We have explicitly entered the propaganda war between democracy and dictatorship.

First published in March 2020.

As the coronavirus pandemic unfolded beyond China the response of other governments brought to mind the “yellow peril” hysteria of the late 19th and early 20thcenturies. In the 19th century the US hysteria over Asian immigration manifested a racist anxiety that hordes of low-wage immigrants would undermine white livelihoods. In the 21st century anxieties, especially in Europe and Northern America, follow on from the emergence of the Chinese government as a global power and potential leader of a coalition of authoritarian states (see, for example, the China Power Project of the Washington based Center for Strategic and International Studies). These 21st century anxieties indicate the development of a new Cold War, by which I mean an ongoing competition between two great powers latent with the threat of armed conflict.

The rise of capitalism and the industrial revolution of the late 17th and into the 18th century fundamentally changed the nature of global power by industrializing the production of military technology. Suddenly a few countries, even small ones such as the Netherlands, could dominate vast territories as a result of superior military hardware. By the late 20th century trade and investment generalized that technology, spreading it through previously underdeveloped regions, rendering small country power a relic of early capitalism.

The Soviet Union collapsed at the end of the 1980s, ending over four decades of a bipolar international system. There briefly followed a period of hegemony by US governments. This led to the governments of several countries manifesting pretensions of global influence -- the so-called BRICs, the European Union (in practice France and Germany) and Japan. In the new century the rapid rise of Chinese economic and military power for all but romantics ended the illusion of a multi-polar international system and with it the fantasy of a Global South rising to challenge the North.

Two decades into the 21st century the structure of global power has coalesced again into a bipolar system, a new rivalry between the governments of the United States and China. These two capitalist powers have separated themselves from the others to a striking extent. To my continued surprise I repeatedly encounter commentators who deny or doubt the capitalist nature of Chinese society.

The view that Chinese society remains some form of socialism reflects confusion as to the nature of capitalism and perhaps a fond hope of finding a benign challenger to US power. As Marx and later Polanyi explained so coherently, capitalism results directly from the creation of a market for labor, human labor becoming a commodity. “Free” wage labor lays the basis for capitalist social relations (Capital Vol I, Chapter 6 and The Great transformation, Chapter 6) and has done so in China.

At the end of 2018, the US economy accounted for 22.3% of global GDP, the Chinese 14.6, and number three Japan a distant 5.4. While GDP may be a poor measure of citizen welfare, it accurately indicates productive power, thus the capacity to generate military hardware and research.

For exports the top two reverse, China leads with US$2.5 trillion (13% of the global total) and the US second at 1.7 trillion. Germany comes a close third at 1.6, but number four Japan exports less than a trillion. National exports provide a measure of military and political power. The European Union represents an exception, since its militaries are nationally based. Military power arises from country-level economic prowess. It is not derivative from the sum of the GDPs of the EU member states.

Further, the constitution of the largest EU state, Germany, includes a prohibition on ‘offensive wars’, imposed by the victorious allies after World War II. In the post-war period German governments found it useful to minimize military expenditure in favor of an aggressive economic competitive policy of near-mercantilism, leaving its military in a woeful state. Both constitutional considerations and practical economic policy rule German out as a superpower, at least for the foreseeable future.

The link between economic size and military power could hardly be more clear. Buttressed by the world's largest economy, the US government in 2018 had a military budget of US$750 billion (3.2% of its GDP), far ahead of China's 237 billion (1.9%). No other government reached 100 billion and only three exceeded $50 billion (Saudi Arabia, India and the United Kingdom). The Chinese government does field the world's largest standing army (followed by India, then the United States).

Historically a country’s private investment holdings abroad have closely tracked its economic and military power, as well as indicating phase of development. Countries emerging from underdevelopment do so in part by attracting private investment from more technologically advanced countries. Key is access to productive techniques rather than the inflow of funds, which in practice could be raised through the domestic financial system. Conversely, the shift from net investment inflows to net outflows indicates the shift from capitalist development to maturity.

In the late 2010s the Chinese economy neared that point, with investment outflows of US$860 billion and inflows of 795 billion. In terms of stocks of assets, at the end of 2018 foreign investments in China well exceeded holdings of Chinese companies abroad. However, we should include Hong Kong with China, while netting out Chinese investments in its territory (as the Chinese Ministry of Commerce does). When we do, stocks almost balance. Chinese and Hong Kong companies held US$3,580 billion in overseas assets compared to foreign holdings of 3,625 billion in China and Hong Kong. Though second to the US at $6476 billion in overseas assets, Chinese capital far exceeded the Japanese and German totals of about $1650 billion each (UNCTAD. World Investment Report 2019, Annex Tables).

New Bipolar World

The first cold war, between the governments of the United States and the Soviet Union, involved a bilateral conflict between a democratic capitalist country and an authoritarian socialist one. This represented systemic tension at two levels, capitalism versus central planning, and representative democracy versus authoritarian dictatorship. In the absence of the first, few would have championed the authoritarian Soviet regime as a progressive force.

By apparently offering a viable alternative to market society, the Soviet Union attracted the support of many progressives. The possibility of an alternative economic model linked to Soviet support for national liberation movements. The regime gained further credibility by having played the major part in the defeat of Nazi Germany. Progressives dealt with the contradiction between dictatorship and anti-capitalism either by endorsing the official fiction of workers democracy, or, more credibly, by embracing the central planning system as meritorious but faulted in practice.

Central planning played a key role in the Soviet-US Cold War. Because the Soviet Union was not capitalist, it lacked the competition-driven expansionary tendencies inherent in market relations. Whether or not the Soviet Union was an “empire” as its critics claimed, the regime’s foreign policy was defensive rather than expansionary. As a result, the Soviet-US competition remained primarily ideological. While each social system represented a systemic threat to the other, the Soviet system lacked an internal expansion dynamic. It comes as no surprise that US leaders referred to “containment of communism” rather than “roll-back”, though that came in part from the practical impossibility of challenging the Soviet army in central and eastern Europe.

The new cold war has a quite different dynamic, competition between two capitalist states, one democratic, the other authoritarian. While democracy and dictatorship generate ideological tension, that tension does not in itself prompt conflict. This ideological tension transforms into potential conflict as a result of market competition, competition intensified by the development of country-based global corporations using their governments to serve their interests.

Just over 70 years ago in the wake of World War II, K. W. Rothschild, wrote an insightful assessment of capitalist competition in the premier mainstream economics publication of his time (The Economic Journal). Discussing global competition, he argued that it provided the impetus to fascism (page 318),

“Once we have recognised that the desire for a strong position [between oligopolistic giants] ranks equally with the desire for immediate maximum profits we must follow this new dual approach to its logical end… [T]he Fascist corporate State… has been largely brought into power by this very struggle in an attempt of the most powerful oligopolists to strengthen, through political action, their position in the labour market and vis-à-vis their smaller competitors, and finally to strike out it order to change the world market situation in their favour.”

He pursued this link of fascism to capitalist competition to the inherent tendency to generate conflict (page 319),

“…[L]ike price wars, [imperialist wars] and the preparation for them will be a constantly existing background against which current actions have to be understood. And the imperialistic aspects of modern wars or armed interventions must be seen as part of a dynamic oligopoly theory just as much as the more traditional "economic " activities like cut-throat pricing, full-line forcing, boycotting, etc. For there is no fundamental difference between the two. (emphasis added)”

The New Cold War

As I have argued elsewhere, the Chinese regime has many of the characteristics of fascism, though when doing so I stressed historical rather than economic factors. When reviewing the transformation of Chinese society from central planning to market regulation, fascism proves a useful analytical tool. From near economic isolation in the early 1970s, the dictatorial Chinese regime transformed the country into a capitalist power in less than forty years. The role of the state as regulator and active agent of capitalist construction helped overcome the competitive disadvantage of being a relatively weak newcomer in the global capitalist contest, a process reminiscent of the development of capitalism in Germany in the 19th century.

The fascist characteristics of the Chinese regime evoke similarities with the gathering global conflict in the 1930s. Before the German-Soviet conflict dominated World War II, hostilities began in central and western Europe among capitalist states. The de facto declaration of war (on 3 September 1938 by Neville Chamberlain Prime Minister of the United Kingdom), set two blocs against each other, the democratic alliance of Britain and France and the authoritarian bloc of Germany and Italy (so-called Pact of Steel). Twenty-eight months later the government of the United States took leadership of the former. The combination of New Deal liberalism, Soviet anti-capitalism and the nature of fascism gave the anti-Nazi alliance its progressive character.

Almost eight decades later the democratic bloc of the United States, Japan and the European Union has no leader, and the US government shows strong authoritarian tendencies. While we should not exaggerate the authoritarian elements in the current British government, it certainly will play no progressive global leadership role. Nor will the ever-weakening center-right German government or neoliberal-led France. The election of Bernie Sanders as US president could have produced progressive anti-authoritarian leadership, but that will not occur. A victory by the bland Joe Biden would stem domestic authoritarianism but produce no progressive global leadership.

In the 2020s we enter an unstable world haunted by the possibility of armed conflict. Two factors mitigate the bellicose drive of intra-capitalist competition. First, Donald Trump seems relatively uninterested in foreign entanglements. For example, he chose to withdraw from Afghanistan as democrat Obama should have done a decade earlier. Though eager to engage in assassinations, he has avoided new wars. Second, the finance focus of US capitalism does not directly encounter Chinese industrial capitalism in competitive arena. However, US finance capital embodies authoritarian tendencies that may themselves fuel conflict.

The political course for progressives is clear but in many ways unpalatable. Donald Trump is the enemy of democracy at home and abroad. The enemy of our enemy, the Chinese government (and Russian to a less important extent), is not the friend of progressives. In June 1941 fascist Germany invaded the Soviet Union, leading six months later to the Roosevelt administration allying with the authoritarian regime in Moscow. In the 2020s should the Chinese regime invade any neighbour, neither China nor the victim of that invasion, unlike the Soviet Union, is likely to have many politically or socially redeeming characteristics.

Evidence of the gathering Cold War mentality comes in an unfolding propaganda war. The Trump administration has responded to the spread of the virus in the United States with predictable xenophobia. Less predictable and more ominous because it reflects conscious policy, the Chinese regime has rewritten the narrative of its response to the virus in a manner to promote itself as a benign model of governance. We have explicitly entered the propaganda war between democracy and dictatorship. As in the 1930s authoritarian regimes seek to undermine faith in the ability of democracy institutions to respond to public needs. Opposition to dictatorship and commitment to democratic processes, however flawed, are essential to build a progressive future.🔷

[This is an original piece, first published by the author in PoliticsMeansPolitics.com on 24 March 2020. | The author writes in a personal capacity.]

(Cover: Pixabay.)



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Coordinator of the London-based Progressive Economy Forum and Emeritus Professor of Economics at the School of Oriental & African Studies (SOAS), University of London.

London, UK. Articles in PMP Magazine Website