Ian Garrick Mason

Articles and Essays

Philadelphia Inquirer -- July 18, 2004

Next challenge: Capitalist competition

Even as the U.S. has become a "hyperpower," unsurpassed in military strength, the economic growth we are encouraging in China and India threatens to shake our position at the top of the world order.

by Ian Garrick Mason

We live in a globalized world of expanding free markets, where communism has been reduced to a wisp. At the apex of this world is the United States, its military dominance sustained by its wealth-creating capitalist economy.
So, is it possible that capitalism itself might one day threaten the U.S. position as the most powerful country in the world?

Look across the Pacific Ocean, toward China, and you can see how that might occur.

In September 2002, the White House issued its now-famous update to the National Security Strategy of the United States of America.

Published barely a year after 9/11, and mere months after the defeat of large-scale resistance in Afghanistan, the document was notable not only for its embrace of "preemptive" war, but also for its clear exposition of two goals.

The first was a "hard power" goal. "We must build and maintain our defenses beyond challenge," the document stated. "Our forces will be strong enough to dissuade potential adversaries from pursuing a military buildup in hopes of surpassing, or equaling, the power of the United States."

The second was a "soft power" goal: "The great struggles of the 20th century between liberty and totalitarianism ended with a decisive victory for the forces of freedom - and a single sustainable model for national success: freedom, democracy, and free enterprise. . . . America will encourage the advancement of democracy and economic openness."

Though controversial in many quarters - some critics read the document as a veritable manifesto for world conquest - the two goals are at least consistent with the current world situation.

The Soviet Union, for all its massive military power, did turn out to be a hollow giant as the inefficiencies and contradictions of the communist economic system undermined that country's ability to modernize its armed forces.

By contrast, America's free-market economy gave it the taxable wealth it needed to pay for an advanced military on a sustained basis. Indeed, after the rapid and successful invasion of Iraq in the spring of 2003, it seemed to many observers that America was, if not a formal empire, then certainly a "hyperpower" of unprecedented strength - though the ongoing insurgency in Iraq has shown some of the limits of traditional military dominance.

As for the second goal, open economies have been spreading around the world for several decades. In Europe, former Warsaw Pact countries have scrambled to join the free trade zone of the European Union. In Asia, the economic success of Japan in the 1960s and 1970s has been emulated by the even more rapid development of such countries as South Korea, Taiwan, Indonesia, and Singapore.

And now we are witnessing the economic rise of the two Asian giants, China and India. China, its gross domestic product growing at 10 percent a year, is continuing its post-Mao commercial transformation.

While market-friendly government has been a more recent arrival for India, its 6 percent economic growth is still twice as fast as that in the fully developed economies of Western Europe and North America. China and India today are prime exhibits of the ability of markets (even if guided and regulated to varying degrees by governments) to create national wealth.

In the Jan. 12, 2004, issue of Fortune, economist Jeffrey Sachs estimated that, given the large difference in the sustained growth rates of the Chinese and American economies (even taking into account the anticipated narrowing of that difference over time), the Chinese economy could well be 75 percent larger than the American economy by 2050. By then, India's economy would be roughly equal to the American economy.

This shouldn't sound shocking: as China and India play technological catch-up, their per capita incomes will gradually rise. Given that China's 1.3 billion population is more than four times that of the United States, its overall economic potential is proportionately larger.

Consider: Even if Chinese per capita GDP never rises above 50 percent of U.S. levels, this would still leave China with twice the economic power of the U.S.

As far as world prosperity goes, this is a wonderful result. But it undermines the National Security Strategy's hard-power goal of continued military preeminence.

After all, a gigantic national income, other things being equal, implies a gigantic tax base - and a percentage of those taxes can be spent on defense. In its most recent annual report to Congress on Chinese military power, the Department of Defense predicts that the Chinese defense budget will rise from roughly $50 billion today to four times that amount in 2025.

True, a $200 billion defense budget isn't as big as the $450 billion budget enjoyed by today's Pentagon. But it will certainly be enough to make China's neighbors sit up and take notice. It's probably more than enough to make an American president wonder whether defending Taiwan is really worth a war with China.

What's more, China's per capita income will not have finished catching up to the United States' by then - not by a long shot - so there's plenty more Chinese defense budget growth where that came from.

Ultimately, a China with two times America's GDP should be able to spend twice as much on its military.

There are caveats galore to this kind of analysis: China's one-child policy has given it a rapidly aging population; India has yet to come to grips with its large fiscal deficits and growing debt burden. Either country could be negatively affected by war, internal discord, or trade disruptions. But acknowledging such contingencies of history does not undermine the underlying dynamic.

America's last strategic opponent was a military power with an economic system that created very little wealth, which is why President Reagan thought the United States could "spend" the Soviets into giving up.

That past example is also probably why the National Security Strategy assumes that global free markets and American dominance go hand in hand.

But the two goals are actually in opposition to each other. Only one or the other is likely to be achieved.

It comes down to two basic scenarios for the 21st century:

America as one prosperous, big power among other prosperous and equally big powers, or . . .

America as a militarily dominant hyperpower in an economically stagnant world.

The National Security Strategy needs another update.