From Barrons: What if the World is Easternized, not Westernized?

From Barrons, November 23, 2009, also available at: http://online.barrons.com/article/SB125875982246358189.html


IT COULD BE MONTHS OR YEARS UNTIL we understand the impression that President Barack Obama made on the Chinese leadership last week. It took about two months to discover that Nikita Khrushchev had nothing but contempt for President John F. Kennedy after their 1961 meeting in Vienna. The almost immediate result of the Soviet leader's exercise in character assessment was the erection of the Berlin Wall. The Cuban missile crisis followed the next year.

Khrushchev concluded -- we know now from memoirs and archives -- that Kennedy was "too intelligent and too weak." When Khrushchev instructed his East German puppets to start building the wall, Kennedy made only token protest. Intelligently, he told associates that "a wall is a hell of a lot better than a war." But the next year he faced a bigger challenge -- Soviet ballistic missiles with nuclear warheads, based in Cuba -- and he met that threat without weakness, by facing down the threat of war.

In the end, it was Khrushchev, not Kennedy, who was too weak. In Cuba, if not in Berlin, his reach exceeded his military grasp. Khrushchev based his policy too much on his assessment of his adversary's character.

Fortunately, after they looked over the brink of nuclear war in 1962, both sides were more determined to be sure that the Cold War stayed cold. There would be wars on the periphery, of which the biggest was in Vietnam, but no direct confrontations. Both sides were patient, waiting for the other to crumple from within.

Economic Engagement

China, thank the world's lucky stars, is not the Soviet Union. Its leaders, from Mao Zedong to Hu Jintao, seem to understand American weaknesses and strengths, both physical and moral, better than the Soviets did, and they are much more patient.

China has chosen economic engagement with the U.S., creating a symbiotic relationship that is several steps short of a partnership. In 2006, scholars Niall Ferguson and Moritz Schularick called it "Chimerica." They thought that the relationship, merging Chinese production and saving with American consumption and debt, accounted for as much as half of the world's economic growth in the 21st century. Between 2000 and 2008, China quintupled exports and quadrupled gross domestic product while the U.S. ran deficits of every kind. More recently, the Chimerican symbiosis has looked less inviting.

The financial crisis has pushed American politicians, economists and consumers into two camps. There are those who believe that America must not prosper too much in the next few years, choosing instead to save, invest and reinvigorate its productive economy. On the other side, which is currently in charge of most centers of power, are those who believe that America must borrow more, spend more and inflate its currency to rejustify its prices and devalue its debts.

There may be two camps on the Chinese side also, but it's hard to tell. Are there any Chinese who do not believe the U.S. intends to be the dominant partner in the Chimerican relationship? Are there any Chinese who do not laugh, at least inwardly, when they hear a U.S. official speak of America's "strong-dollar" policy? Are there any Chinese leaders who think that America and the dollar are their only options for financial partnership during the next two or three decades?

Did President Obama change any of those perceptions? Probably not.

New Investment Order

Generating a couple of trillion dollars a year in capital, China is seeking sounder investments than U.S. Treasuries -- investments that are more likely to contribute to its growth and security. China is shoveling billions of dollars into natural-resource extraction in Africa and Latin America, untroubled by scruples about the venal governments it deals with. It is negotiating regional free-trade treaties with other countries in Asia, even with Taiwan, which China considers a rebellious province that just happens to supply technology and capital for Chinese development.

The Chinese also mutter, more and more clearly, about their need -- and what they see as the world's need -- to be less dependent on the dollar. Although they continue to peg their currency to the dollar, in effect borrowing the advantages of the dollar's weakness to sell goods to the world, they also talk about new currencies and baskets of currencies to price the things they most want to buy, such as oil.

Apocalypse Soon

In a new book, columnist Martin Jacques of the British newspaper the Guardian blends all these trends and his close observation of Chinese culture. His title is his conclusion: When China Rules the World: The End of the Western World and the Birth of a New Global Order (Penguin Press).

Although we don't enjoy his obvious satisfaction with the idea that the end is at hand for the American and British Industrial Revolutions and all their consequences, Americans should take his vision seriously.

China has 25% of the world's labor force, at least half of which remain in poor rural areas. Its growth rate since 1978 has been 9.4%, compared with the 3.9% U.S. growth rate during its economic takeoff period from 1870 to 1913. China's GDP is likely to surpass the U.S. in the mid-2020s, if current trends continue.

Jacques tells us that the West, and America, may cease to be the center of the world's affairs, and that will have interesting consequences: "The dominant Western view is that globalization is a process by which the rest of the world becomes -- and should become -- increasingly Westernized, with the adoption of free markets, the import of Western capital, privatization, the rule of law, human-rights regimes and democratic norms."

Jacques constantly asks what our part of the world will be like if China does not Westernize before it becomes the most important nation in the world.

The West, he says, "will be required to think of itself in relative rather than absolute terms, obliged to learn about, and to learn from, the rest of the world without the presumption of underlying superiority, the belief that ultimately it knows best and is the fount of civilizational wisdom."

China drinks from its own fount of superiority and civilizational wisdom. How is President Obama meeting its challenge?