DannyQuah

Making large things visible to the human eye

Economics, Democracy, and the New World Order

Some of us wake up every morning to find ourselves living in a society where economic opportunity is unfairly distributed, where a narrow social elite is given everything while others endure harsh deprivation. If we live in such a society, every morning our soul yearns for a system better than that we’re in.

We might live in a society where discrimination is rife, where government cronies are handed plum benefits, where extractive elites plunder national wealth.

We say we want out of that system. We ask only for a level playing field, for a system that is fair, open, and transparent, a system that practices meritocracy.

The Way the World Went

If what I’ve just described resonates with you, the good news is the world has your back. The world wants for you what you want for yourself, and indeed more and more of the world has been on that delivery run for now a quarter of a century. Twenty five years ago the Soviet Union collapsed, bringing on what some observers announced as The End of History. The wisdom that emerged was that only liberal democracy and free-market economics remained viable as ways successfully to organize society. What could be fairer, more open, and more transparent than a political system that declared all people equal in the process of selecting a leader – one person, one vote? What could be more meritocratic than a system where whether you succeed or fail is decided by a free market blind to social status, not by some prejudiced official looking over your family connections?

Liberal democracy and free-market economics are both structures that appeal to technologists and designers. In theory they have an apparent emergent intelligence that seem magical to many: You install rules in the system; you turn on the system; you stand back, and you watch it execute to the best outcome possible for the system. If a disturbance perturbs the system, the rules in place allow innovation, flexibility, and adaption, and the system self-stabilizes to a new best outcome.

The US, the UK, and other economies on both sides of the Atlantic to varying degree practice these principles. Indeed, many observers consider that TransAtlantic Axis to be where such principles are held safe, to be passed on to others. Thus, even though membership in the club of successful economies would be open to all, it was there, the TransAtlantic Axis, from which success would unfurl. And, indeed, that happened big-time.  By one reckoning, world democracies numbered only 45 in 1970, their number ballooned to 115 by 2010.

Then the World Changed Again

But then history decided it wasn’t quite finished with humanity. First, the 2008 Global Financial Crisis struck. From exactly the TransAtlantic Axis, waves of financial collapse lashed outwards until 12 months after, in the wreckage, world financial markets had fallen by US$26tn (half of annual world GDP), an estimated additional 34mn people had been thrown into unemployment, and the world financial system was on the brink of collapse. The orthodoxy of free-market economics morphed into a witch-hunt for those who dared still to suggest that market competition might produce anything other than banks too big to fail (and therefore just too big) or grotesquely unfair distributions of well-being across citizens.  All the good things that free-market economics brings – the rich variety of consumer goods, competition that lowers prices, innovation that improves the lives of people – seem to have been forgotten or unjustly dismissed.

But then, for the purposes of this narrative, something even worse happened:

China poised to pass US as world's largest economic power this year.  Financial Times, 30 April 2014

China, the world’s largest one-party autocracy, far outside the orbit of the TransAtlantic Axis, will imminently become the world’s largest economy, overtaking the US which had held that position for over 140 years. Not just that, but over the last three decades China lifted over 600mn people out of extreme poverty, while inequality in the West got so bad, the income share of the population’s top 1% recently reached heights not seen for a century.

Top 10 contributions to world growth: 2007-2012. GDP evaluated at market exchange rates

Top 10 contributions to world growth: 2007-2012. GDP evaluated at market exchange rates (Source: IMF World Economic Outlook, April 2012)

Over the course of the Global Financial Crisis many observers had remarked how in their view China grew only because the West imported and therefore when the West underwent austerity, China’s economy would be devastated. Yet between 2007 and 2012 it was China that added most to the resuscitation of the global economy, more than 3 times the contribution of the US.

German exports to the rest of the world

German exports to the rest of the world (Source: IMF Direction of Trade Statistics, 2011)

Germany, Europe’s most successful economy in this time, continued to grow — even with the collapse of its exports to its European neighbours and to the US, historically its largest export market outside of Europe — precisely by selling to China and the rest of Developing Asia.

The Great Shift East, 1980-2050

The Great Shift East, 1980-2050. Source: Quah, Danny. 2011. “The Global Economy’s Shifting Centre of Gravity.” Global Policy 2 (1) (January): 3–9

In the last 30 years the rise of the East, not just China, has pulled the world’s economic centre of gravity 5000km out of its 1980s TransAtlantic moorings, into the Persian Gulf. If growth trajectories continue in the 700 points on Earth used for this calculation then the world’s economic centre will soon come to rest on the boundary between India and China, 10 timezones east of the world’s traditional pole of economic power.

None of this was supposed to happen. Twenty years ago this year, soon after the collapse of the Soviet Union, the world’s most influential economist wrote:

“From the perspective of year 2010, current projections of Asian supremacy extrapolated from recent trends may well look almost as silly as 1960s-vintage forecasts of Soviet industrial supremacy did from the perspective of the Brezhnev years.”

Yes, by 2010 those economic trends were indeed found to have given inaccurate extrapolation, not from their having been too optimistic, but instead the opposite.  They have been too modest.

China and the rest of East Asia of course rely on markets, after a fashion. What they have not done was buy whole-heartedly into the notion that you get economic prosperity only through ballot-box driven electoral democracy. Hugh White, the former senior official in Australia’s Department of Defense, said what many were thinking when in September 2013 he considered varied foreign policy stances that might be taken by his then-incoming Prime Minister and concluded:

“Abbott’s conservatism also inclines him to be uneasy about modern China. Like many people in the West—and not just conservatives—he finds it uncomfortable that China could grow so quickly and become so powerful despite its authoritarian one-party political system. That challenges his deeply held ideas about the ascendency of democratic principles, which had seemed so decisively validated by the collapse of communism elsewhere in the world.”

What Happened?

Wasn’t national success only guaranteed by a mix of liberal democracy and free-market economics? Have both planks of the end of history just fallen away? How have Chinese and other Asian systems been able to innovate and to adapt when others, those arguably the more likely to succeed, have instead failed to be as robust?

Make no mistake, China’s system has been truly flexible and adaptive. As Eric X. Li reminds us, China is a country that has taken on a dramatic range of innovation: radical land collectivization, the Great Leap Forward; the Cultural Revolution; privatization of farmlands; Deng Xiaoping’s market reforms, modernisation, and urbanisation; Jiang Zemin’s opening up Chinese Communist Party membership to private businesspeople. High-level official and party leadership posts previously for life have been replaced by those with term limits and mandatory retirement by 70, a sensibility that not even university professors keep, despite the academic profession’s insistence on ideas always having to be fresh and innovative.

Lessons

Obviously, any serious study on such large issues I’ve described will demand great rigour and considerable detail. Moreover, history from here on out might decide to lurch once again in an unexpected direction. Either way, however, I would shy away from concluding that one system or another is necessarily better than the other. My own hunch is there are multiple pathways to prosperity and success: the evidence, it seems to me, indicates that. Trying to say once and for all that one system is best (or even the least bad) is almost surely foolish. And while it sounds authoritative to pronounce one system or another “not sustainable”, it should be apparent to everyone that, simply as a matter of logic, such a statement can never be proven wrong. No system in history has yet been shown to be indefinitely sustainable.

Where this discussion gets somewhere more concrete is instead the following. Too often, “liberal democracy” and “free markets” become simply code and catch-phrase to stand for all the bright shiny things someone wishes to have but does not.

Democracy has, ultimately, meaning far more noble and important than simply, say, access to the ballot box. Instead, what it should stand for is this: Every government, every ruler must be daily insecure. Every government, every ruler must every day understand their power to be built on the shifting sands of the will of their people. And they must daily strive to advance the well-being of those people.

By this measure the state in China and other officially autocratic economies throughout Asia are already more democratic than many observers might think.  By this same measure many ballot-box electoral democracies fail.  Every time we read yet another account of how China’s leaders desperately need the economy to grow at more than 7% a year, so enough jobs can be generated for their hundreds of millions of new workers, that’s not a creaking oligarchy desperately hanging on to power.  Well, of course, it might be.  But it might also be simply what’s called advancing the well-being of one’s people.

This does not change how Europe will continue to be the liberal anchor of the world, even as the economic centre shifts East.  But it does say alternative internally self-consistent forms of liberalism might emerge in response to different circumstances.

In contrast, however, parts of our current global system carry hypocritical and damaging inconsistencies.  While the TransAtlantic Axis seeks to disseminate democratic ideals throughout the world, today’s system of global governance built on US benevolent hegemony is itself deeply undemocratic. For the last 50 years our world has chosen as its leader from only among the richest and most powerful of nation states. That leader has not only status and wealth beyond those of all others, it wields unrivalled political influence and military superiority beyond imagination. As leader, it operates with effectively no counterbalance on the international stage.

In brief our current world order is built on the leadership by military and economic power; that world order pays no mind to how well that the global leader serves humanity. US hegemony in the current world order is a system of leadership that is truly and deeply undemocratic.

This is why a simple graph of China’s economic overtaking the US or the world’s economic centre of gravity hurtling to ten timezones east of Washington DC is so disconcerting to the TransAtlantic political elite. If US hegemony in the current world order will soon have neither economic nor political legitimacy, does that hegemony simply become despotism?  Why should it remain?

More than 50% of humanity lives here.

If the world were a democracy this is where it would make decisions of global significance. From an idea due to Ken Myers.

From a point in the South China Sea, roughly in the same timezone as the world’s economic centre of gravity, draw a circle 4000km in radius. This is a tiny circle, comprising only 25mn sq km of land, only one-sixth of the planet’s land area. Yet, this circle contains more than half of humanity. If we want to construct a new world order with democratic legitimacy and economic strength, let’s begin here, with fresh ideas, and see where that takes us.

(This post also appears on Davos WEF and Global Policy; it is an adaptation of the talk I gave at TEDxKL on Saturday 09 August 2014.  It draws on ideas in many debates I have had with Prof M. E. Cox, including that at LSE on Monday 04 August 2014.)

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13 responses to “Economics, Democracy, and the New World Order

  1. citizennp 2014.08.17 at 06:40

    What a dumb article… more propaganda than facts!!

    • inezvw 2014.08.17 at 14:57

      Citizennp,”initial responses” can be good and accurate, but sometimes it is worthwhile to give other people’s ideas a bit more thought (even and especially if they conflict with out “gut feeling”) and not write them off as mere propaganda. I tried to look at the issue from another angle and here are my thoughts in case you are interested:

      Apart from its economic dimension, the “global power shift” debate also has a political aspect to it which often centres around the question whether we will also a shift from democratic to more authoritarian forms of government if power continues to “travel” Eastwards. The effect of this discussion is that many people especially in the Western world often perceive of the rise of China and other powers that seem “foreign” to them as a threat to their own values. Given that in the West these values did not just “evolve” but were fought for in revolutions and wars, “giving them up” must thus seem like a betrayal of those who gave their lives and suffered hardship.
      But this equation is wrong for “loosing” world leadership to other powers which are currently seen as relatively less democratic does not have to be a “step backwards” in history to a pre-enlightenment phase. Rather, the challenge is to understand what the added value of democracy really is and what it concretely entails.
      The problem is that over the course of time we have developed understandings of democracy which deviate significantly from the original meaning of the “rule of the people”. As such we now often equate democracy with other important principles such as the rule of law or practices such as elections. The two truly indispensable key features of democracy are however
      – the ability for citizens to participate in decision-making (an idea which derives from the understanding that the people are the sovereign)
      and
      – the possibility to challenge and replace leaders peacefully when they don’t fulfill their tasks (for it is this activity on which their power is based in the first place.)
      Having grown up in a country which due to its difficult history has developed a particularly high appreciation for democracy, I have always been taught that it is (only) the Western democratic system which allows for these democratic features to be realized. But the more I look at the issue, the more I doubt that it is only the regimes we often call authoritarian that lack these two fundamental democratic principles.
      Yes, democracies might be better at upholding the illusion that through elections citizens can in fact participate in decision-making or exchange elites without descending into violence and chaos. Yet I wonder what our answers would be if we were honestly to ask ourselves: Is it really possible for us to exchange our elites when we are dissatisfied with them?
      And while we might find that maybe we don’t need to make recourse to revolutions and violence in order to see another person or party succeed, we would probably have to admit that often enough we only replace old with new elites (who barely differ from the previous ones in terms of the questions they ask, the answers they provide and the measures they propose.)
      Furthermore, I am not sure what our answer would be with respect to political participation, e.g. if we were to ask ourselves: Are we really say today “I want to help improve my society”? And while it should not matter whether we want to do so by taking on a political function, carrying out economic activity or researching and teaching what we find interesting and relevant, we might find that there are plenty of mechanisms (often starting with the access to education) that impede us from actually participating actively in our societies.
      We might find that the answer to these questions is not quite as we had hoped for. “But even if the West is not perfect, it is still better than the rest” one might now argue. And maybe it is. But as we have seen with regard to the alternation of governments: it is in the true character of democracy to allow for the opportunity to also try out alternatives. And given that the West has also failed in a lot of ways (just think of the provision of global public goods such as security, financial and economic security or environmental protection), I believe it is only fair to give “the East” a chance. For we might find that the alternative is actually not what we thought it might be and that other forms of life and rule also have their advantages.
      The implicit understanding is of course that while to some extent global leadership is about numbers and hard power, its legitimacy and endurance will ultimately depend on the attractiveness of the ideas and solutions the respective candidates offer to the rest of the world. As such, no power should consider its future pre-determined simply because it currently holds the largest population, performs best economically, commands the largest army or has the greatest appeal to others. Rather, one should combine the findings of researchers such as Paul Kennedy, Amy Chua, Richard Jackson and Neil Howe with those of history. As such the “global power shift” is not about whether the world is “better” under the leadership of the West or the East, of the U.S. or China, the “transatlantic axis” or the BRICS, but simply whether whoever is in power will be able to maintain his superiority in terms of both numbers and political legitimacy.

      • Danny Quah 2014.08.17 at 17:20

        Thank you, inezvw, for your thoughtful insights. I myself draw too from history-driven political thinking, as you suggest towards the end. For this I found useful the recent analysis of John Dunn in, among elsewhere, his Henry L. Stimson Lectures at Yale University – where he asks if democracy is always synonymous with good government. He answers no and goes further to conjecture that what many of us in the West understand by democracy is, in fact, deeply problematic. I don’t go so far as that, but I do believe that our current system of global governance isn’t democratic even by those standards that are problematic, much less by the more satisfactory ones that I think we should be applying. Again, thank you.

      • citizennp 2014.08.20 at 04:31

        inezvw, I wanted to get some context before responding. It appears you are truly exploring the canvas, which is great.
        There are so many issues with the article, the primary one being a too eager characterization of the whole world of systems as East v West. There are no such things. For instance, what does East mean? China? Japan? Pakistan? India? Brunei? Each of those countries has its own unique political system. Now you bring in their varied cultural ethos that entirely inform their respective political moorings and you have such a variety as to make any “East” block silly. Since that’s the core premise, everything else falls apart.
        As you explore, keep in mind that “rule of law” is and has always been a core tenet of a free democracy (Plato, John Adams etc). In practice, if you don’t have this, then everything else falls apart..

  2. Sustainability Leaders 2014.08.17 at 07:32

    Interesting, isn’t it. The question is, will China know how to build its empire in a way that proves more sustainable than the US one has ever been? Judging from some of the stories featured on http://sustainability-leaders.com, there are signs that the country is going the right direction. What do you think?

  3. Joe Seydl 2014.08.17 at 17:50

    Fascinating stuff, and I agree on the main points. But I have two philosophical quibbles.

    The first is that many are not asking for a “system that practices meritocracy.” Indeed, many philosophers see meritocracy as deeply unjust. In a meritocracy, those who have the merit are given the good outcomes, *regardless of how the merit was obtained*. The luck-egalitarian school, to give one example, attempts to go deeper, saying that good outcomes should go to people who worked hard for their merit rather those who got the merit through brute luck factors (such as being born into a wealthy family that can provide the best schooling). Separating luck from effort is extremely difficult and cannot be done in most contexts. But it’s important to realize that in an ideal world rewarding those who obtained the merit through effort would be more just, in the views of many, compared to a world where we practice meritocracy generally.

    The second point is to note that the entire blogpost relies on a consequential view of why democracy is important: democracy is important because it lifts the well-being of citizens. And since China is achieving more on this front than the US, you posit that maybe China is actually more democratic than the US. I probably agree with you on this latter point; but I also want to acknowledge that American democracy, even if it leads to worse outcomes than autocracy in China, could still be theoretically superior on deontological grounds. To deontologists, what matters is the procedure rather than the outcome. Even if American democracy is haphazard and is leading to bad outcomes, it still may be morally worthy if the procedure is just (e.g., if the system promotes true equality at the voting poll). Obviously if the system is leading to terrible outcomes and vast suffering, even if its procedure is just we still may not prefer it. And of course whether a procedure is just is somewhat subjective; whereas we can all agree on the objective fact about GDP growth in China (even though digging deeper to see if GDP is a worthwhile proxy of well-being can get rather subjective quickly). But I don’t think the procedural/deontological approach is completely wrong, and maybe a healthy balance between getting the procedure right and promoting good outcomes is what’s most needed.

    Anyway, as I said, very thought-provoking stuff. Thanks for satisfying my intellectual appetite this morning.

    • Danny Quah 2014.08.20 at 06:45

      Joe – thanks for your observations. Excellent insights. I don’t disagree in the main. Regarding meritocracy, you are right – the mood today in many societies emphasises exactly the perceived unfairness in outcomes that you describe. But not in all societies. In many emerging economies, the appetite continues to be for greater meritocracy. To take just one example Malaysia’s citizens, having borne the brunt of crony capitalism and institutionalized steep affirmative action (to an extent that many, on both sides, view undesirable*), would likely side with those pushing for meritocracy. But I see your point on this, and I agree on the dangers.

      On process vs results, I too think we cannot focus exclusively on just one of them, not least when their arc moves in opposite direction, i.e., when there is a tradeoff. Speaking of it as a tradeoff means that one can imagine circumstances where societies make choices to locate on different parts of that tradeoff. Further, there will almost surely be no absolute right or absolute wrong. It’s up to those societies where to locate [in that space of tradeoffs]. But I also think that a recitation or reminder of the evidence on the results dimension helps clarify for societies the range of choices that are available.

      * Is Malaysia university entry a level playing field? BBC 02 September 2013
      Nazir Razak, Remembering My Father, Malaysian Insider 14 January 2014

  4. Pingback: Look to Asia for the rebirth of democracy | netgueko

  5. Danny Quah 2014.09.10 at 06:07

    MJT – Merriden Varral’s post at http://www.lowyinterpreter.org/ is very good. Thanks for pointing it out.

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