scandalously lacking in the sort of First World controls
necessary to protect the world’s consumers from fraud and criminal negligence.

China’s unreadiness was, however, considered beside the point
as Washington negotiated with Beijing in the late 1990s.
The outcome had been predetermined by corporate America.
China would be admitted as a full member of the world trading system,
even though Russia, which in many ways was better qualified for membership,
was to be kept out.
Almost without exception,
American executives were motivated
not by any export prospects in China—
which even with the best will in the world
would for the most part remain negligible for years to come—
but with outsourcing.

In other words, this was
just another opportunity to shut down capacity at home
and move jobs overseas.

All the while, however,
the American press generally presented closer trade relations with China as
a vast new opportunity for American exporters. [!!]


The root of the problem is
an American corporate chieftain’s quarterly efforts to
“make their numbers.”
It is easy for Beijing to arrange business conditions
so that huge profits are virtually guaranteed
for any compliant American corporation.
It is a process that makes shooting fish in a barrel
seem like a fair challenge.
In return for the license to print money in China
(at least for the duration of the next few quarters),
American corporations merely have to
transfer crucial technologies to Chinese soil.

For just a few years of profits,
America is giving away a technological inheritance
that took generations to accumulate.

Deprived of its reserves of proprietary production know-how,
the United States loses most of its comparative advantage in world markets.

Now that virtually all restrictions on the movement of America capital
have been abolished,
there is generally no reason anymore why
corporate America should invest at home.

Better to invest abroad, particularly in China,
where the government makes it so easy
for the collaborationist-minded to turn a profit.

Neither the American nation nor the American workforce
has had any influence over the process.
Even American shareholders are not consulted—
and if the truth were frankly disclosed to them,
they would in many cases oppose the deals
as undermining their long-term interests.

The big gainers are in the first instance
just a few thousand top corporate executives
who reap huge returns via bonuses and stock options.
[But not far behind are the investors.]
Meanwhile, bloated short-term corporate profits make possible
an orgy of influence buying not only in Washington
but in the American media and in the universities.
The silence of designated whistle-blowers must be bought,
thus obviating any risk that a suddenly aroused American people
might intervene to stop
the looting of the nation’s industrial patrimony.

Section 9.6
Incompatibility of the Two Systems

Globalism is clearly not delivering the promised economic dividends
for the American nation.
But an even bigger problem in many ways is hidden just below the surface,
the tectonic tensions radical globalism is engendering
between the West and the Confucian region.
The least controversial way of putting this that
Confucian societies are stronger than our Western societies.
Although this judgment is likely to be hotly contested by [some],
observers who know the East Asian region have noticed a consistent pattern—
a pattern that, to say the least, is not encouraging.

One public indication that all is not well has been
Rupert Murdoch’s about-face in his relations with Beijing.
As we saw in chapter 8, he was suddenly persuaded in the mid-1990s to switch
from principled opposition to the Beijing regime
to blatant collaboration with it.

It is, of course, possible that
a Machiavellian Murdoch intended his initial hostile stance
merely as an opening gambit in securing the best terms.
The balance of probability, however, is against this.
After all, he did not need to go public with his original challenge to Beijing.
Nor did he have to use such provocative language.
If he was merely jockeying for bargaining position,
he did not have to do so much damage to his reputation in the West.

To people familiar with the Confucian region,
the Murdoch about-face was par for the course—
merely a public version of something they have witnessed dozens of times
among friends and associates.
One day a prominent Westerner—
be he a journalist, a scholar, a business executive, or a diplomat—
is an uncensored font of truth.
The next he has gone silent (actually catatonic is often a better description).
The day after that he is spreading falsehoods about
his erstwhile close friends and colleagues fighting the good fight
against the implications of Confucian economics.

So far, foreigners in China seem to have had
more success in upholding Western ethics
than their colleagues elsewhere in the region.
But the signs are not encouraging.
There is, for instance, the fact that
virtually every Western employee in China
seems to be complicit in enforcing the one-child policy—
often to the point of pressuring women to have abortions.
It seems clear that in future years things can only get worse.
So far, with the cold war not yet forgotten,
both Westerners in China and their superiors back home
have been alert to potential problems and thus have had their guard up.
at least up the time of China’s entry into the World Trade Organization,
their Chinese hosts have had a strong incentive to avoid
the more controversial techniques they might otherwise resort to.

But the evidence from other parts of the Confucian region is that
powerful pressures are brought to bear on
any Western resident who insists on upholding the Western truth ethic.
Such people rarely thrive in East Asia.
Just the most obvious of the risks they run is character assassination.

The authorities make extensive use of the military concept of “mass”
in countering whistleblowers.

if one person utters an unwelcome truth,
ten ostensibly impeccable authorities
will instantly be mobilized to discredit him,
and a complicit audience of a hundred collaborators will nod in unison
as he is denounced as
either psychologically unbalanced or evilly intentioned.
Meanwhile his few friends and allies will be pressured into silence.
In the eyes of uninformed bystanders, he cannot win.
They will ask,
“If what you say is true, why are you the only one saying it?”
Irrespective of how well informed he is or how ethically motivated,
he will not prevail.
Generally the first thing that happens is he loses his job.
Faced with apparently overwhelming evidence against him
his company simply lets him go.

[Such tactics are not exclusive to Confucian societies :-).
Ask, as one example of many, Helen Thomas.]

The most memorable manifestations of the denunciation weapon at work
came during the Cultural Revolution in Maoist China.
For the most part, however, as Ivan Hall has pointed out,
denunciation campaigns in modern East Asia are conducted discreetly
and thus are difficult or impossible to document.

[In an endnote Fingleton adds:]
Sometimes they are not so discreet.
Take the case of a noted American academic expert on East Asia
who for a time worked for an East Asian-funded quasi think tank in Washington.
He had joined the organization in good faith,
believing it to be genuinely interested in promoting “mutual understanding”
and in particular conveying a truthful account of East Asian affairs.
As time went by he became increasingly critical of his foreign masters
and their motives
and eventually resigned in somewhat acrimonious circumstances.
When he began discussing his experiences frankly,
false rumors about his sex life were propagated to damage him.
The episode probably did something to curb his comments
and it certainly “encouraged the others.”


Defamation aside,
coercion in various forms is a major problem for Westerners in East Asia.
The most obvious manifestation is the mechanism of selective enforcement.
Westerners who do business in China—
or in any of the other major Confucian nations—
have to put themselves on the wrong side not only of local law
but also often of Western law.

The problem is exceptionally acute for Americans because American laws,
much more than those of other Western nations, apply extraterritorially.
Though American laws often extend to China,
they were not written with modern Chinese conditions in mind.

A particular problem is the need to bribe officials.
This constitutes a blatant breach of America’s Foreign Corrupt Practices Act.
Thus any American who hands over a bribe is potentially subject to severe penalties—up to five years in prison—under American law.
Once he gives his first bribe,
he is forever afterward a hostage to the vagaries of selective enforcement.
The Chinese recipient may be an agent provocateur—
but even if he is a bona fide bribe,
higher authorities within the Chinese establishment
undoubtedly have ways of making him talk.


Section 9.7
“The Dragon Will Go Away”

Section 9.8
The Dragon Moves to Hegemony

Section 9.9
America’s Choice:
Globalism or Democracy?

Having satisfied ourselves that China is destined in coming decades
to become an increasingly powerful force in world affairs,
let us now consider the implications for American policy.

Americans have an epochal choice to make:
either globalism or democracy.
They cannot have both.

Quite simply,

in a globalist world,
democracies are increasingly vulnerable to manipulation
by more authoritarian nations.

The problem is particularly serious in the case of the United States
because the machinery of American democracy depends so heavily on
campaign contributions.
It would be nice if it were otherwise;
but over the years repeated efforts at political reform in the United States
have failed.
For those who live in the real world, therefore,
money politics must be considered a given as
Chinese money casts a lengthening shadow over the world polity.

In a related point, we also have to accept that money greatly influences how the American media cover the issues.
Editors whose views serve advertisers rise to the top.
Money also works at a different level by creating
a parallel universe of pseudo sources for the press.
The most obvious are think-tank analysts.
Increasingly too, money has shaped key academic disciplines,
particularly those related to politics and international policy.

Of course, money has almost always been a force in shaping American politics,
but up to the early decades after World War II,
it was generally wielded by identifiably wealthy individuals
who owed their ultimate loyalty to the American nation
[a subset of the old WASP “patriarchy”].
Their behavior was not only shaped (if sometimes rather loosely)
by American ethics but subject to the sanction of American laws.
More subtly but perhaps more importantly,
wealthy political donors had a stake in the outcome.
Not only did they personally have to live with
the societal consequences of their favored policies,
but, perhaps more important,
their children and grandchildren had to do so too.
Few people aspire to be remembered as cads by their grandchildren.

While this simpler world was hardly Eden
(certainly not for American blacks,
whose rights had only just been discovered as a political cause),
it was informed by a sense of accountability that is lacking today.
With the rise of globalism,
more and more of the money flooding into the American political process
either comes from abroad or is ultimately controlled by foreign corporations
or even foreign governments.
By definition such money is not meant to serve the American national interest.
Worse, many of the foreign nations whose interests the money serves
are, to say the least, not sympathetic to American democracy.

Moreover, on issues like trade policy virtually all foreign money
is lined up on the same side—
and against the American national interest.
The record shows that this renders prudent policymaking almost impossible.
By contrast, in days gone by
when domestic American interest groups dominated the influence-buying process,
the money often lined up on opposing sides of important issues,
thus leaving room for those who championed the general public good
to make a difference.

What explains the rise of foreign money in American politics?
First, foreign producers have become a major factor
in the American domestic market.
This reflects the fact that the tariff barriers
that once gave American producers—and their American workforces—
an inside track in serving the American market are gone.
Also, the United States has fallen in relative global economic influence.
Many foreign corporations
that were still only a negligible force a few decades ago
have now come to dominate key industries.

cheap international travel and virtually cost-free communications
have also played a part in that
they have greatly simplified the problems
for top executives in Frankfurt or Zurich or Tokyo
in keeping tabs on operations in the United States.
Obviously it is not the job of such executives to look out for
the American national interest.
The problems of the American inner cities, for instance,
are hardly more of a concern for them
than those of the slums of Calcutta or Rio de Janeiro.
Further, although their rhetoric sometimes suggests otherwise,
they have never taken any effective action to discourage
the headlong rush to increasing foreign indebtedness
by the American nation.

Even American corporations these days are hardly more cognizant
of the American national interest.
Now that American tariffs are gone, American executives
no longer automatically make common cause with their home workforces
on trade issues.
executives have been conditioned by a globalist-minded press
to believe that it is now quixotic if not softheaded
to worry about the impact of one’s decisions one one’s employees at home,
let alone on the wider American national interest.
Moreover, the rise of China
as a vast low-wage manufacturing platform for American corporations
has meant that
they are now increasingly concerned to curry favor with
the top leadership of the Chinese Communist Party.

This has brought out to an extreme extent
a streak of collaborationism for which American corporations
have long been noted.

A basic problem is a lack of symmetry.
While American corporations
increasingly renounce their loyalty to their home country
(and often do so pridefully,
as if they were displaying commendable moral courage),
the same is not true of their foreign counterparts.
Quite the contrary.
Foreign corporations typically function quite consciously as
agents of their home governments’ foreign policy.
This applies in spades to corporations based in East Asia,
and to a lesser extent to those of continental Europe (particularly Germany);
but even in a nation as ostensibly globalized as Britain,
corporations are much more willing
to cooperate with government in serving the national interest
than are American corporations.

The issue that brings all this into sharp focus is
America’s now scandalously heavy dependence on foreign borrowing.
No major nation in modern times has become remotely so indebted.
The closest historical parallel is with the Ottoman Empire a century ago.
American presidents these days, like the Ottoman sultans a century ago,
are surrounded by flatterers whispering assurances that all is well.
[Some media columnists, too.]
Today, as a century ago,
many of these flatters
are bankers who profit from extending ever more credit
to the gullible and self-satisfied.

The problem is compounded by the fact that
so much of the credit is coming from one highly controversial source: China.
To say the least,
China’s political agenda is utterly incompatible with that of the United States.
For the moment Beijing’s influence has been confined mainly to
discouraging any action in the United States
that might put American trade policy on a sounder basis.
But as the United States becomes ever weaker
and more dependent on Chinese credit,
Beijing’s influence is likely to extend widely into other areas of American policy.
Indeed the pattern for the United States to depend on Beijing for credit is already
beginning to resemble the relationship between a colony and the imperial capital.

In the long run, assuming unchanged policies,
the contrast between China and the United States reduces to
the age-old battle between the group and the individual.
To understand the extent of the threat that
the Chinese Communist Party poses to an individualistic America,
think of a bulldozer setting out to level a sand dune.
The bulldozer may be dwarfed at the outset, but, given time and patience,
it will level the dune.
The Chinese Communist Party sees itself as the bulldozer
and America as the dune.
The bulldozer is a carefully designed machine
that has the advantage of concentrated strength.
The dune is made up of countless unique grains of sand
but lacks any ability to mobilize its weight to resist the bulldozer.

How far the bulldozer will choose to go in leveling the sand dune is uncertain.
What is clear, however, is that the United States is exceptionally vulnerable
by reason of the pronounce individualism of its society.

Think of it this way: the first job of any Confucian bureaucracy
is to emasculate all potential institutional rivals.
The more atomized a society is,
the easier it will be to reshape along Confucian lines.
Confucian-style institutions can then be developed
that in one way or another facilitate control from the top.

In this sense,
American society is ready-made for Confucianizing.
As a matter of high policy,
all large concentrations of power in the United States
have long been systematically dismembered.

[I fail to understand the full validity of that statement.
Especially, the political scene continually presents us with
various special interests trying, all too often successfully,
to shape policy in what they view as their interests.
Examples include:
women (as their views are shaped by feminism),
minorities (blacks, Hispanics, Jews (consider the Israel lobby)),
the elderly (why Social Security is called “the third rail” in American politics),
and so on.
Such special interest politics is a prime reason for the on-going failure
to put Social Security cuts on the table
towards the goal of cutting the federal deficit.]

This is exemplified most obviously in antitrust policy.
Not only are American corporations strictly forbidden from organizing cartels,
but any corporation that becomes too powerful risks being broken up.
(Witness the fate of the old AT&T.
More generally, many American corporations—
IBM and Microsoft are examples—
have had to pull their punches to stay out of antitrust trouble.)

To Confucian power holders,
America’s system of separation of powers
is another manifestation of grave institutional weakness.
Then there is the fact that even compared with other Western democracies,
the permanent civil service in the United States is notably weak
and unable to wield independent institutional power.

The United States is in many ways the world’s most individualistic society,
and precisely for this reason
it is a sitting duck for the manipulative techniques of Confucian power.
there is hardly an institution of any size left in the United States
that can truly be said to stand unequivocally
for the American national interest.

Quite to the contrary:
virtually all institutions are now globalist
not only in mind-set but in structure
and thus are easily divided against themselves.

[I agree with the statement emphasized above.]

For the Beijing bulldozer the sand dune of American individualism
is therefore a pushover.
There may be some rocks in the dune—
a few independent-minded politicians like Byron L. Dorgan, Ernest F. Hollings,
Marcy Kaptur, Jim Webb, Dennis Kucinich, or Dana Rohrabacher, for instance,
who refuse to budge.
There may be some philanthropists
like Roger Milliken or the late Sir James Goldsmith,
who throw themselves into the fray.
But politicians and philanthropists are individuals,
and individuals eventually pass from the scene.
There may even be an occasional boulder—
a large, strongly led corporation like Microsoft
that at least for a time tries to resist the leveling process.
But, as we have seen, the boulders too do not resist forever.

This and dune, however, hardly lacks for potentially effective protection
All it needs is a solid concrete wall around its perimeter.
To that subject we now turn.

Section 9.10
A Wall Around the Sand Dune

The solution to America’s China problem can be summed up in one word: tariffs.
Tariffs not only would provide
some badly needed space between the American and Chinese economic systems,
but would if pursued with resolution restore the more important elements of
the status quo ante that existed in the United States of the 1950s.

Initially at least,
tariffs should be applied at a uniform rate across all manufactured imports
(otherwise, major distortions would result
as opportunist sought to exploit categorization anomalies).
They should be introduced gradually to minimize
disruption to the world trading system.
The eventual target would be a tariff level of 15 or 20 percent.
The effect in reviving American industry would be modest at first
but would prove powerfully cumulative.
Within one decade American trade might be in balance again,
and within two decades the American economy would have taken its place again
at the leading edge in many of the most advanced manufacturing industries
(industries that are disproportionately important
both in creating highly paid blue-collar jobs and in boosting exports).

It would be implicit in any program to introduce tariffs that
the United States would withdraw from the World Trade Organization.
Eventually the United States could go on to negotiate a new trade regimen
in which nations that are sincerely committed
to fair and mutually beneficial trade
would be provided with preferential access to the American market.
But all of these nations
would have to maintain a common wall of tariffs against outsiders,
and of course they would have to reciprocate fully
any preferential terms they enjoyed in the American market.

Tariffs would minimize the extent to which
the American dollar would need to be devalued—
though some significant devaluation would probably still be necessary.
What is clear is that
the time when devaluation along might have done the trick
is long gone.

The problem has simply grown too large
and a devaluation alone would take far too long
to induce a vigorous renaissance in advanced manufacturing.

It goes without saying that the United States should also work
to improve the savings rate and to eliminate its budget deficit.
A tariff regimen would boost at least modestly the savings rate
(by dint of suppressing consumption of imported goods)
and by bolstering tax revenues, would serve to narrow the budget deficit.

As part of any new trade regimen,
the United States would probably want to adopt a value-added tax
or find some other mechanism to counter the effects of
the value-added taxes now standard throughout Europe and East Asia
(including China).
This is a complicated matter, but the main point is that
although value-added taxes are supposedly neutral
in their effects on world trade,
other nations’ value-added taxes work in practice
to put the United States at a serious disadvantage.

Put this starkly, this plan may seem extreme.
But that in no way reflects on the plan’s inherent common sense.
Rather, it betokens the undeserved success the globalist lobby has had
in persuading American intellectuals—
particularly those who lack formal economic training—
that free trade dogma is revealed truth.

There is nothing sacred about free trade,
and this is obvious to anyone familiar with economic history.
In its years of greatest relative success in the nineteenth century,
the American economy was heavily protectionist.
As the Ohio University economic historian Al Eckes
[also Patrick Buchanan, in The Great Betrayal]
has documented,
America’s founding fathers strongly believed in tariffs.
So did every Republican president before Dwight Eisenhower [34]
(not least Abraham Lincoln [16]).
Moreover, many other nations
have ridden a policy of intelligent protectionism
to achieve spectacularly growth over the years.
Beginning in the latter half of the nineteenth century
both Germany and Japan based their rises
on strongly protectionist trade policies.
The same goes, of course, for China today—
a nation that is growing faster than almost any other in history.

The globalist lobby has conditioned Americans to believe that
any return to tariffs would lead inevitably to
a second coming of the Great Depression.
Yet the contention that
the Smoot-Hawley tariffs of 1930 caused the Great Depression
is an urban myth.
Indeed, the time line alone shows that
trade had little to do with the troubles of the 1930s.
In a major study
that has been generally accepted by economists of all political persuasions,
the Nobel Prize-winning economist Milton Friedman has shown that
the true cause of the Great Depression was not Smoot-Hawley
but disastrously misguided monetary management.

In taking extreme free-trade ideology at face value,
the American elite has forgotten something it once fully understood:
that economics is an imprecise, often equivocal, science.
[It is worth noting that Fingleman wrote that in 2007,
before the dramatic exposure of
the flaws of the mathematization of the economics of the housing industry.]

In years gone by economists
were generally far more frank in admitting their discipline’s limitations
than they are today.
Indeed, their caution was the butt of a famous witticism by Harry S. Truman [33].
Noting that his economic advisers always hedged their bets by saying
“on the one hand ... on the other hand,”
Truman opined that what he needed was a one-handed economist.
In reality Truman was well served by his economists’ two-handedness.
Any honest economic discussion should be grounded in a recognition that
economic policies invariably create bad as well as good consequences.
Whether a policy is appropriate in any particular circumstance
therefore depends on a careful, disinterested assessment
of whether the identifiable pluses outweigh the identifiable minuses.

As far as free trade is concerned,
such a determination has rarely been beyond dispute
even in the days when America’s trade position was far stronger
than it is today.
As Sir James Goldsmith argued in The Trap [1994],
the case for global free trade has always seemed utopian.
For it to work in textbook fashion governments and corporations
must hold themselves to a standard of self-control
rarely if ever seen in the real world.

An analogy will make the point.
Washington is full of liberal politicians
who uphold the ideal of educational equality.
In practice, however, they rarely entrust their own children’s education
to the Washington public school system.
Irrespective of how much one may wish the real world to be different,
to expect American manufacturing industries to sink or swim
in today’s highly predatory, dysfunctional world trading system
is no more responsible than to abandon one’s children
to a drug- and crime-ridden public education system.

Given the record scale of America’s trade deficits—
not to mention the federal government’s dependence on foreign creditors—
those who oppose protectionism must answer this question:
What is the alternative?

The apologists—and their supporters in America’s globalist boardrooms—
will portray all this as defeatism.
Let them.
There is a difference between courage and foolhardiness.
No one thinks less of a lion
because he refuses to enter a crocodile-infested swamp.
Today’s world trading system is a swamp
where only the crocodiles can win.
In the lion’s natural habitat, the savannah,
his agility and speed make him second to none.
The survival instincts that have made him the king of beasts
tell him that that is where he should stay.

If this argument seems overdrawn,
it is because the East Asian trade lobby and its American surrogates
have so dominated the debate for so long.
To a previous generation, it seemed obvious that Russian and Chinese authoritarianism represented a potentially fatal threat to the West’s way of life—
so obvious that in the late 1940s and early 1950s
Western governments felt it necessary to institute extraordinary measures
to shield their political and economic systems
from contact with the Communist world.
They did so despite the fact that
the West then enjoyed a huge economic lead.
In the mid 1950s, after all,
the United States alone produced more than four times as much as
the Soviet Union and China combined.


If America’s policies do not change,
the nation’s decline will quickly become irreversible.
Within twenty years [by 2030], perhaps much sooner,
China will have passed the United States
to become the world’s largest economy.
A decade after that,
America’s days as the world’s most advanced economy
will have become a rapidly fading memory.
If we felt threatened by Chinese authoritarianism when China was poor,
how much more threatened will we feel when China is rich?

[End of book.]

Labels: , , ,