8
Cocreating a Better World
So, let us not be blind to our differences—but let us
also direct attention to our common interests and to
the means by which those differences can be resolved.
—JOHN F. KENNEDY
FUTURISTS OFFER DIFFERENT PREDICTIONS about what will happen in the coming decades. George Friedman of Stratfor has speculated on the domination of the United States in geopolitics. Ray Kurzweil believes in singularity and that humans will one day achieve immortality. George Orwell and Franz Kafka wrote about authoritarian dystopias ruining everyday lives. All of them or none of them may come true. But the future begins now because what happens in the future always begins as thought in the present.
Let’s Get to Work, People!
Today we have an explosion of ideas and opinions that appear on the Internet, on media airwaves, and in daily conversation. Sorting out truth and priorities can be daunting, especially when consensus is difficult to achieve. But it’s important to recognize that the most vital things to our lives commonly appear to be the least urgent and sometimes require the most work. For example, reconciling difficult relationships or studying for exams can offer great payoffs when the proper time and care are invested, but breaking the inertia in order to genuinely begin the hard work often becomes the biggest stumbling block. The problem is that the world cannot afford to procrastinate on solving the mounting global problems. We need to develop the political will and wisdom to work with all nations of the world to come up with agreeable and actionable solutions. That work will prove difficult to do and easy to put on the back burner, but humanity is at stake. In a hyperconnected world, it no longer will be sustainable for the minority international elite to thrive while billions of people suffer and die unnecessarily. The poor of the world will know and will not tolerate the present state of affairs. Change will happen whether we take a proactive position or not. I suspect that taking a proactive stance will help make the inevitable transitions smoother and less radical in the long run.
Acknowledging the fact that there are millions of worthy causes in the world, we should make every effort to match up each problem with the best people who can solve it. One would think this is easy with the connectivity of the Web, but as we know, old habits die hard. As I have articulated in the earlier chapters, the continual importance of who you know over what you know in politics, as well as in many other spheres, will always undermine a nation’s ability to produce optimal results. If America does not want to lose its competitive edge, it must demand meritocracy at every level, but especially at the very top leadership circles where personal relations seem to play the most pronounced role. Putting the people in charge who will be able to deliver consistently on their promises is the best way to develop trust within the system as well as with other nations and foreign organizations.
Talk alone is not enough. An action plan must be drawn up. Whether it’s a 5-year plan or a 25-year plan, a roadmap must exist and hold groups accountable for achieving agreed-upon milestones that are both meaningful and measurable. The Millennium Development Goals that were agreed upon by all the member states in the U.N. have at least articulated a shared agenda, but with four years left until the deadline, hardly any progress toward the eight goals have been made. The success of many of the goals has been uneven, and measuring progress has been challenging. Without clear accountability and binding agreements for achieving them, the goals will have been a pointless exercise and a wasted opportunity. The United States and China can take up this issue as a reason to redesign the role of the United Nations, which has come under frequent attack for being too weak, and propose a more rigorous system. But in the interim, the United States and China should not waste any more valuable time and figure out a way to work cooperatively together on global issues because war is not a viable solution. The United States has enough confrontations in the world already, so it would be better off not adding China to its growing list of adversaries. A partnership is essential because a conflict will exhaust or destroy both nations.
Given that the world is in danger of slipping into another Dark Age if World War III results from rising international tensions over a possible Malthusian catastrophe, the world desperately needs another nation to soldier forward in order to save humanity from the dysfunctions that financialization has created. The most likely contender for that role today is China, and its success or failure in this role could very well determine the fate of everyone. A more stable, peaceful, and benevolent world must be developed, and China appears to be quite adept at this kind of dialogue.
Eradicate Extreme Poverty and Hunger
Many of the Millennium Goals have been officially embraced by China through its Five-Year Plans and pursued with determination. For instance, China has already made significant strides in the goal of poverty eradication by reducing its own poverty rate from 65 percent of the population in 1981 to just 4 percent by 2007, a reduction of over half a billion people.1 Additionally, it has made significant contributions to alleviating poverty in African and Latin American nations by investing billions in developing their infrastructures.2 The New York Times reported, for example, that China was selling cheap solar panels to be placed on African rooftops.3 This source of cheap energy has enabled many impoverished Africans to have electricity for their homes for the first time in their lives, powering lights, radios, and fans.4 The United States should step up to the plate with similar programs either through the World Bank, USAID, or other ways to meet China halfway.5
China’s labor wages are also rising quickly at a rate of about 20 percent per year while U.S. wages have on average been declining 3 percent per year, thus impacting the relative labor costs of about 23 percent per year, which is roughly equivalent to a 23 percent increase in the exchange rate of yuan against the U.S. dollar every year.6 This increase in labor wages should translate into a bigger middle class and thus greater consumer buying power. Additionally, China is changing policies to boost consumerism domestically as the developed markets overseas have dried up.7 In other words, China’s leaders are taking significant steps to address global imbalances by targeting sources of inequality while the United States, the richest country in the world, has not been pulling its weight.8
Moreover, while the leaders of China receive much of the media attention and are credited with many of the positive changes happening in China, the ones who make the economic miracle happen are the hundreds of millions of Chinese entrepreneurs who are unafraid to dream big and make risky bets. Millions of these ordinary citizens have scraped their life savings together to travel to China’s coastal cities to start businesses. Most of them have very modest operations. Some simply lay their wares on streets and sell stuff as you would at a garage sale. Others sell food, such as green onion crepes or barbecued scorpions, to other working-class citizens. However, the most sophisticated ones, who were diligent, smart, connected, and lucky, have started companies that now amazingly compete with the most successful companies in the world.
Today there are thousands of companies in almost every industry in China vying for a piece of the proverbial pie. The competition is fierce, like Wall Street on steroids, so these businesspeople hustle around the clock putting deals together, cementing the necessary relationships, and meeting growing orders from customers. Only the largest can access bank lines; the rest usually find capital through informal channels to grow their business. A steady stream of them has tapped the U.S. financial markets either through an initial public offering (IPO) or a reverse merger.9 Getting a listing on a U.S. stock exchange holds huge prestige for the Chinese, so they will bend over backward to meet the stiff U.S. regulatory requirements, even when their limited resources would be better spent getting listed on other foreign exchanges. But as these companies get created, they create more jobs and wealth for others in a virtuous cycle that can get bigger and faster over time.
Tens of thousands of these Chinese companies have been established in the last decade and have experienced double-digit growth every single year. Given the Internet-like growth rates, there has been a rush in recent years by investment bankers to take these Chinese companies public. Investors who have been disenchanted with the stagnant growth of developed markets have flocked en masse to emerging markets, particularly China. The momentum of capital flowing into China has been increasing as investors eager to make a quick buck fail to do the proper due diligence. Like previous bubbles, the rising tide of capital seeking a return in China has been raising all the entrepreneurial boats. But in the meantime, the real engine for eradicating poverty has been China’s entrepreneurial citizens, who work 24/7 creating wealth around the world.
As mentioned in chapter 1, a full 50 percent of the profits from production in China go straight to U.S. companies. If the United States is serious about addressing its inequality issues at home and around the world, U.S. companies have the choice and the leverage to redistribute its profits to its workers, as opposed to giving them mostly to their shareholders or granting exorbitant pay packages to the CEOs. By spreading the wealth in a more equal way, the United States can serve as a role model for giving back to the people who produced the wealth rather than the people who are merely rent seeking, which in economic terms means to extract fees and other privileges not associated with adding value.
U.S. human rights activists have often complained that China isn’t responsive enough to catastrophes like Darfur where they have leverage. They believe China should be pushing for freedom and democracy at home and abroad. However, many rights activists also underestimate the extent of poverty in Africa, Asia, and other parts of the world where supplying basic needs and infrastructure make a bigger difference to the population than free speech and elections. Stories of Westerners donating microwaves to the poor who don’t even have electrical outlets underscore a profound lack of understanding. The poor have to fetch clean water from a pond and would rejoice at having even one meal of porridge a day. Without that, it will be extremely difficult to get them to want much else in life, let alone free speech. If they speak, they will say they want food and water, which is what the Chinese are providing them anyway. The right to live is probably the most fundamental human right, and China has done more helping the poor by alleviating life-threatening poverty than the United States has. As we have seen, China is always very quick to respond and make changes once it’s convinced an issue is important and it is confident of a solution. If it seems that they are not acting, the Chinese are either not sufficiently convinced that the strategy presented is the best or they are actually acting behind the scenes without the knowledge of the Western public. But the Chinese, like the Japanese, take their time in deliberating, often conducting innumerable studies before an important decision is reached. When Zhou Enlai was asked in 1971 about the impact of student riots in 1968, he was famous for replying, “It is too early to say.”
Sure, China could do more to end tragedies such as Darfur. But China respects sovereignty and understands that making exceptions the way the United States has done can take a nation down a slippery slope in which the ends may not justify the means. When the Chinese have to choose between providing economic/humanitarian assistance and using military intervention in Sudan, they will choose the former because they believe it will go a longer way in benefitting the impoverished. So before rights activists pass judgments too quickly, they ought to be sure they have the relevant facts. Acquiring those facts often requires going out to the field and speaking to the locals, free from the agendas and opinions of certain stakeholders in developed nations.
Environmental Sustainability
Our fragile planet that has finite resources may one day finally go on strike swiftly and without warning. Already, floating piles of trash the size of the United States occupy the Pacific, the Atlantic, and the Indian Oceans, killing marine life in untold numbers. In 1900, countries like Brazil had almost all of their land canopied in jungles; now most of the trees are gone. With the rise of developing nations, the demand on our dwindling resources will grow, and the situation will only get worse.
Already, researchers expect that the increasing concentration of human-produced greenhouse gases will cause “more frequent, persistent, and intense heat waves” throughout Europe, like the one in Russia during the summer of 2010 that killed 55,000 people, caused crop failures, and sparked wild fires. The probability of crippling heat waves that break 500-year-old records and cause extensive damage to life on earth will increase by a factor of 5 to 10 over the next 40 years, according to a study published by Science magazine.10
Whether you accept the reality of climate change or not, the rate at which the world population is devouring natural resources is not sustainable in the long run. The amount of pollution that has been emitted into the air and that has contaminated the world’s water supply has also reached levels that are becoming life threatening. Scientists around the world have warned that once part of the ecosystem has been irretrievably destroyed, we will quickly approach the tipping point at which pollution causes a death spiral in the food supply. Already many species have gone extinct or are endangered. It will only be a matter of time before humankind destroys Earth as we know it if we don’t drastically change our lifestyles and technology to accommodate the needs of a growing population.
It is widely known that China’s pollution had reached alarming levels. In 2009, China consumed 46 percent of the world’s coal, and one third of its water was affected by acid rain.11 The famous Yellow River has been running dry downstream, and its fish are fast going extinct.
Fortunately, the CCP has repeatedly demonstrated its ability to make dramatic changes within short periods of time. During the summer of 2010, Premier Wen promised to wield an “iron hand” to improve China’s energy efficiency. By fall, the government had forced the closure of over 2,000 cement plants, steel mills, and other energy-intensive factories.12
Beijing has also used its money and muscle to push the green revolution in other ways, such as offering financial incentives to corporations and consumers to buy electric cars.13 The United States can also start taking steps in this regard. General Electric actually showcased an electric car that was hands-free and run by GPS at the 2010 Shanghai Expo. According to its designer, it is only a few years away from being completely functional as a commercial product. But adoption of such vehicles may require U.S. government mandates or financial incentives to level the playing field since there are many subsidies to the oil companies to deliver artificially cheaper gasoline to the American public.
China also understands that global markets are approaching saturation, so to maintain growth, differentiation is required. Innovation can spontaneously sprout under the right conditions, but those conditions include a supportive institutional infrastructure and talent to take advantage of those structures. As I mentioned earlier, the CCP responded quickly by beginning multiple programs to recruit talent from around the world and simultaneously develop talent internally. Although China often has been dismissed as a cheap imitator, predicting China’s future by looking at its past will cause the United States and the world to underestimate China, especially when Chinese engineers have learned a great deal from international R&D firms operating on China’s soil. Microsoft’s most cutting-edge telephone research and development in speech recognition software for Mandarin is but one of hundreds of examples of high-level research being conducted in China by foreign firms.14
China’s domestic firms are also starting to compete in innovative industries. BYD, a Chinese company that makes an electric car, has already received a large investment from Warren Buffett.15 Even American real estate developers are learning from the Chinese. Bruce Ratner, who has plans to develop the world’s tallest prefabricated steel structure, has been investigating modular construction after being inspired by a YouTube video depicting the Ark Hotel in China erected in just a matter of days.16
Finally, its ability to build sophisticated space technology has finally come of age. Recently China announced that it was the third country in the world to develop its own global satellite navigation system which they call Beidou.17 Over the next decade, China’s innovative capabilities will become more widespread since innovation can only occur where insight springs from the point of contact, and the point of contact for manufacturing and R&D is now increasingly in China.
To keep up, the United States needs to refocus its priorities in developing the right kind of human capital because it will rue the day when most of the top scientists will be moving elsewhere. One immediate problem the United States can rectify is to increase funding to national research and development programs like the National Institutes of Health (NIH). According to Dr. Lawrence Shapiro, associate professor of biochemistry at Columbia University, scientists competing for grants at the NIH, as well as the amount of money available, has been steadily shrinking, which is a distressing trend. Another disturbing truth about the program is that it has become increasingly politicized. Directors who have been appointed to the NIH in recent years often prioritize certain research over others according to the government’s agenda, as opposed to freely giving grants for a broad spectrum of research. This process may delay or deter the pure research that can often lead to accidental, breakthrough discoveries. By attaching certain priorities to certain categories, the politicians are in effect telling scientists that they know more about science than the scientists. Thus they dictate the terms of research. But innovations by definition are unexpected. If all the dollars are funding only specific methods of curing cancer, for instance, it is like looking for a lost earring by the light from a lamppost at night.
Furthermore, the NIH is only funding singles and doubles as opposed to homeFurthermore, the NIH is only funding singles and doubles as opposed to home runs. The NIH views potential home runs as too risky when Congressional guidelines dictate that funds should only be granted to research that is perceived to have a higher threshold for success, according to some observers. Some report that great research proposals don’t even get read or get passed up because a previous researcher received multi-year funding from the NIH that squeezes out the development of future great ideas. Today, talented scientific researchers spend 40% or more of their time devoted to grant writing rather than more productive research activities such as cross-pollination of ideas between researchers.
Finally, since accessing the research funding is so competitive, AmericanFinally, since accessing the research funding is so competitive, American researchers have become very territorial and are reluctant to openly share ideas and credit. At a lecture I attended at ScienceHouse in Manhattan, one researcher reported that scientists are incentivized to treat the molecules that they have discovered as proprietary. and act as if the molecules that they haveThey are reluctant to engage in further research to see how their molecules interact with other molecules in the system, which could lead to breakthrough treatments for debilitating diseases like Alzheimer’s. An April 25, 2011 editorial in Scientific American underlines the problem: “Not only does the current system make inefficient use of scientists’ time, it discourages precisely the kind of research that can most advance our knowledge…. Inundated with proposals, agencies tend to favor worthy but incremental research over risky but potentially transformative work.”
Assistant Professor Kristin Baldwin summed up the difference between the United States and China with the following phrase: “The Billion-Dollar Paper.” The Scripps Research team published in the journal called Nature that they had successfully bred live mice from mouse skin cells. A week earlier, two teams of Chinese researchers published the same results online for the same journal. But while the U.S. Federal government has yet to offer Professor Baldwin a single dime in research grants, the Chinese government rewarded the Chinese researchers with $1 billion to expand their research activities upon hearing the groundbreaking news.
The U.S. government’s shortsightedness has clearly upset the scientific community. The good news is that many U.S. companies are not waiting around for American politicians to get their acts together. Nonprofit design firm Terreform, for instance, has already embarked on cutting-edge work in reimagining what a sustainable city in the future can look like. Although its ideas border on the bizarre—homes made out of beef jerky and Goodyear blimps that replace city buses—the principals led by Mitch Joachim have already secured meetings with Chinese officials who are responsible for building new cities from scratch. These kinds of collaborations show great promise in changing our unsustainable lifestyles and breaking political strangleholds on technology.
The United States also should not shy away from using nuclear power plants to meet future energy needs. According to Dr. Patrick Albert Moore, founder of Greenpeace and author of Confessions of a Greenpeace Dropout, nuclear energy is the safest energy technology ever invented. He claims that the fear factor of radiation causing cancer promoted by the antinuclear movement is completely irrational based on over 25 years of scientific evidence following victims of Chernobyl. He puts it in stark terms: 1.3 million people die from vehicle accidents every year, 1–2 million people die every year prematurely from coal-polluted air, 3,000–5,000 coal miners die every year from mining accidents, and only 1.2 persons die per year from nuclear radiation. Three nuclear accidents are on record. No one died of radiation from either Three-Mile Island or Fukushima. Of those exposed to radiation at Chernobyl, 7,000 people were cured and only 56 died, 34 of whom were fighting the fire from the explosion. The difference in cancer rates amounted to 1–2 percent higher compared to the control group.
Given the safety record, Dr. Moore believes that nuclear energy is the only realistic way to reach the stated carbon emissions reduction goals of 20 percent by 2022. Solar and wind technology will have to account for 42 percent of energy generation in order to meet those targets, which he calls “pure fantasy.”
But the bigger challenge remains—changing belief and incentive systems—because as long as people use the wrong models, the wrong measurements, and the wrong incentives, changing human behavior will prove impossible. Currently our economic and political system is based on growth economics, which is highly correlated with growing populations. But the world population should not, and probably will not, grow as it has for the last 70 years. Extrapolating that human growth will continue indefinitely into the future is not realistic, especially when educated women in most societies are not reproducing at the same rate as prior generations. To rely on such assumptions is to act like the rating agencies who rated subprime housing securities based on only three years of data, which was ridiculous on Wall Street’s part. But today’s financial economists do this for a living. So when the population growth rate slows or starts going into reverse, we can expect problems to arise. Already it has created problems, such as extreme debt when populations are not keeping up with growth expectations, but it could create even worse problems for the environment if we expect consumption to rise faster and faster to offset slowing population growth rates without finding ways to renew and replace the resources at similar rates. We are already in danger of not being sufficiently organized or sufficiently creative to avoid these calamities.
Benoit Mandelbrot wrote that everything depends on what you’re measuring. For instance, the eastern coastline of the United States is 2,000 miles, if one were to measure it in a straight line from top to bottom; but it’s 40,000 miles if one includes all the indentations. Today’s economic models measure only things that can be readily priced with money, such as the cost of a ticket to a professional baseball game, but not the joy of taking your kids to the local park to play baseball with them.
We have a ticking time bomb on our hands, and new economic models must replace the ones that policymakers now rely upon. Pyramid schemes like social security could fall apart if we alter our economic models, but perhaps better models for human civilization and sustainable living will supplant them once human ingenuity can overcome untenable ideas. Perhaps in the interim model, we must de-materialize growth by simply including and increasing the value of certain assets in GDP calculations. After all, a painting worth $100 can just as easily be worth $10,000 to produce the miracle of “growth” without directly impacting the environment. But eventually we must incorporate non-material growth in economic calculations. If we can measure and value the output of clean air, happiness, and other critical elements for life on earth, then re-prioritizing what we create and how we spend our time will become much easier and more straightforward. To reach this stage, we may need to invent a new language in economics the same way Isaac Newton invented the language of calculus to enable modern science to flourish.
The United States can work with China more closely to come up with alternative economic models and theories. Even though George Soros funded a new think tank called the Institute of New Economic Thinking (INET) with $50 million to re-conceive the field of economics, the problem is that the group is composed of all the same economists, such as Kenneth Rogoff and Lawrence Summers, who comprise the vanguard of the old economic thinking. New economic thinking will necessarily require more input from economists whose ideas are now considered on the fringe, as opposed to mainstream or those co-opted by the establishment. New ideas can also come from people who may not be trained in economics but can add insight from other disciplines or real-world experiences that current career economists simply lack. After all, China’s economic growth model was conceived by engineers, not economists. But the real test is whether the United States and China can come up with pragmatic solutions that do not absolve either side from simply kicking the can down the road. The Chinese believe that Americans are not capable of austerity or of “eating bitterness,” as they might say. The United States is good at expounding what others should do as they have demonstrated through the Washington Consensus and numerous other ways. But in recent years the United States has lacked the willingness to commit to what it will do when it comes to cocreating a more sustainable and cooperative future with the entire world. But to achieve a real breakthrough, the Americans will have to prove the Chinese wrong.
A Single Global Currency or Three Regional Ones?
China has been calling for a global currency since the 2008 global financial crisis because its leaders realized they were getting a raw deal in the current foreign exchange system with the dollar as the dominant international reserve currency. Just like the Former French Finance Minister Valéry Giscard d’Estaing who first referred to the “exorbitant privilege” of the United States back in the 1960s, China and most of the world have realized that relying on the U.S. dollar for global trade is dangerous because as the issuer of the currency of the world, the United States can create wealth at the expense of everyone else. An economist by the name of Robert Triffin argued that seigniorage of using the U.S. dollar as the world’s reserve currency would lead to America having an artificially high standard of living because it can get all the resources it needs by spending little green pieces of paper that cost it nothing to print. This monopoly power to print money at will is no different than the colonialist extracting resources from the colonies for practically nothing. These free resources then enable further colonial expansion through military means. This asymmetrical ability to control money is one important reason that motivated the European nations to create the euro in order to protect themselves against the dangerous consequences of relying on the U.S. dollar.
Predictably, over the last forty years, the abundance of U.S. dollars has caused the value of the currency to decline, defrauding creditors such as China and the Middle East of the value owed them for the real goods and services they already delivered. While this reserve currency arrangement hurts everyone else in the world, it benefits the United States by funding its unrestricted spending in military and other consumption.
China’s leaders understand that they face the same dilemma as the Europeans did a few decades earlier. When hundreds of millions of Chinese have slaved for years and polluted their country in order to sell goods to the United States, they need to know that the compensation they will receive will be worth something in the future. Money must have a lasting store of value; otherwise, no one would agree to accept it in exchange for real goods and services. People need food to live, but no one can eat money.
Unfortunately, the United States has not given the Chinese any assurances on that front. The U.S. Federal Government continues to run deficits into the multi-trillions, and the Federal Reserve has shown no appetite to hike interest rates. By showing no restraint in both fiscal and monetary policies, the United States is abusing its uniquely powerful position as the issuer of international reserve currency and ignoring its fiduciary responsibilities to the world as the world’s banker. The U.S. government continues to issue a record number of IOUs on programs such as the military with no limit in sight.
Meanwhile, the Federal Reserve continues to give U.S. bankers free money to buy whatever they want in the world. They have been borrowing money at zero interest rates and buying the world’s assets and commodities for quick profits. Chairman Ben Bernanke has claimed that his policy is necessary to “stimulate” the U.S. economy, but it has done nothing of the sort. Structural unemployment in the United States remains in the double digits while the fires of stagflation are being stoked. (Structural here refers to the kind of unemployment that arises from major long-term changes in the economy. Stagflation is occurring because, as of July 2011, the U.S. producer price index recorded an annualized inflation rate of 7.2 percent without commensurate growth.) Poor people around the world, who are most affected by rising food prices, are discovering they can no longer afford to eat. The food riots and violent protests erupting around the world are people crying out, not for the right to freedom, but the right to live. Like in colonial times, the poor are robbed to support the rich; only today, the rich are the bankers who claim they need to rebuild their balance sheets to stay solvent.
One might wonder why the United States even has the reserve currency status when its record has shown it to be reckless. One reason is that when the United States unilaterally decoupled its peg to gold in 1971—a move known as the Nixon Shock—it also propped up the dollar by making Saudi Arabia agree to conduct all oil transactions in U.S. dollars. In return, the United States provided military security for the royal Saudi family to keep them in power. Being the largest oil-producing country in the region, Saudi Arabia gave the United States the ability to enforce the continued use of the dollar as the currency for global commodity exchange. There were a number of times when countries tried to move away from this arrangement but without success. When Saddam Hussein of Iraq made the political move to accept only euros instead of dollars for oil in the fall of 2000, many believe that contributed to the U.S. decision to overthrow his regime. Although reasons cited for his overthrow include fighting terrorism, searching for weapons of mass destruction (WMD), and bringing democracy to Iraqis, one motivation may have been gaining strategic control over Iraq’s vast petro reserves in order to maintain the dollar’s monopoly over oil pricing. With Iran threatening to do the same by creating an Iranian oil bourse, it comes as no surprise that the U.S. military has been eyeing it as the next victim. Even if those who argue that oil transactions no longer account for a major percentage of capital transactions in the world, oil is still the underpinning that gives the dollar value. Without that relationship, the trillion-dollar transactions that exist today in the form of speculative derivative trades could simply be reduced to monopoly money. Without oil priced in dollars, the United States would likely have difficulty securing enough energy resources to sustain its current standard of living. Who would exchange anything of value for dollars if they believed them to be worthless? Countries like China and Russia have already dropped the dollar in bilateral trade.18 Thus, the world has been using the dollar as the reserve currency, not because it necessarily wants to or thinks it attractive, but because no one wants to challenge the United States, the sole military superpower.
China, France, Brazil, and others have pushed for currency reforms at the G-20 meetings, while the United States has stubbornly resisted such moves.19 This stalemate between the United States and the rest of the world has not gone far beyond a discussion of possibly using Special Drawing Rights (SDR), which is a reserve asset created by the IMF based on multiple currencies, as an interim solution. As a result, China, Russia, and many other nations started diversifying their reserve assets away from U.S. dollars.20 China has also been actively cultivating the use of its own currency, the yuan or renminbi, in transactions with its largest trading partners to avoid the foreign exchange costs of using the dollar.21 Even corporations such as McDonald’s have started issuing bonds dominated in yuan.22 While these diversification efforts are still in the embryonic stage, a number of people like Professor Barry Eichengreen are already calling for an end to the U.S. dollar hegemony.
What will happen to the United States if the world were to use three major reserve currencies instead of just two? This is a growing possibility since countries in Europe and China are slowly moving away from their reliance on oil and fulfilling their needs with alternative energy. In such a scenario, the United States could potentially suffer a severe adjustment in its standard of living, possibly worse than the Great Depression. Consumer prices could shoot up as a result of a free-falling dollar against the other currencies since the United States currently imports close to 90 percent of its manufactured products in addition to 60 percent of its oil needs. Products in Walmart may no longer be cheap if the U.S. dollar depreciates too much against the yuan and other currencies. The silver lining is that the United States can survive this adjustment. Because U.S. farmers are heavily subsidized, America is self-sufficient with its own food and water supplies and has an abundance of other natural resources within its own borders. An economically wounded United States could be painful, but not insurmountable.
Over the longer term, U.S. entrepreneurs may decide to outsource their manufacturing needs to U.S. manufacturers instead of those in China if they feel that domestic costs to produce will be cheaper. This reallocation of resources could then recreate jobs that once left our country in search of cheaper labor.
But this happy outcome, which many Americans advocate, may also not happen, because restarting an economy will depend on a variety of factors, including the availability of a pliant, skilled, hardworking labor force and appropriate government fiscal and monetary policies. For instance, if the U.S. government can’t control its deficits and continues to issue IOUs in the form of Treasuries, then the Federal Reserve will be forced to buy them because other countries will no longer want to. But when the Federal Reserve purchases Treasuries, it has the same effect as printing money, which can eventually lead to high inflation in a closed economy. High inflation, as many countries can attest to, can derail economies when businesses have no price stability. If this scenario materializes, which can happen if real economic activity cannot keep up with inflation, then the United States will suffer fates similar to those of Argentina in the 1970s and 80s, Weimar Germany after World War I, and Zimbabwe at the turn of the third millennium.
As of February 28, 2011, the Total Public Debt Outstanding of the United States of America was $14.19 trillion and was 96.8 percent of 2010’s annual GDP of $14.66 trillion, a debt overhang that is similar to Greece’s.23 The ratio of debt growth to GDP growth is even more disturbing at 7.8x, meaning that it takes $7.80 of debt in order to produce $1 of value in the U.S. economy, an incredibly inefficient enterprise if the nation was subject to the same metrics as a company. Finally, the Federal Reserve’s balance sheet has tripled from roughly $800 billion to almost $3 trillion in just three years.24
For this reason, the United States has often used military force against nations that have threatened to stop using the dollar because this move would directly threaten “U.S. interests.” However, China is too large for the United States to win against in the event of war. The two other times the United States went into the Far East to fight—Vietnam and Korea—did not end well for the United States. Even the Middle East wars in Iraq and Afghanistan against terrorist insurgents do not bode well for U.S. victory.
A nonmilitary solution is much more complex, requiring the U.S. government to exercise more self-discipline and self-restraint in both its monetary and fiscal policies while making hard political choices of where to invest and who to tax. For the United States to maintain a strong currency that can be relied upon for trade, for business, and for a store of value, the U.S. government must create the conditions for a stable economic environment. Private citizens need to feel comfortable initiating and engaging in innovative activities that power an economy forward. That is obviously much easier said than done. Choosing this route would inevitably upset the wealthy and powerful who now control American politics. A transition can also extend the current economic stagnation in the United States since people will require time to adjust to new rules and conditions. But the cost of living in denial of current realities and relying only on the military and the ability to print more money to solve all problems is a much worse outcome for everyone.
Mirror, Mirror on the Wall, Which Type of Government Is Fairest of All?
The United States has openly questioned whether China will be a responsible stakeholder as it becomes more prominent on the world stage. It is true that China needs to do a better job of protecting intellectual property rights, cracking down harder on corruption scandals that involve health risks, and broadening protections of human freedoms. But because of China’s historical ideology around Communism, Western democracies and China have not shed their mutual suspicions of each other. Perhaps at some point, all parties can relax in the coexistence of power centers sharing differences of opinion without forcing a resolution. Until then, let me address some common concerns to help raise the level of understanding in the West about China’s government.
Westerners often point to China’s growing military budget as something ominous. While its military budget is growing, China knows that its military capabilities are nowhere close to America’s and therefore would never consider initiating a war. Countries initiate wars only when they think they can win, not when they know they will lose. The accusations of China being a threat don’t sound credible when the United States has such an outsized lead in its military spending and capabilities. If anything, from the perspectives of China and other nations, the United States is the real threat. They could point to aggressive American military action in recent history with Iraq, Afghanistan, and Libya from administrations in both parties. The high unemployment rate and soaring debt levels also look eerily similar to Germany just prior to World War II. If Americans have any reason to fear for their own safety, perhaps they should direct those concerns at our own militant government whose belligerent rhetoric and sanctioned use of torture could presage even greater use of violence in the not-too-distant future.
Another Western argument is that China has a poor track record when it comes to human rights and therefore should not be trusted. Human rights are definitely not its strong suit. Tiananmen Square remains a sore spot for its government. But China learned its lesson and has become far more restrained in dealing with threats to its power. When the public responded to calls for a Jasmine Revolution shortly after protests broke out throughout the Middle East, the Chinese government used street-cleaning trucks to spray water on the crowds instead of dispersing them with military tanks. Granted, mostly journalists and tourists showed up to witness the anticipated demonstrations, which hardly took place. The vast majority who appeared took pictures of each other.
The truth is that hundreds, perhaps thousands, of protests have taken place in China since Tiananmen, but the overwhelming majority of them were not about demanding democracy. These protests were usually from poor farmers who felt that land developers had taken advantage of them and hadn’t given them a fair price for their land. Protester demands are usually handled by local Party officials; but if the offense is of a larger nature, such as the inept reporting of the SARS outbreak, the top leaders intervene by replacing key personnel in response to the public outcry.
Some Westerners have also been critical of China’s leadership clashes with the Tibetans. They argue that China should have left Tibet independent. Arguably, the logic is similar to saying the United States should not have absorbed Hawaii as the 50th state. True, China and Tibet have had a long, complicated history over disputed territory. I am not defending their claim but only want to point out that, aside from border disputes, Western reporting of the Tibetan situation is incomplete. Material facts are often omitted that would make the Chinese perspective less offensive. The Tibetans were a feudal serfdom25 before the Chinese takeover. The PRC wanted to dissolve slavery, so it dealt with the situation by offering generous compromises, in which it paid the religious leaders their full salaries while also granting them the freedom to pray and conduct their religious rituals. In exchange, the Tibetans had to dismantle their institution of serfdom and promise not to secede from the nation. The riots covered by Western media just before the Beijing Olympics were instigated by the Tibetans who burned the homes and stores of innocent civilians, even killing them in a few cases. China sent in its army to stabilize the situation, as any government would when unruly behavior gets out of control. The full context, however, was never explained by Western media at the time these events occurred, creating unnecessary hostility and misunderstanding between the Chinese and the West.
The Falun Gong, another sensitive area for China, was opposed by the government for different reasons. According to officials from the State Council Appeal Office, a bureau that handles public complaints, some of the Falun Gong demonstrators were former government officers who were unhappy with the new direction the PRC was heading. They were against China embracing capitalism and thus used a newly invented religion as the basis of protest. Given the political nature of their religious practice, the Chinese government viewed their organized silent protests as a cult group threatening authority and potentially causing another violent overthrow. From the outset, Jiang Zemin believed that the sect’s slogan of “truthfulness, benevolence, and forbearance” was deceiving because it was trying to usurp the Party’s moral authority. The Ministry of Public Security issued an edict in July 1999 stating that the Falun Gong was an unlawful organization that has been outlawed. In addition, Jiang warned in his speech to the Conference on Religious Affairs that no one would be allowed to abuse religion to sabotage the socialism, national security, or the Party, which was a reference to Falun Gong. He also admonished “infiltration of foreign forces cloaked in the mantle of religion.”
Although the Chinese government’s handling of certain situations may be viewed as heavy handed, the Chinese government has acted in such ways only in limited circumstances. In each of those instances, the government acted predictably because it wanted to maintain peace and stability for the broader interests of society. Their fear of chaos is real, given the psychological stress the nation has undergone from the Cultural Revolution and the wars that preceded it. Only by keeping order can the country continue to lift itself out of poverty and enjoy greater freedoms down the road.
When China is understood in this light, it is not as threatening to the United States as some Americans assert. China is simply a nation making progress according to the rules and values of an international order that has largely been designed by Western powers. It has developed by embracing capitalism as the means to access resources, as opposed to invading and plundering nations by force. Most importantly, because China has been run by responsible, levelheaded leaders with plans to groom future talent, the nation can be regarded as not only stable, but also thoughtful in its planning for the future. Considering that its younger generation adores America, China is unlikely to pose a threat to us and indeed should provide huge relief as a source of new leadership where others have failed and a true blessing in disguise to Americans and the whole world.
Still others have argued that democracy is preferable to autocracy because data starting from 1960 onward shows that democratic nations have not spectacularly failed or succeeded, but that autocracies have done both. However, such an argument is problematic for several reasons. The arbitrary use of select time periods means it excludes the evidence that contradicts the theory. Obviously, prior to 1960, democracy failed spectacularly when Hitler came to power in an advanced democratic society that nearly destroyed all other democracies. This theory also doesn’t account for the destruction of human lives from democracies outside their own borders. Nobel Laureate Harold Pinter has highlighted the double standards of democratic nations such as the United States, who has a long list of secret wars. Moreover, the very essence of democracy is to let the citizens of a nation decide what they want and how they want to be governed. If a nation imposes democracy on another nation, the very act of doing so is undemocratic. To date, no comprehensive study takes such considerations into account, which renders this debate still inconclusive.
Democracy has many definitions, but in the United States, we have constitutional democracy, in which the governed are supposed to have power over their government, as opposed to the other way around. The U.S. Constitution also guarantees rights so that the majority or privileged should not exercise tyranny over the minority or common people. Abraham Lincoln once said, “As I will not be a slave, I will also not be a slave holder.” As Americans, we must remember that even our democracy is a work in progress. The disaster of Hurricane Katrina reminds us that America still suffers from racism even after more than a century of Emancipation. Ideally, democracy would be based on the Golden Rule, the reciprocity principle that encourages compassionate behavior. That China’s leaders choose to rule with Confucian principles consistent with this version of democracy further blurs the ideological distinctions.
The United States should avoid using democracy as an excuse for military interventions. Democracies can take different forms—such as those in Pakistan and Iraq—and do not necessarily benefit those who are governed. But when U.S. politicians use democracy as justification to topple governments, then the liberal democracy that the United States stands for gets undermined.
If the United States wants to sell democracy abroad, then it must do a better job at home. Could Guantanamo Bay exist in a true democracy? There are dozens of cases ignored by the more mainstream media that expose the dark underbelly of a democratic government. The truth is that power politics, rather than democracy, will continue to dominate world affairs. In a growing multipolar world, the United States should refrain from demonizing and instead begin a dialogue with China about democracy, without assuming that it is the best system for every nation. Robert Zoellick, president of the World Bank, stated, “America’s biggest enemy is America itself,” meaning it doesn’t really matter to the United States if China becomes democratic. Saudi Arabia is not a democracy, and yet it is a close U.S. friend and ally. Using democracy as a condition for friendship with China is a convenient excuse and destructive to the bilateral relationship.
A more constructive approach would be for both sides to work harder at reaching consensus about difficult concrete issues, such as carbon reduction, while maintaining a long-term dialogue about common values. Historically cherished Western values, such as individualism and liberalism, may not necessarily be embraced equally by China, but the United States should also delve deeply into its collective consciousness to question whether these values that have shaped our normative lifestyles are still serving us well in the 21st century. Perhaps China’s priorities of sustainability, community, and humanity deserve a second look by the United States as well?
We know that we need to live differently in the coming decades, which will require incorporating new perspectives into our thinking. We need to develop the courage to change what no longer works for the broader interests of the world. Given all the growing contemporary problems, if the world is going to successfully get along, we must first beware of politicians whose solutions capitalize on latent prejudices. To solve 21st-century problems will require extensive cooperation so we must conscientiously stop ourselves from making snap judgments and instead put ourselves in others’ shoes. Bluntly speaking, everyone needs to rethink their interactions with others in the world. Thus the debate over whether democracy or benevolent autocracy is a better form of government may only have value as an intellectual exercise. In practical terms, the debate may be irrelevant since the old cliché that the devil is in the details still carries weight. All bets are also off if we have a Malthusian crisis.
The need to reach agreements that prioritize the long-term needs of the entire planet ahead of short-term national concerns is now more important than ever. But the road to robust global cooperation is far from certain. Fostering compassion and learning to work across disciplines may prove more crucial than installing democracy as a way to achieve world peace and long-term survival. Our preconceived notions of democracy and benevolent autocracy may be no more than differences in semantics after all. We will continue to face dilemmas and differences of opinions, but at least if our leaders have empathy and a better sense of the big picture, they may be more willing to acknowledge, listen, and compromise on decisions that offer no easy solutions.
Maximizing human happiness ought to be the ultimate goal for everyone. But Western democracies have assumed that technological progress and economic growth increases human happiness, when there has been a growing body of evidence that neither assumption is true.26 More countries, including China, are developing Gross National Happiness (GNH) indices as a move away from relying on Gross National Product (GNP) as a better, more holistic measure of well-being.
Furthermore, if we are to put the general good (as defined by the hundreds of factors that serve to increase happiness) as a primary goal in the 21st century, then we must also start thinking about redesigning our existing institutions with that goal in mind. Milton Friedman said that corporations exist only for the profit motive, and only greed and self-interest have ever propelled societies forward. But to what end? Isn’t the drive for more profits merely a means to an end, the end being happiness? Isn’t the drive for money and power in our current system just a cry for help to feel valued, important, safe, and loved? Aren’t some of the most powerful dictators and megalomaniacs also the most unhappy people who ever lived? Can we design a system that better incorporates the general good into our market economies so that corporations do not just exist for the profit motive?
As we can see from the Greek debt crisis, the logic of financial market capitalism has already hit an internal contradiction that may cause it to unravel and eventually implode. When investors and speculators buy credit default swaps (CDSs) as insurance for holding Greek sovereign bonds, they expect to be paid for any event that would qualify as a technical default of those bonds. They expect the rule of law to honor the contracts of this insurance. Yet when the European leaders announced that they would let Greece have a “soft” default but would not recognize it as a default, the officials are in essence denying the holders of CDSs the right to be paid, thus flaunting the rule of law and market capitalism in the interest of maintaining market stability. These two goals are in direct contradiction of each other. Either the governments honor the contracts and experience market mayhem from market selloffs or they overrule the legal contracts in the “interest of market stability,” thereby causing a lack of confidence by investors in the rule of law as practiced by Western governments, which would instigate a market selloff nonetheless. What is clear is that the current market capitalist system cannot serve its own needs while maintaining its existing logic. How this internal contradiction gets resolved remains to be seen at the time of this writing, but it does make an eventual convergence with the Chinese form of governance an even more likely outcome down the road. The marriage of the best practices from both the East and the West could kick-start a whole new chapter in human history.
Finally, in order to cocreate a better world with China and all the other nations, we must find it within ourselves to challenge our own assumed attitudes and ideas about freedom, justice, and progress. To reach a higher state of enlightenment, yogis and other spiritualists have always maintained that we must let go of myths, abstractions, and other inadequate ideas with which we’ve been indoctrinated. Alternatively, we can have an honest conversation about the kind of world we want to leave our children and how we need to act to achieve that goal. For instance, in Les Miserables, Jean Valjean steals a loaf of bread during an economic depression and spends the next 19 years trying to avoid capture by the policeman Javert, who prides himself on getting crime off the streets and hunts Jean Valjean with a vengeance. Is the persecution of Jean really serving justice or would society be better off granting forgiveness? Inevitably, how a society functions and the laws that are created reflect the society’s normative values. We can’t expect society to change collectively for the better unless we also accept responsibility to change ourselves individually for the better.
Unfortunately, social conventions and economic circumstances do exert a disproportionate effect on the life we end up living rather than the one we would choose for ourselves. It therefore takes self-enlightened awareness to recognize the limits that we have imposed on ourselves and an immense of amount of courage, willpower, and imagination to experiment and rewrite the rules of engagement to extend our boundaries of what is achievable. With the world undergoing tremendous changes, we may have a historic opportunity to cast off conventional straitjackets that keep us from reaching across the aisle to forgive past wrongs and befriend former enemies. If we don’t let the past have any power over us, we can make the impossible possible and forge a new future free from fear and hatred. It can be a future in which productive global cooperation can lead us to a new renaissance that will finally actualize the common desires for the common benefit of all people.