US economy

The fraught debate about the nature of China

Diligent Swampians might recall that in my last Swamp Notes I took up cudgels against those who compare China to Nazi Germany. Though I did not name the person who triggered my note, he requested the right of reply. He is Matt Stoller, a fellow at the Washington-based Open Markets Institute, and author of the forthcoming book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

Here is Matt’s response:

“While analogies to Nazi Germany have been used many times to excuse foolish foreign policy choice, China truly is that dangerous. I compared the [Chinese Communist party] to the Nazis in 1935. Here’s why.

“In 1935 the Nazis had only a small network of concentration camps. The CCP has already placed millions of Uighurs in re-education camps as part of a nationalistic project of ethnic cleansing. The Nazis regularly threatened war as an instrument of policy; the Chinese do so against Taiwan. The Nazis encouraged fascist parties abroad; China exports totalitarian surveillance systems globally. And just as the stabbed in the back narrative justified Adolf Hitler’s seizure of power, China’s ‘century of humiliation’ is nationalistic mythos imposed after Tiananmen Square to support authoritarian rule.

“China, like the fascists of the 1930s, intertwined its political, military and business sectors. It steals technology and moves it to its private sector. It also strategically exploits its market power. China uses its large movie market to shape Hollywood and western media. As a show of power in 2014, China forced executives from the largest western companies to engage in Maoist self-confessions.

“The Nazis also restricted Hollywood; Franklin Delano Roosevelt had to intervene to get The Great Dictator made. The Germans stole technologies, such as walkie-talkies, intertank and ground-air radio communication systems. They used financial arrangements to exert control over American production of, as the US army put it, ‘synthetic gas and oils, dyestuffs, explosives, synthetic rubber (“Buna”), menthol, cellophane and other products’.

“China leads the world in 5G [mobile] technology, and we are dependent on the country for everything from pharmaceuticals, consumer robotics, electronics, food preservatives, and speciality chemicals. We should stop trying to ‘shape’ China and start protecting ourselves. Without a change in strategy, we will become subjects in an increasingly authoritarian world order. As with Nazi Germany, that is China’s goal. As George Soros put it, ‘China is not the only authoritarian regime, but it is the wealthiest, strongest and technologically most advanced.’

“We must stop justifying the failed policy of the past quarter century. Our deep relationship creates friction between two incompatible systems and imports Chinese authoritarianism to the west. Close financial links can easily bring war, as they did before world war one. We must disengage as much as possible from China to protect ourselves, before it is too late.”

epa06272484 Chinese military delegates leave after the opening ceremony of the 19th National Congress of the Communist Party of China (CPC) at the Great Hall of the People (GHOP) in Beijing, China, 18 October 2017. China holds the 19th Congress of the Communist Party of China, the country's most important political event where the party's leadership is chosen and plans are made for the next five years. Xi Jinping is expected to remain as the General Secretary of the Communist Party of China for another five-year term.  EPA/ROMAN PILIPEY

It would be ungracious to embark on a point-by-point rebuttal of Matt’s views. Suffice to say that I find his analogy to be troublingly ahistorical. A more accurate comparison would be between China today and the Kaiser’s Germany in the years before the first world war. Substitute the US for imperial Britain and you can see the potential for gigantic miscalculation between a rising power and a defensive hegemon. I hope that we can learn from history.

As it happens, my column this week evaluates the Trump administration’s divorce plans with China. Some call this “decoupling”. I think that term understates the radicalism of what Donald Trump is proposing, which would push the world into reverse globalisation. America’s policy on China has transformed from “win win” to “win lose”, which is only a short hop to “lose lose”.

Rana, does it trouble you that Democrats are in some respects to the right of Trump on this question (or the left, depending on how you define protectionism)?

Recommended reading

  • This week the FT called for a “reset” of capitalism. I entirely share my employer’s sentiments. My colleague, Martin Wolf, wrote a magisterial summary of what is ailing democratic capitalism. He calls for a broad-based capitalism that gives everybody the chance of sharing in its fruits. “What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy,” Martin writes.
  • Talking of rentier economies, another colleague, Martin Sandbu, has been writing about the virtues of a wealth tax, which would redistribute resources from those who are living off capital to those who would be likelier to invest it. This strikes me as the kind of tax reform American capitalism needs. I plan to write about Elizabeth Warren’s wealth tax in the near future.
  • Finally, Swampians may have missed Rana’s thoughtful column this week on why AT&T, among other badly run corporate behemoths, deserves to be taken down. “Twilight is falling in the valley of corporate giants,” she writes.

Rana Foroohar responds

Ed, I love this Note, for many reasons. First, I’m a huge fan of Matt Stoller (full disclosure: he works at the Open Markets Institute, and I sit on its advisory board). His upcoming book Goliath is a must read for anyone who wants to understand how the corporatist wing of the Democratic party hijacked the economic debate on the left (which is, by the way, one of the key reasons we got Donald Trump, and why we now have such a far-left swing among Democratic candidates for 2020 as a result). I think Matt has done more to call out Democratic hypocrisies than anyone I can think of (and I’m pretty sure he’s a card carrying Democrat!). And anyone who cares about liberal politics should support that. People in glass houses, and all that . . .

As for your China debate with Matt, while I wouldn’t myself have made the comparison to Nazism and the Communist party, I do think that Xi Jinping’s China looks to be moving much more in the direction of Mao Zedong than Deng Xiaoping, a point I made in a column in January. Does it concern me that both Trump and some progressives seem to be much more interested in protectionism than in re-establishing the US position as a global leader on human rights (a position which we have clearly lost) or, and more importantly in the context of your question, creating a healthier economic alternative to the current paradigm of outsourcing/downsizing? Yes, it does.

But honestly, over the past 20 years or so that I’ve been going to China, I’ve been wondering when the dysfunctional dance between the US and the Middle Kingdom was going to break. I remember being in China once and interviewing the head of a big western green energy company that was then number one in its field in China. The chief executive told me that things were going well and he expected to be number four in the market in a few years. I was puzzled and asked him to explain how he knew he’d be number four. “Because that’s what Beijing has told us,” he said.

Why any CEO of a western multinational, or any US or European leader, thought that paradigm was sustainable, I’ll never understand.

PS: If you want to go deeper into all that, read the Open Market Institute executive director Barry Lynn’s prescient book End of the Line: The Rise and Coming Fall of the Global Corporation.

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