New Cold War?

Both Pakistan and China have given a fitting reply to the uncalled for and ill-informed US criticism of and objection to the China-Pakistan Economic Corridor (CPEC). But more than the CPEC, the US appears to be too wary of China's One Belt One Road (OBOR) project which proposes to bring world markets exceedingly closer to each other, in physical terms, thus curtailing drastically the commercial reach and cost of transportation.

And this wariness of the US appears to be arising out of its fear of losing its primacy in world affairs to China. In other words, the US seems to have been sucked into what is called the Thucydides Trap which means that war between a rising power and an established power is inevitable: Thucydides, the Greek historian, had claimed that "It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable."

Not that a war seems inevitable between the US and a rising China. But the ensuing bitter competition for world markets between the two is likely to cause a lot of disruption in the world in coming months and years.

Indeed, up until the Global Financial Crisis (GFC) in 2008, the Western model of liberal, democratic, and presumably meritocratic capitalism seemed all but unchallenged from an ideological point of view. The system that US promoted was presumably based on rule of law; limits on the absolute power of the state; free speech; freedom of worship; equal justice; respect for women; religious and ethnic tolerance; and respect for private property.

Many nations, with different histories and cultures, facing different circumstances, were seen successfully incorporating these core principles into their own systems of governance.

However, the events and aftermath of the GFC and the consequent Great Recession (2007-9) have in the meanwhile caused widespread political rage, undermining the political legitimacy of Western democracies.

Not surprisingly, it was precisely in the wake of the GFC that questions first started to get asked whether "the China Model" might come to replace the western one. Over the last decade, the fear in the West has risen steadily that China is eating 'our lunch'.

What America has belatedly realized is that it is finding itself locked in a profound struggle not with some Communist power slowly democratizing, but rather with a rival, authoritarian brand of capitalism, firm in its own vision of politics, with neither need nor intention of converging with the US model.

Indeed, if anything, the illiberal turn in western democracies over the last decade suggests that insofar as convergence is happening, it is via more fragile liberalizing democracies becoming more authoritarian rather than the other way around. At this point even the Chinese believe that the best the Western democracies can hope for is to "maintain a mutually beneficial collaboration while managing a benign rivalry.

According to Nils Gilman (China, Capitalism, and the New Cold War - review of Branko Milanovic's book Capital, Alone published in The American Interest magazine in its November Edition) while central planning imploded in the 1980s and 1990s as a credible alternative to capitalism, there have now emerged two (broadly stylized) ideological alternatives within capitalism, which is referred to as "Liberal Meritocratic Capitalism" (an abstracted version of contemporary American capitalism) and "Political Capitalism" (whose primary exemplar today is China).

Gilman maintains that the greatest threat to liberal meritocratic capitalism comes not from any direct challenge from political capitalism, but from the widespread sense that the liberal meritocratic order has betrayed its promises.

"Widening inequality in the West, and the willingness and ability of the elite to game the system to benefit their friends and offspring, have led many to feel that the meritocracy is sham, which in turn has fuelled populist illiberalism on the right and neo-socialism on the left.

"Political capitalism is a form of market-based political economy in which the government, as opposed to civil society, retains ultimate authority over major economic decision-making. There are three defining features of political capitalism. First, "a highly efficient and technocratically savvy bureaucracy" is put in charge of the system, with a mandate to realize high economic growth. Second, while capitalists and entrepreneurs may make huge amounts of money under political capitalism, "capitalists' interests are never allowed to reign supreme, and the state retains significant autonomy to follow national-interest politics." Third, the state retains ultimate control over the capitalists because the "rule of law" as such is absent. While the system is meritocratic in that the bureaucrats are appointed and promoted based on objective criteria, the political echelon retains final and arbitrary power.

"In the present case, the tension is between two variants within capitalism, rather than between two kinds of modernism, namely capitalism and communism. But if the two systems of capitalism, the liberal-meritocratic and the political, stand less far apart in their operating principles than did Communism and Capitalism, this need not mean the competition will be any less fierce."

In terms of the viability of their system as a model for the Global South to emulate, the looming fact, according to Gilman, is that China is an economic success story. China's system of political capitalism, for all its flaws, has lifted more people out of poverty than have all the Western development programmes of the last half-century.

While more a slogan and a vision than a definite set of plans, it is clear from the book that the Belt & Road Initiative (BRI) represents an effort by China to export its surplus capital and know-how in infrastructure development to countries throughout its periphery, with the evident ambition of turning China into the central trading hub of the 21st century.

While the United States habitually pressures other countries on their internal politics, the Chinese tend, in the opinion of Gilman, in fact, to be studiously silent on the internal politics of other countries. China's commitment to respecting the political sovereignty of other countries to this extent feels sincere.

One crucial difference between the first Cold War and this new one, observes Gilman is that whereas the Soviet and the American economies were separate from one another, the Chinese and the American ones are deeply interdependent, almost placentally so. Because the economies of the two countries are, at least for now, so intertwined, the new Cold War is less a matter of ideological competition than a struggle for economic ascendency.

"In a nutshell, what we are facing is not an ideological Cold War, or even a trade war, but in fact a tech war-that is, a war for control over technological standards and the commercial spoils that go with that. Arguably, the greatest geopolitical risk today is thus that "tech may trip the Thucydides trap," observed Gilman.

"Overall, the evidence suggests that growing Chinese influence over how countries organize their political economies is the result less of any effort on China's part to export their ideological model than of the eagerness of leaders in the Global South to exercise the kind of social and political control enabled by these technologies, which the Chinese are happy to sell to them. China's motives, in short, are commercial rather than political. The central question facing American foreign policymakers is how to promote the liberal values associated with meritocratic capitalism in a world of growing de facto support for the political capitalism that China symbolizes," wonders Gilman.

Milanovic, the author of the book offers several recommendations that he believes can help restore the meritocratic promises of liberal capitalism. First, it is essential to equalize access to high-quality education. In the United States today, in particular, the educational system at every level is intensely stratified, and incumbent elites have largely reserved access to the best institutions for their own class. Massive renewed investment in public education is thus one critical leg.

Second, because income from capital grows more quickly than income from labor, abating growing inequality requires a broader distribution of access to capital. This suggests a renewed commitment to spreading access to capital, by ensuring that shares in enterprises are owned broadly, not confined to a narrow class of rentiers and executives. The goal should be to "reduce the concentration of wealth and income from capital" and increase inter-generational income mobility. To achieve these objectives, Milanovic proposes increases in the taxation of the rich, especially a return to high taxation of inheritance with the explicit goal of reducing the concentration of wealth in the hands of the rich.

If liberal meritocratic capitalism can address the betrayal of its own ethical operating principles, or perhaps even evolve into some more mutualistic form of "people's capitalism," then it may well be able to renew its long-term appeal to the Global South. Conversely, if China's style of political capitalism can avoid the besetting sins of previous authoritarian regimes, namely the tendency to generate bad policies and social outcomes that benefit only political insiders, and instead continue to deliver higher rates of growth, efficient administration, and an ability to address perceived social challenges, the appeal of the Chinese system may only grow.

In the end, Milanovic doubts whether either the political or liberal meritocratic variants of capitalism is likely to achieve total global victory. For one thing, neither the United States nor China is going to embrace the other's system for themselves.

The answer, according to Milanovic, is that the competition is to win the hearts and minds (or, as we will discuss, at least the pocketbooks) of the leaders of what used to be called the Third or developing world, and which is now generally referred to as the Global South.

Copyright Business Recorder, 2019