Adam Smith In Beijing

13 Apr

A sophisticated insight into historical cycles, original interpretations of Adam Smith and Karl Marx, a breadth of foreign policy knowledge, and a knack for understanding human motivation. Late John Hopkins professor of sociology Giovanni Arrighi weaves these threads in his work Adam Smith in Beijing, and presents a case for the rise of East over West in the coming decades.

Arrighi opens by discussing the battle between capital and labour through the prisms of Smith and Marx. Smith differentiates between the natural and the unnatural path of economic development.  These two paths are best understood in Smith’s own words:

” According to the natural course of things, therefore, the greater part of the capital of every growing society is, first, directed to agriculture, afterwards to manufactures, and last of all to foreign commerce.  This order of things is so very natural, that in every society that had any territory, it has always, I believe, been in some degree observed…. But though this natural order of things must have taken place in some degree in every such society, it has, in all the modern states of Europe, been, in many respects, entirely inverted. The foreign commerce of some of their cities has introduced all their finer manufactures, or such as were fit for distant sale; and manufactures and foreign commerce together, have given birth to the principal improvements of agriculture. The manners and customs which the nature of their original government introduced, and which remained after that government was greatly altered, necessarily forced them into this unnatural and retrograde order. ”

Arrighi contends that the unnatural path leads to class conflicts as outlined by Marx, in which a relatively small class  gain control/ownership over production and financing, resulting in the creation of industrial states. To ensure a fresh supply of markets, and returns above the costs of capital, such industrial states are incentivised to military build up and imperialistic action. Concurrently, the flow of capital from lower return areas to areas with lower competitive forces leads to a wave of create destruction. Eventually, accumulation collapses under the stress of administrative costs, most notably military spending, and the state suffers a decline.

Arrighi argues that President Bush’s economic and foreign policy aims were the culmination of a neoliberal attempt at world domination, akin to the adventures of previously fallen empires (such as the British).  However the escalating cost of the Iraqi war/occupation, as well as loss of perceived total dominance on the battlefield in effect led to the unravelling of American hegemony. The point about costs is all important, as hegemony requires hegeMONEY. I was particularly struck by the differences the author highlights between the “US Empire” and the British. While the sun did eventually set on the British Empire they were able to prolong their rule by balancing their current account through raping overseas resources (primarily Indian), and using non-UK residents as army fodder (again primarily Indian). The US in contrast has no such resources.

An overextended US has left space for the East, notably China, to continue its steady rise. China by contrast followed Smith’s natural path of development – a large market economy managed by an active government. Some term this an industrious revolution, which leads to a large internal market, good supply of labour leading to a diverse skill base and economy, in which wealth is more widely dispersed. Natural development avoids the class distortions described by Marx.

It is this diverse and educated labour base that are well placed to continue a path of internal growth. Through China’s relatively stable/broader wealth creation and her influence on global financing, investment decisions and global power will continue to move from West to East.

I am not an economist by trade, but with a little effort, I found Adam Smith in Beijing very accessible. I’m sure an economist could find what to criticise, though from the point of view of a laymen I found the themes made common sense, appeared coherent, and provided me a valuable set of tools to judge global economics and its relation to foreign policy and power. From a layperson’s perspective my only criticism would be the one sided nature of the arguments. While I am also a sino-phile, I’m not blinded enough by my passion to assume that the road to greatness is inevitable. China will have to contend with other emerging powers (notably India), and will have to face issues such as human rights and democracy as well as environmental coherence.

All in all an intelligent and thought provoking read – go read it!

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4 Responses to “Adam Smith In Beijing”

  1. VM April 13, 2011 at 2:16 pm #

    Disagree with your analysis. First, America’s spending on military stuff is a relatively small proportion of it’s GDP. It’s also not a great proportion of total government spending (Federal, State and local authority).

    Taxes did not rise to accomodate the cost of wars in Afghanistan or Iraq. I admit that these took place in good times, but even in bad times – such as we have now – there has been no increase in taxes for this purpose. Contrast this with the Korean and Vietnam wars.

    Secondly, given the crackdown on Chinese dissidents and the evident inflation of the Chinese economy – there are all the ingrdients for what Marx would describe as a revolution.

    Thirdly, China may have economic might right now – but they are heavily dependent on countries that are inately hostile to them for their raw materials (everything from Copper to Iron ore). In addition, they lack what America has – a military that’s able to project power anywhere in the world, plus a cultural hegemony that the English language has. Put it this way, I don’t see a Chinese Atlantic Fleet, nor do I see Chinese tv being popular around the world.

    For these reasons, I think China is a flawed country – and should there be something like a Libyian situation, I think most of the world would be rather happy to plunge their collective daggers in, and kick the struts of support from under them.

    • theravenandthedragon April 13, 2011 at 2:59 pm #

      Firstly, it’s refreshing to have a real opinion thrown back. Secondly, it’s not my analysis, it’s Arrighi’s.

      While the total US military spend might not be a great deal of total government spending (helped somewhat by massive borrowing inflating the denominator ;)), and taxes might not have gone up to fund US war efforts in Iraq/Afganistan, counting what the US owes on it’s bonds, plus social security obligations and Medicare/Medicaid is about $75tillion – that’s 5x GDP. As Bill Gross (head of Pimco) recently said “the US is out Greeking the Greeks!” While it’s not conventional to account for all these measures in calculating a sovreign’s net debt, it makes sense to do so. As such, I would argue that to reduce the debt burden, costs will have to be cut.

      Defense budgets have been hit recently, and my understanding from noises coming out of the Pentagon (and projections / book-to-bill ratios at major defense contractors) is that there are more cuts to be announced. As such the US is less likely to be able to continue projecting its miltary power over time. In addition, since Vietnam they have not projected their might to great success. It’s all been about percpetion of might. The first Iraq war might have begun to rebuild the US deterrence, but the issues faced in the Second Iraq war dented the PR effort on that front both at home an abroad. If that war had not happened, I think the Libyian opposition would be getting a lot more support than presently being offered, particularly by the US.

      When it comes to the other issues (your second and third points) – your arguments are strong (though not inevitable). One point though – it’s not so black and whilte that all states will place their lot with the US over time. Russia, Indonesia, Brazil (all commodity rich)? I’m not even sure about Japan anymore.

  2. VM April 26, 2011 at 2:22 pm #

    Good response. I take the point of US Military spending on board. It is very high, and at the moment, what’s keeping other countries from not keeping their armed forces at their current level is the costs of equipment.

    Funnily enough, one of the few Armed Forces that aren’t cutting back is China’s – they have the cash, and the certainly have the manpower.

    However, when it comes to technology, they lack what’s needed (e.g. China’s sixth generation fighter jet is a bit of a rehash of an older design). Their approach seems to be to obtain what they can through espionage – but that’s a fraught field. Developing the know-how internally is another option. However, the education system doesn’t seem to encourage innovation in the same way as places like Russia or the US (or even South Africa).

    • theravenandthedragon April 27, 2011 at 8:05 am #

      On the issue of technology and education, read my last blog entry: Chinese Science to Take Centre Stage – https://ravendragon.wordpress.com/2011/03/30/chinese-science-to-take-centre-stage/

      It’s a discussion of a paper by the Royal Society on the increased scientific output of Chinese Universities. Granted it’s still behind many other countries in terms of quality and output, but the trend is surely evident.

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