This year, as we celebrate the Great War 1914, including the 25th anniversary to the fall of the Berlin Wall and supposed end of history, capitalism and liberal democracy having won out, it is easy to forget that the big ideological debate of the first half of the twentieth century was about capitalism versus socialism, often used ideology by Communism. People from all walks of life, not just the communists in the Soviet Union believed that capitalism is inherently unstable and requires central planning to make it work.
At the end of the Second World War, F. A. Hayek´s ideas, as expressed in “The road to Serfdom” proposed that central planning was unworkable because central planners, as opposed to markets, cannot hope to pick up all of the distributed information they need to make good decisions, that government intervention, especially the surgical type, as opposed to the type that stands for the rule of the Law, tends to make things worse, and that National Socialism is a form of “socialism.”
Hayek´s idea launched an important debate on the relationship between political and economic freedom. And though it appeared in 1944, it continues to have a remarkable impact. No one can consider himself well-schooled in modern political ideas without having absorbed its lessons.
It would take close to half a century before the Berlin Wall fell, and Hayek´s ideas triumphed over John Maynard Keynes. Pointing to the success of this, in the second half of the twentieth century, western Europe was, blissfully, at peace. The process of European integration included repeated pushes for monetary integration. The introduction of the euro was one of the most important steps in the European integration process.
If it sounds like an impossible, the answer is that, most European voters in many countries, especially Germany, were negatively disposed towards a common currency and central bank. But policy-makers like Helmut Kohl pushed ahead against both expert and voter opinion. Many people remember him as the “Chancellor of Unity” because it was during his term in office that West and East Germany were reunified.
By any reasonable measure, Kohl´s actions were non-opportunistic and non-partisan. But, were motivated by the idea:as he would say, that the people of Europe, who over the centuries have gone to war with each other to the tune of million lost lives will find peace if they are tied together by a common set of institutions, including a common currency and central bank. But, in reality, there is also another international organization, a collective security solution, the forces of democracy NATO, that has kept the peace in Europe since 1945. To be sure, given Europe´s violent past, the European Union´s greatest contribution to international security has been to ensure stability in its own region. Today, nearly a century after the outbreak of World War I, peace and stability are firmly entrenched in Europe. Eastern Ukraine is the only danger zone.
Kohl may well be right, and the issue here is not just war. The issue is that any extreme event that will require a coordinated response on the part of the European countries will now meet upon an elaborate set of institutions that can deliver such a response.
This is not to say that the institutions of the European Community and European Monetary Union are a pretty sight, they are cumbersome and costly, and impossibly bureaucratic. And a fundamental flaw in the present system is that when voters vote in Europe elections they are voting for the candidates of their familiar national parties but they do not realise who they are voting in the system of European parliament. Some voters rarely know their candidate for the European Commission presidency. It is simply to say that they will probably help avert large scale disaster in Europe.
- True democracy, real prosperity, lasting security – these are nether simply given.
Realizing a long-term vision for Europe is much more difficult than ever when so many short-term imperatives reviving growth and employment, winning elections, and re-engaging a distrustful public amid growing populist sentiment, materialize simultaneously.
To experience the full “model of integration” today, the center of the world is the United States. And we all both in Europe and U.S can look back at a century´s worth of immense technological progress and an increase in material standards of living for which there is no precedent in history. At the same time, the ideas of economics can not be understood without the political context of power relationships that surround commercial activity.
In much of the post-war period, however, these arguments were dominated by powerful counter-arguments. In Western countries, the rise of Keynesianism, the increasing legitimacy of social welfare institutions and labour unions, and the acceptance of the need to regulate financial institutions provided justifications for interventionist policies and weakened the ideological support of the Western example for free trade policies in the Third World. The importance of the Western experience was further undermined by the example of socialist countries which appeared to be succeeding in bringing about a dramatic structural transformation of their economies through central planning and pervasive government intervention.
The remarkable success of German and Japan after WW II was, after all, in large part the result of the complete destruction intricate systems of special relationships allowing a fresh start along clean free market lines, but of course, at the great social cost of war.
Of course, Germany owes its post-war recovery and wealth to its people and their hard work, innovation, and devotion to a united, democratic Europe. But Germans could not have staged their magnificent post-war renaissance without the support signified by the “Speech of Hope.” Hope was a force for good in post-war Europe, and it can be a force for positive transformation now in the case of Ukraine, as well as Greece. Byrnes’ address marked America’s post-war change of heart vis-à-vis Germany and gave a fallen nation a chance to imagine recovery, growth, and a return to normalcy.
Why did Russia fail? Collectivist institutions under socialism failed because central planning could be successful only during the first investment “generation.” As Russia did between Peter the Great and Pyotr Stolypin’s early twentieth century reforms. To be ahead of the curve in the 1930s, you had to build dams, which central planning did pretty well; to be ahead of the curve in the 1970s, you had to build cars to please consumers, which planning could not do.
And why did China succeed? Because it waited (obviously not consciously) to start modernization until the early twentieth century, and because it kept planning for thirty years only. Thus, China, largely accidentally, on both counts did exactly what was best: it did not start modernization too early and it jettisoned central planning just as it was becoming inefficient. But perhaps the best rebuttal of the “do nothing until the time is right” hypothesis comes from the success of Japan.
Japan modernized well, preserved most of its own institutions, generated investible surpluses, and basically played according to the Western textbook. (Vladimir Popov, 2014). The Western “big push” In Popov’s view, the Malthusian trap is broken through “elimination of collectivist institutions and replaced them with individualistic profit-maximizing agents, markets, intellectual property and human rights in the free trade era. But it was also a costly approach because it increased poverty and mortality, but it eventually worked.
Planning economy failed, not because of its intrinsically different efficiency in the 1930 versus the 1970s, but because the nature of technological progress changed and growth. Lawyers and economist have recently paid a great deal of attention the globalizations of intellectual property rights. The 1994 Agreement on trade-related aspects of intellectual property rights, the TRIP agreement, established minimum standards for intellectual property protection in all member states of the World Trade Organization.
- The Rise of China and Japans dreams of more powerful Japan.
In the 1830s the British tried to prise open the China market with opium—something people could be made to want, and keep wanting, whatever their previous inclinations. The Chinese tried to stop the trade; the British forced a war upon them and won it. In the subsequent Treaty of Nanjing, concluded in 1842, Britain grabbed Hong Kong and forced China to open its doors. At the time China was unaware that an economic, technological and cultural revolution was taking place in Europe and being felt throughout the rest of the world. Today, the country has become what Macartney was looking for: a relatively open market that very much wants to trade. Macartney’s embassy would learn what the Chinese wanted. Macartney’s request that more ports in China be opened to trade.
A better approach may be is to focus on our time and the risk of catastrophe and security in the Southeast Asia region and then update the models as more information emerges. The dangers should not be exaggerated. But, with strategic competition between the US and China as delicately poised as it is, and with the economic interests of Australia, Japan, and many others in the region bound up just as intensely with China as their security interests are with the US, rocking the boat carries serious risks.
This time is different, for several reasons, especially when China has achieved what policymakers call “capture” a condition in which economic or security dependence of one country on another allows the more powerful to drive the other´s policy making. Based on the size of their commercial relationships with China as a share of their overall economies, the governments next closest to China capture are Pakistan and Myanmar. But even in China´s backyard, emerging powers like Indonesia, Thailand and Vietnam with Beijing ties hope an expanded U.S presence in Asia will help them hedge against too great a reliance on China´s good will.
In 1980, Chinas economy was less than one tenth that of the United States. Beijing adopted a low profile as it emerged as a world power. In 30 years, 2011 China rose to become NO. 2 in the world, without disrupting the world order. Thus, the disruptions of the world economy during the last decade have had relatively little impact on the pace of Chinese economic expansion. Essentially, the Chinese economy has not been constrained by its balance of payments during this period. The central long-term factor responsible for this happy situation is that the Chinese over the last thirty years have built up their own industrial capacities and capabilities, which enable them to have sustained high rates of economic growth without being affected by the state of the world economy. There are, however, other points about China’s recent international relationships which deserve attention. Suddenly, with little warning, three decades of careful management of its external challenges have been replaced by three years of assertive and occasionally reckless actions.
Chana’s explosive transformation from a planned economy to a more market-oriented one over the past three decades owes much to the chaismatic reform by Zhu Rongji. China began liberalizing much earlier and has been able to attract a much higher level of foreign investment.
In the last 35 years, after the Chinas Communist leadership embarked on a course of economic liberalization, China´s real GDP increased close to eightfold, its real GDP pre capital close to sixfold. This increase, with its speed and size, along with the huge number of people involved, has got to count as the single largest explosion in standards of living in human history. Several hundred million people were lifted out of the poverty of living on the purchasing-power-parity equivalent of one dollar a day, and some got very rich. The biggest of these made their fortunes from the rapid expansion of the banking sector. Economic globalization in the country has also led to serious environmental problems because rapid economic growth takes place with little or no attention to the environment.
Today China stands out as the country with the population, ahead of India, and the second-largest economy, after the United States. Recent IMF WEO, July update, Growth in China is forecast to average 7,4 percent in 2014 as recent measures show, growth will moderate to 7.1 percent in 2015. For India it is expected to pick up gradually in the rest of the year. Only a few years ago, India was rivaling China for the title of worlds fastest-growing major economy. But that potential has been squandered. Growth in fiscal 2013-14 tumbled to 4,7%, a rate far too slow ti lift the 400 million Indians still trapped in desperate poverty.
The nagging question is why China has outperformed India, which in contrast to China is a democracy. But if India is politically liberal, economically it is not, or rather, it was not until recently when it, too, caught the economic liberalization bug, not doubt in response to China´s glowing success. For decades, India suffered from what some called the “Hindu rate of economic growth”: a little more than 1% per year. It might more properly have been called a 1930s British socialist rate of growth.
After independence in 1947, India pursued an inward-looking planning system policies that reflected a philosophy of government planning and economic self-sufficiency. Its policy makers, influenced by the Soviet Union and the anti colonial struggle, implemented a state-heavy economic model. This tied up private enterprise in a web of controls that came to be nicknamed the License Raj. Its economy was relatively stagnant until piecemeal economic reforms in the 1980s and some measure of economic liberalization in the 1990s when India finally, with Manmohan Singh, woke from its slumber improved economic growth rates.
What dragged India down, compared to China, were special interest of the kind that have been described by public choice theorists, including Mancur Olson. Beacause of its skepticism about the supposedly benign nature of government, public choice is sometimes viewed as “conservative or libertarian” branch of economics, as opposed to more “liberal” (that is, interventionist) wings such as Keynesian economics.
But not all public choice economists are conservatives or libertarians. More recently, Olson wrote The Rise and Decline of Nations, which concludes that Germany and Japan thrived after World War II because the war destroyed the power of special interests to stifle entrepreneurship and economic exchange. But Olson still favors a strong government. Advanced democracies with complex economies have been reluctant to implement the institutional proposals coming out of public choice theory. The years since World War II world have seen rapid shifts in the relative positions of different countries and regions.
The point that is here to make for now is that public choice dominates political economy when it comes to explaining the comparative performance of China and India. Economic liberalization combined with some degree of political stability, in which people know that they can keep the fruits of their entrepreneurial efforts, outperforms political liberalization combined with central planning. This is Hayekian thinking rather than Keynesian, and this is roughly the public choice credo: free the markets, limit the government, put in place a couple of simple and transparent rules, and let the people do their thing.
In contrast, political economy comes across as fussing over market failures and deriving optimal institutions that will surgically correct the problem. This is partly correct. The emergence of public choice economics reflects dissatisfaction with the implicit assumption, held by Keynesians, among others, that government effectively corrects market failures. Those political disagreements between government intervention (Keynes) and free markets (Hayek) are important, but they arose from crucial differences in economic theory, as British journalist Nicholas Wapshott writes in his Keynes vs Hayek clash book.
According to IMFs governments review, Transition to New Growth Model: which is more inclusive, environment friendly, and sustainable growth path. The aim is to use resources more efficiently and unleash new sources of productivity growth, in a way that better protects the environment and ensures that growing prosperity is widely shared.
Key principles include giving the market a more decisive role, taxing broader range of economic activity, reforms that will promote more inclusive growth.
India, a land of the million mutinies, is too diverse and fractious to speak with one voice. But it´s safe to say all Indians want what anyone anywhere would: the freedom to choose, so long as it does not impinge on the rights of others, the chance to pursue a better life and the space to live that life in dignity.
In recent decades, economists and political scientists have theoretically mapped out a range of issues such as the political vulnerability over time and across countries. Of all thousand roles of general rule of government success is a effective and accountable government.
Modi will need to take on entrenched interests that have successfully thwarted change in the past, from the recalcitrant bureaucracy to militant unions. Ministries and regulatory agencies that distrust and seek to control private enterprise would be better if transformed into facilitators that support investment and development. The most important factor is the acceleration in India’s economic growth, which the International Monetary Fund projects will exceed 7.5% through 2020. Much of the excitement that the new Modi government has generated in India, around the world, and most notably in the business community, has been around this idea of accountable and effective government that can unleash India´s economic potential. If India is to achieve its potential, it will need to address its economic and governance challenges, but also its security interests in the region to a greater extent than has been the norm for decades.
India and China are fellow members of the BRICS (along with Brazil, Russia, and South Africa). But cooperation within that caucus is limited. While Indian officials are often discreet in public about relations with China, and wisely want bilateral trade and investment to grow, their security concerns remain acute. As part of the group of Asian countries that will tend to balance China, India has already begun to strengthen its diplomatic relations with Japan on issues that has become an issues in the international arena and for India, a peaceful and prosperous neighborhood is vital if India is to achieve sustained economic growth and true national security. This thinking was evident in PM Modi´s invitations to the heads of governments of the South Asian Association for Regional Cooperation (SAARC) to attend his swearing in ceremony.
On top of this, China along with Pakistan, Bangladesh and a number of other countries have set up a regional partnership organization called the Asia-Pacific Space Cooperation Organization, with projects that include sharing data, establishing a space communication network, and tracking space objects. The unavoidable strategic reality is that any nation or alliance which can control the sea lanes of the Indian Ocean can hold much of Asia hostage, including China. Control of western Indian Ocean closes the chokepoints in the Indonesian archipelago. China has invested heavily in special relationships with both Pakistan and Burma and has actively cultivated Iran despite the political risks involved. That is frequently described as the String of Pearls strategy, whereby a chain of bases is built along China´s most critical strategic SLOCs.
China is helping set up a space academy/satelite ground station alongside the lunch of telecommunications satellite in 2015 for Sri Lankan firm Suprema SAT Pvt. Ltd., and signed an agreement with the Board of investment of Sri Lanka for the purpose. Bangaladesh and Maldives were also expected to pursue a similar path. Meanwhile, Pakistan is expected to receive military grade positioning and navigation signals form China´s BeiDou system.
These developments have shocked the Indian establishment, but still New Delhi has yet to sign a memorandum of understanding or agreement with any of the other SAARC members. Under those circumstances, on June 30, India celebrated another successful launch of the Polar Satellite Launch Vehicle (PSLV), the workhorse of the Indian Space Research Organization ISRO. This time, India´s new Prime Minister Narendra Modi was in attendance. His SHAR speech emphasized the role of technology. Among the may points he made, two were geopolitically significant.
First, he observed that the satellite being launched, SPOT 7, belonged to a developed nation: France. Second, he challenged the ISRO to develop a satellite that would serve the South Asian Association for Regional Cooperation nations. Those thoughts coincide with of three major foreign policy issues that confront India, as noted by Shivsankar Menon: its relation with major power and its need for a peaceful and prosperous neighborhood. With the support of the new Modi government. ISRO is expected to reverse the trend and be proactive space diplomacy.
If we scratch, the remarks of Narendra Modi do not merely represent a developmental initiative for creating a digital India, they are a signal to to enhance national security through neighborhood development and create an incentive to establish a robust foreign policy after the many misadventures seen during the tenure of the previous government.
An agreement on cooperation in Science and Technology which included space technology is one of the foremost partnerships the US established immediately after its historic diplomatic recognition of the People´s Republic of China.
There are no guarantees that the future will resemble the recent past. But a significant drop in the potential treat posed by China is also possible if the Chinese economy falters and Beijing redirects its attention and resources toward maintaining internal stability.
Some analysts say that China´s economic role will limit the sort of strategic partnership India might form with the United States, including policies aimed at curbing Beijing´s growing military power in the region.
Another challenge consists of the high likelihood that and extreme unforeseeable event will occur. However, there are no “silver bullets,” Noregional or alliance response can single-handedly deliver a stable security, or political balance at minimal cost to all parties involved.
To this end, the Carnegie Endowment has offered up an extraordinary contribution: China´s Military and the U.S-Japan Alliance in 2030: A Strategic Assessment. Increased Chinese military spending and the build-up of its naval capacity suggest to many American strategists that China intends to challenge the U.S. as a Pacific power, and we are now seeing an arms race between China and Japan, two countries in the Asia-Pacific region.
China’s then foreign minister, Yang Jiechi, vocally pointed out at a meeting of regional powers in Hanoi in 2010, “China is a big country and other countries are small countries and that is a fact.” The China’s armed forces are, if not technologically first-rate, certainly large and impressive, not least because they include a nuclear-missile force. But some of Mr Yang’s small countries have a big friend. With troops and bases in Japan and South Korea, America has been the dominant power of the western Pacific for 70 years. Its regional presence has not declined much since it won the cold war a quarter of a century ago. On a trip to Asia in 2011 Barack Obama announced a “pivot” of his country’s policy away from the Middle East and towards Asia.
China’s leaders are convinced that America is determined to prevent their country from increasing its strategic and military influence in Asia—that it is trying to contain China as it once sought to contain and eventually crush the Soviet Union. The irony is that China is the only country that really believes the pivot is happening. South-East Asian nations express a fair amount of scepticism at the idea that America’s attention has been newly fixed on their region, and his opponents in America claim Mr Obama has done far too little to follow through on what he said in 2011.
- China´s rise is increasingly seen by the U.S as a challenge to its dominant position in the region.
Japan´s unease has been accentuated by poor relations with China that are partly the result of historical animosities emanating from its predation of China and its invasion of that country in 1937 and partly due to the increasing strategic competition between the two countries.
To this day, the emergence of the People´s Republic of China as an increasingly significant military power in the Western pacific presents major implications for Japan, the U.S.-Japan alliance, and regional security. Japan´s new self-defense initiative is the right move at the right time. The future security and prosperity of the Asia-Pacific region may very well be defined by the content of this assessment.
Now let us look what lies ahead.
On July 31, 2014 Secretary of State John Kerry is to visit India to strengthen U.S-India economic ties. This visit marks the first U.S cabinet-level visit to New Delhi since the new Indian Government was elected, and it underscores the strategic importance of the U.S.-India relationship.
- India has a vital role to play in Asia´s growing importance to America´s security and prosperity.
From security in the Asia-Pacific there is no better time for India than now to re-examine the U.S.-India relationship. As delivered before the house Foreign Affairs Committee, Subcommittee on Asia and the Pacific Washington, DC july 24 2014 India. India increasingly sees its future in a secure, connected, and prosperous Asia Pacific. Testimony Nisha Desai Biswal.
The true potential of this relationship was best characterized by India´s Prime Minister Modi himself when he said two weeks ago that “it is not just benefits to the Indian people and the American people, but that the true value of the U.S.-India relationship is that when the world´s oldest democracy and the worlds largest democracy come together, it is the world that stands to benefit”.
Given India´s own growth problem and its problematic relations with China and its warming toward the United States, there appears to be momentum a Quadrilateral Security Dialogue involving India as well.
Such development should not come as a surprise.
Since 9-11, the United States and its regional allies, Japan and Australia, have coordinated their regional approaches through the Trilateral Security Dialogue process. The strategic concern over a rising China, the emergence of terrorism, and maritime security challenges and the initial reluctance of littoral states in the region to coordinate their counterterrorism strategies (The Japan, Australia, and U.S – The Trilateral Security Dialogue 2001) provided impetur for a more coordinated approach among the United States and its allies in the region. Although the main concerns were over maritime security and the challenges posed by terrorism, there was unstated unease in the three countries over China´s emergence.
The U.S and India entered a watershed when they agreed to establish a strategic relationship under the New Framework for the U.S-India Defence Relationship in 2006. This was followed by the expansion of the U.S-India Malabar naval exercises in the Indian Ocean in September 2007 to include Japan and Australia, Singapore, a junior ally of the three powers, also participated. A papers issued by the members of the QSD have specifically suggested that China is a potential threat. But, we have not yet seen any renewed attempt to re-establish the QSD comprising Japan, Australia, the US, and India, which conducted joint military exercises in 2007 and was seen by China as a hostile containment enterprise. But it is not hard to imagine that this is still very much on Abe of Japan´s wish list.
Japan is right to be concerned about China´s new regional assertiveness, and Abe´s recent diplomatic push to strengthen Japan´s relations in Southeast Asia, and with Australia and India, is understandable in that context. Of course, if China becomes aggressive, Asian countries like India and Australia, which are already disturbed by China´s assertiveness in the South China Sea will join Japan in the effort to offset China´s power. But, as Joseph S. Nye´s recent article suggested “a more effective approach, spearheaded by the US and Japan, would focus on integration, with a hedge against uncertainty.” And he sugges that “..American and Japanese leaders must shape the regional environment in such a way that China has incentives to act responsibly, including by maintaining strong defense capabilities”.
Accordingly, there is a tension in Chinese foreign policy. The country wants to have as little involvement abroad as it can get away with, except for engagements that enhance its image as a great power. It will act abroad when its own interests are at stake, but not for the greater or general good. Its navy has started to take part in anti-piracy operations off the Horn of Africa and in UN peacekeeping in Africa. In 2011 it sent a ship to co-ordinate the evacuation of 36,000 Chinese workers from Libya. More such actions may follow as its companies get more deeply involved in the world, but only if they are seen as either low-cost or absolutely necessary. Acute awareness of its domestic weaknesses acts as a restraint, as does Chinas view of America’s foreign policy. In a wide range of fields, what China is against is a lot clearer than what it is for. It vetoed the interventions Western powers sought in Syria and Darfur and has taken no position on the Russian annexation of Crimea. The former argument suggest that the world needs more Chinese engagement and initiative, not less.