Monday, June 27, 2005
previous entry | main | next entry | TrackBack (2)
Irwin Stezler's short-term memory
When Americans get skittish about China's growing economic power, free market advocates -- myself included -- tend to remind everyone about the excessive skittishness Americans had about Japan in the late eighties.
In the Weekly Standard, Irwin Stezler offers some reasons for why China now is different from Japan back then:
Now, I'm not necessarily disagreeing with Stezler's big point about the differences between China now and Japan then, but I remember enough of the late eighties hysteria to point out the various ways in which Japanophobes would have rebutted Stezler's alleged differences between Japan and China:
One final tidbit -- in 1990, Robert Reich conducted a poll of both elites and ordinary citizens and asked them to choose between a world where the U.S. economy grew by 25% and Japan grew by 75% over the next decade, or one where the U.S. grew by 10% and Japan by 10.3%. With the exception of economists, majorities in both groups preferred the second choice to the first one.
My point in this little exercise is not to exonerate China's less desirable qualities -- it's to point out that when another country is perceived as an economic threat to American hegemony, it is easy to find ways of painting that country in a sinister light.
UPDATE: The Economist has two articles worth reading on China's new interest in foreign direct investment. Neither the article about CNOOC in particular or the article about Chinese outward FDI is terribly sanguine about what's going on.
ANOTHER UPDATE: The similaities/differences between Japan and China were also the topic of Paul Krugman's column today. Krugman also touches on a theme mentioned by the other articles linked here:
Maybe my memory is off, but the Japanese also set up a fair amount of greenfield FDI in the auto sector as well.
Also, what difference wlould it make how the Chinese use their investments? None, unless you care about relative gains a fair amount -- which is what Krugman seems to be doing, according to both Tyler Cowen and Don Boudreaux.
Both also link to Sebastian Mallaby's sensible observation in the Washington Post:
LAST UPDATE: Alex Tabarrok goes completely medieval on Krugman.posted by Dan on 06.27.05 at 04:08 PM
Dan, I am shocked that a self-described libertarian would quote Robert Reich to make a point about economics. First of all, Reich's point was about the psychology of people's perceptions; not whether we really are or are not better off. People like to feel that they are doing well as compared to those around them. But just because their perceptions are off, doesn't mean that the main point is wrong. Secondly, and more importantly, trade between the US and China is NOT FREE. I have yet to hear you address this issue. The differences in tax structure, government subsidies, lack of environmental regulation, labor laws, and controlled currency all contribute to the lopsided trade situation.posted by: Larry on 06.27.05 at 04:08 PM [permalink]
I forgot to mention another point. The ravings of a few outspoken Japanese had little effect on the generally friendly relationship beteen US and Japan. Contrast that with a regime that is openly hostile to democracy, free speach, and human rights and which has declared its intention to forcibly "unify" with a genuine ally. Give me a break!posted by: Larry on 06.27.05 at 04:08 PM [permalink]
I am a little unclear on how independent of government control companies are in China. The Red Army seems to have huge capital assets. How much of the Unocal deal is government financed. How much of the financing is government enabled? Does the government in China project a kind of aggresive socialism using state own coorporations in order acquire market dominance? Can Chinese coorporations with the right connections call on extraordinary powers of government to acquire international advantages?
And one other...
Whats the word on the new Mao biography?posted by: exclab on 06.27.05 at 04:08 PM [permalink]
I think many observers are concerned that China will be more than an economic threat to American hegemony; they fear it will be a military threat as well. This is the difference that makes China distinct.
On another matter, I'd suggest the intellectual property issue is a huge one, economically.posted by: Andrew Steele on 06.27.05 at 04:08 PM [permalink]
I remember the Japanese hysteria quite well & some of the current hand wringing is identical to 15 years ago - "they are stealing our designs & reverse-engineering them".
I can vaguely remember some unease about Saudi Arabia's purchase of US assets sometime back in the early 1970's.
Face it, everytime there's a new competitor on the horizon, we can expect to hear hyperbole - China is a competitor of ours, so best expect more purchases in the future and evaluate them with a bit less hysteria.posted by: Franklyn Adams on 06.27.05 at 04:08 PM [permalink]
I hereby suggest the creation of "Marketlandia" (formerly known as Madagascar). That's where we're going to banish all those who only think of the market and refuse to take into account things like, oh I dunno, a massive military buildup as well as purported control of shipping chokepoints.
BTW, wouldn't Marketlandia be a nice idea?posted by: The Lonewacko Blog on 06.27.05 at 04:08 PM [permalink]
IIRC, much of the Japanese investment in the US auto industry came a bit after the Japanese acquisition of prestige investments. The Japanese put a lot of money into US real estate because US real estate was so much cheaper than Japan and took a huge bath on that.
On the other hand, there was definitely anti-Japan hysteria in the air. I have a book written in the early 90s about how Japan was stealing American military aircraft secrets. And remember books like Crichton's "Rising Sun" ?
It would make sense for China to lock up investments in
Is this for the good of the US ? Maybe not, but what choice do you have when you have the sort of deficits the US does ? The only tangible product driving our current economy is real estate and homes.
So what are the Chinese to do? They're sitting on a pile of dollars that has to be spent in the US. In the recent past, they've been spending it on T-bills, but a lot of people don't like that. What's left? FDI or portfolio investment. So is it OK for the Chinese to own parts of US companies, but not a controlling interest?
This is deju vu all over again. Secondly, throughout their history, the Chinese have never been military expansionists. Unlike, say, their island neighbors to the east.
The notion that American economic, political and military domination of the far east is intrinsically a good thing, and Chinese domination a bad thing is nothing more than Yankee-centric parochialism.posted by: Barry P. on 06.27.05 at 04:08 PM [permalink]
Does the government in China project a kind of aggresive socialism using state own coorporations in order acquire market dominance?
So what are the Chinese to do? They're sitting on a pile of dollars that has to be spent in the US.
Har. Those dollars don't have to be spent in the US, they can be spent wherever someone willing to accept US dollars as payment can be found.... which is pretty much everywhere, these days.
*With Chinese Characteristics.posted by: rosignol on 06.27.05 at 04:08 PM [permalink]
With the exception of one period of 50 years or so (from the 1890s to 1945), Japan has never been a military expansionist either in its 2 millenial history. Furthermore, it needs to be pointed out that practically all Western nations (the US, France, Russia, and especially Britain) were hugely expansionist in that period as well.posted by: erg on 06.27.05 at 04:08 PM [permalink]
A Marketlandia update: Actually, I think buying Somalia would be easier and better. It could be partitioned into two parts: libertarians in the south, and those who say things like "Yankee-centric parochialism" in the north. Anyone want to help me start a fund?posted by: The Lonewacko Blog on 06.27.05 at 04:08 PM [permalink]
Somalia? Yeesh, that place is in a lousy neighborhood.
I'd consider looking into one of the smaller islands in the Indian ocean or the southwestern Pacific- you might even be able to negotiate a group discount, if you can get the neo-isolationists to buy in.posted by: rosignol on 06.27.05 at 04:08 PM [permalink]
*With the exception of one period of 50 years or so (from the 1890s to 1945), Japan has never been a military expansionist either in its 2 millenial history.*
You might want to check that against any "2 millenial history" of Japan. Look in the index for someone named Hideyoshi and his attempt to take on the Ming Dynasty (!) by first conquering Korea.posted by: MB on 06.27.05 at 04:08 PM [permalink]
You have to ask whether american dominance of Asia - or the world - benefits american people. I think yes, only if you assume that their leaders are clever. If they are dull - or too focused on their own personal or political benefits - american people would fare much better with less hegemony - as absolute power tends to generate absolute mistakes, but peer oversight tends to reduce such risk.
Thanks for the backup, MB.
Except for the Tokugawa Shogunate and the post-WWII period, Japan has been relentlessy expansionist for its entire history.
People I know who live there tell me it is part of the national character, and that Japan would be happy going around amassing an empire by military means today if it wasn't currently "impractical".
As for China spending its dollars all over the world: expect for that held as reserve currency by foreign governments, all exported US$ flow back to the US. That means that no matter who you buy from, if you run a trade deficit, then the dollars you send overseas will end up buying things back in the US. Either goods, or property, or firms. Since foreign countries aren't too interrested in buying goods, then they'll have to invest in the US.
Trade deficit = Foreign investment inflow. That's not an opinion, it's an identity. So at the current rate, about $600-700 billion dollars of capital within the US is transferred into foreign hands each year.
The notion that China would use this ownership of US-based capital to screw the US is silly: economic trouble in the US means fewer imports from China, which means less jobs and wealth in China.
All the hand-wringing and moaning in the world isn't going to stop China from becoming a superpower. The only thing that will is either ineptitude on their leaders' behalf, or massive pre-emptive US military action. Maybe some of you think nuking half a billion people because they make you nervous is all fine and dandy, but I don't. This tribal bullshit about sinister "others" (who don't look or sound like "us") is going to end up wiping us all out.posted by: Barry P. on 06.27.05 at 04:08 PM [permalink]
Barry P says: "Secondly, throughout their history, the Chinese have never been military expansionists."
I'm really not so sure about that one; I think it's a bit of a dodge. Ask Chinese nationals how much territory China had in the 19th century -- they'll draw you a circle that goes down to Vietnam and up to Siberia. Afterwards, they'll tell you that "we had it unfairly taken away" and "we've never invaded anybody."
No, they've never invaded militarily, but you don't have to do that when you claim to own (or have settled) everything in sight.posted by: Klug on 06.27.05 at 04:08 PM [permalink]
So let me change my original statement to 'Japan has rarely been an expansionist in its 2 millenia history except for the 50 years preceding WW-II'.
I think there's a vast difference between being concerned and between nuking China. China's rise as a superpower may be inevitable, it may even be for the good of the world to have a counter-balance to the United States. However, the big question is whether its for the good of the United States to lose its status as the world's greatest power the way England lost this position to the US. The 2nd big concern is whether China will become more democratic and open or not. Even most European would concede that there is a vast difference between a democratic power and one that is not.posted by: erg on 06.27.05 at 04:08 PM [permalink]
China not expansionist, huh? Ever heard of Tibet? How about Vietnam? Their nationalist mythology revolves mainly around beating back the Chinese--before they did the same to the Americans last century. Spheres of influence (conferring considerable economic and political benefits) around East Asia made for an alternative to actual imperial acquisition in places like Korea. And this all ignores completely the "internal" subjugation of non-Han regions and peoples that continues to this day. In short, if China is historically non-expansionist it has had a funny way of showing it.
On the larger question, China is different in so many ways from Japan of the 1980s as to make the comparison downright dangerous. American corporations have poured hundreds of billions into Chinese FDI over the past two decades, and even the relatively few who have turned a profit there have found THEY CAN'T GET THEIR MONEY OUT. Global business has been essentially captured by China. Foreign companies don't have their projects "reverse engineered" by the Chinese, as was sometimes done in Japan (more to the point, however, Japanese engineers learned how to improve upon, not just copy American technology, something the Chinese have not managed). Chinese businessmen simply steal the processes and know-how of foreign ventures, and there are no legal protections for the victims.
For better or worse, US based (and increasingly European-based) businesses have long ago ceased to see themselves as acting in the American public interest. Chinese businesses--with their intimate connections to the state--obviously see themselves in a different light. If the US government cannot protect the long-term economic and security interests of the nation lest it be seen as "protectionist" (the international equivalent of being a "racist") then we lose our sovereignty and deserve the decline that awaits.posted by: Kelli on 06.27.05 at 04:08 PM [permalink]
it's to point out that when another country is perceived as an economic threat to American hegemony, it is easy to find ways of painting that country in a sinister light.
Do we really need to labor to paint China in a "sinister light"?
Though I will say that a good argument against hysteria is economic. In those days, many ordinary citizens painted Japan's economy as an unstoppable powerhouse, even though shrewd economists knew the whole thing was built on a bubble. I think many American similarly overestimate the strength of China's economic power now.posted by: The Zero Boss on 06.27.05 at 04:08 PM [permalink]
I'd consider looking into one of the smaller islands in the Indian ocean or the southwestern Pacific
I decided against islands. The libertarians will need to experience the economic magic of open borders, and what better place for that than Africa.
BTW, Part 2 of Gertz' report is available: Thefts of U.S. technology boost China's weaponry.posted by: The Lonewacko Blog on 06.27.05 at 04:08 PM [permalink]
The libertarians will need to experience the economic magic of open borders, and what better place for that than Africa.
How about San Diego?posted by: rosignol on 06.27.05 at 04:08 PM [permalink]
Your whole worldview appears to hinge upon the dichotomy of a saintly "us" and an evil "them."
Such silly tribalistic notions may have been a necessary condition of survival 5,000 years ago, but they're nothing more than quaint (albeit dangerous) anachronisms now.
People are people, the world over.posted by: Barry P. on 06.27.05 at 04:08 PM [permalink]
Barry P says,
"People I know who live there tell me it is part of the national character, and that Japan would be happy going around amassing an empire by military means today if it wasn't currently "impractical""; and then complains
"Your whole worldview appears to hinge upon the dichotomy of a saintly "us" and an evil "them.""
Talk about the pot calling the kettle black. Leave the "people I know who live there..." crap for somewhere else. People I know who live in America think Barry P is....
As for the eighties what can't be forgotten is that the strategic alliance between the U.S. and Japan was never better, and for that reason, since the media didn't much like the Reagan/Thatcher/Nakasone trio's approach to the Soviet Union, an economic rift between the two was played up.
As for the strategic alliance, Auer has this to say,
Mr. Nakasone said the primary focus of his premiership in the area of foreign policy was going to be to improve the U.S.-Japan security relationship and specifically to carry out the Japanese part of the Reagan-Suzuki communique. And to this day, I believe the Reagan-Suzuki communique (particularly when it became clear that the U.S. was carrying out the military build-up that President Reagan promised in 1980 and when P.M. Naksone started putting real money behind his statements--most budget categories except defense were frozen in the Japanese government in '83, '84, 85'), was taken more seriously in Moscow than even in Tokyo and in Washington. The commitment of the world's number one and number two economies to cooperate together militarily against number three (the USSR) was extraordinarily meaningful to people like Gorbachev and Shevardnaze who realized that the Soviet Union could not compete. By the late 1980s, Japan had built up a first-class, air defense, anti-submarine capability. Some American critics maintain that the U.S.-Japan Security Treaty is unequal. Under the U.S.-Philippine, U.S.-Korea, and ANZUS treaties, U.S. treaty partners have a reciprocal commitment to the United States. But Japan doesn't commit anything to the U.S. Of course this all goes back to Article 9, which the U.S. has the responsibility for writing. But I used to argue within the U.S. government, tell me how the Korean Navy or the Philippine Navy is going to come and defend San Diego. They can't defend Pusan and Subic Bay, respectively. If the Japanese Navy can put out a first-class air defense and anti-submarine capability in the Sea of Japan, we don't need them in San Diego. The entire Soviet Pacific presence is either based in Vladivostok or supported in Kamchatka or in Vietnam from Vladivostok. And every Soviet air commander or naval commander coming out of Vladivostok had to realize he was going to be detected by the U.S. Seventh Fleet or the Maritime or Air Self-Defense Force. If the Soviets location was known in peace time, with the kind of weapons the U.S. and Japan had, the U.S. and Japan team and the Soviets knew the U.S. and Japan could kill the Soviets in war time. This was the essence of deterrence, and despite the huge billions and billions of rubles that the Soviets expended, they never gained any political advantage in Asia before their system collapsed.posted by: bob on 06.27.05 at 04:08 PM [permalink]
I don't live in America.
And I don't think any particular group of people are intrinsically evil. But it is foolish to deny the existence of genrealized cultural traits within certain nations.
I don't know if you get a lot of utility out of believing in the Chinese bogeyman, but if you do, who am I to spoil your fun?
Bottom line for me: more (and opener) trade between two peoples leads to cross-cultural mixing, and the approach of both societies to some common cultural base. If one thinks his own culture to be "better", he would want as much trade as possible, to "export American ideas", or the like. If you have a lack of conviction in the quality of your own culture, then I can see why a person would want to close his borders. I'm part of the former category.
"That means that no matter who you buy from, if you run a trade deficit, then the dollars you send overseas will end up buying things back in the US."
Not necessarily. One of the things China is doing with its massive dollar stash is buying up a gazillion barrels of oil from Saudi Arabia and Kuwait, transferring the dollar problem to the Middle East, which is increasingly diversifying into Euros and yen. I don't think that the Euro is anywhere close to replacing the dollar as the dollar replaced the pound sterling, but it's not the only game in town anymore. When China finally does depeg the renmimbi (or re-peg it to a basket of currencies), beware: Both the yuan and the rupee may well become competitors to the dollar, in addition to the Euro and yen.posted by: Tamoshanter on 06.27.05 at 04:08 PM [permalink]
Post a Comment: