Clash of the Titans — the United States and China

We are in an era of transition: the American economy, in decline, is and will be ever more politically confronted by China, whose manufacturing and financial sectors are developing on a fascinating trajectory. And what’s making the difference in this moment of the conflict is the two countries’ position on strategy for defining the economic society in each nation, for defining ways to confront social conflict, for defining the future of capitalism. On one side, we have a state weak in conducting economic policy but extremely friendly to capitalists — the American state — and on the other, a state that commands and directs the economy towards development — the Chinese state. What is the strategic difference between the two?

The Dance of Death and the American Casino

In the first case, we have a country, the United States, whose strategy is to continue as the most developed country in the world. It’s just that this strategy starts with two realities. The first: politically, to maintain a position in the forefront, the country assumes a politically dominant posture, militarily aggressive and intrusive as, for example, occurred in the war in Iraq. What stands out there is the extent of military action to achieve its energy policy, whose objective, black gold in abundance, is to preserve its reserves intact and search for cheap foreign petroleum. Now, the American state proclaimed its unilateralism with George Bush and practiced the dance of death, as Pieter Brueghel called it, in the Middle East. But, on the other side, the second reality: the state detached its strategy from global economic policy, which would have objectives in industrial policy, agricultural policy, technological policy, remuneration policy, etc. There remained only generic aid, leaving financial institutions free to make their own policy. Externally, this global policy appeared to be a driverless vehicle; its movements became erratic, with spasms originating from individual capitals. In other words, it was the sum of micro-decisions that constituted the macroeconomic policy.

With this, Americans demurred from a project of developing technologically renewed production, in order to focus their efforts on a financial economy. After living the high life of a casino — everyone speculated as if hallucinating — they took a fall because of this economic insanity. They were in paradise and fell into the labyrinth of the crisis. And to arrive in such a situation, they stoked a process of financial deregulation that completely favored the financial network and ended by rushing the economy into systemic risk and, therefore, to its explosion. A dissolute vertigo out of control. Put another way, the American state made a split in its strategy to maintain global hegemony. On one side, it fought hard in a military action, and on the other side, it permitted the expansion of a model of financial accumulation. The fictitious riches followed one trajectory, the fiction of the war on terror another. That prompted a lack of confidence in the value of its financial assets and that brought a painful battle of strategic equivocation. They were distinct processes but in the end, the pursuit of petroleum-based riches through war, hidden in the expansion of the “democracy and free market,” capsized the boat as much as the massive paralysis of the financial system did.

The American state today is facing a high-handed decrepitude. On one hand, the financial sector, battered in the economic stampede, has not surrendered politically. It has won little parcels of salvation, lines of credit, and it has not accepted regulation of its activities. On the other hand, the disaster of the Bush-Cheney strategy for the world — concentrated as an exemplar in Iraq — has to undergo substantial change, whether by reformulating the Middle East policy, or positioning itself militarily and economically against China, including allying itself with Russia, or looking to reach Brazilian petroleum and recovering its Latin American influence, or producing a new relationship with Europe, etc.

The serious problem is that the United States does not currently have an economic strategy for the long term. Its progressive action in the direction of a technological standard different from today’s is completely blocked by the lack of an economic development policy, by the refusal of the bankers to finance the manufacturing sector, by the total concentration of these activities on the short term. Seeing this, Obama is trying to institute a type of National Development Bank (a huge novelty) to address the lack of credit for manufacturing and for technology renewal. It’s just that this has to pass through Congress — the center of social contradictions, averse to any increase in debt, come what may.

It can be clearly seen that the American state is a trussed animal, tied up by finances, by short-term politics, by warmongering policy, and by defeat in the Iraq war. The neoliberal institutionalization has failed; the corpse died, but it has not been buried, it’s there in the coffin. I think it is fatal; sooner or later, the American state is going to have to react to the overwhelming presence of China, by making changes including legal ones. It is going to need a new strategy and a new position on economic policy that is not reduced to the here and now of finances. To get past the current level of breakdown in its bid to continue as a major power of the planet, the United States needs to construct what it lacks — the unity of the state, which the financial system and military action in disarray prevent from happening.

The Long Run Speaks Chinese?

China, in turn, is in the lead of state organization — seeing as, with the model of a developing country, it has a strategy — not explicit, but not all that secret — of dedicating itself to a not-too-distant future as the premier power in the world. Hence, a political strategy that unfolds into an economic policy. This policy is global, as it has an economic objective to overcome the Chinese economy’s lag behind the American economy. China is taking great strides in constructing a plan for manufacturing, where, above all, it works in all sectors — capital goods, durable consumer goods and disposable consumer goods — seeking to be the industrial engine of the world. For this, it seeks what it lacks: raw materials and food from Asia, Latin America and Africa, and technology from the United States, Japan and Europe. It is working zealously towards solving its energy problems. But, in the coming years, it will not be able to attain conditions to change the pattern of production and its degree of technology. However if the U.S. screws up, then within a few years China, in the full flow of development, will be en route to expand into areas of technology, such as communications and IT. The whole debate here is whether or not the Chinese will cut short or suppress the American advantage in technological structure.

So, what matters in this panorama is the idea that China has stepped up the speed of progress in the competition between the two countries because the state has an emphasized dominance of political and economic strategy. China has a national unity and, as a consequence, politics directs the economy. And it is because of this that China can, against the tyranny of the market, control the exchange rate and flow of capital. It is because of this that it can work a policy of export and of import. It is because of this that it can construct a policy of investments in successive macroeconomic programs. It should not be forgotten that even before the crisis of 2007, with profound effects on foreign trade and reserves and their financial applications outside, China introduced changes in its economic structure to reorganize its own manufacturing space and link to Asia, Africa and Latin America. Everything in service of a strategy and of a policy of development guaranteed by the unity of the state. The conditions are right for flowering. Clearly, the changes that occurred in the context of crisis caused some social disquiet in the country, but the government has the strength to resolve this turbulence, based on the orderly exit from the downward spiral. The reason there is no doubt is just this: the unity of the state.

The Chinese state has control of the national situation — of its objectives, its resources and its limits. It very clearly must not confront the U.S. militarily, politically, culturally or technologically. But on industry, on the organization of the state, on planning and on strategic cohesion, it will shortly be taking on all comers. Above all, China clearly must be able to cast doubt on the American currency and be able to, in the medium term, construct a Chinese currency to rival the dollar and the euro. At the same time, it knows of its fantastic market potential and of its conditions to achieve profound technological transformation in the long term because of its educational development. It has hopes of obtaining reasonable environmental standards in the medium term, in pursuit of a society with better living conditions than at present. The essential reason for all that ambition is the organization of a unified state. And to energize its state-financed capitalism — which intervenes as much with internal credit for production as with international financial competition — China has dynamic advantages in its economic elasticity, as much as the political competition among nations, leading the block of emerging markets. China is standing out among these emerging nations, positioning itself as a future rival of the Americans.

Where Will the Future of Conflict Lead?

If you the reader have followed the rationale proposed by this article, you can construct the film of the coming years — the Clash of the Titans. And in this duel, we are going to have a dispute of hegemony in the interior of capitalism. It is necessary to recognize that capitalism cannot exist without the state. And it is exactly this that China already has — a state that has coherence and unity between the strategy and the economic policy. However, in the political field, China is going to need great skill to avoid a direct conflict with the United States, whose military superiority is indisputable. It is just that, as a function of state unity, China has a notable advantage because its society is not paralyzed; it is in a dynamic process. Today the Chinese are playing from a position of security because the balance of their positive and negative points gives them a commanding overview of the situation. What’s more, with the crisis reaching dramatic proportions — the recession and the depression are en route to knock the wind out of the West — China is providing the model for diverse states to react to the crisis, strengthening its action.

As incredible as it seems, until now, the crisis hasn’t reached the point where the conflict of capitols and of nations comes to dismantle the economy and policy. Some states, the smaller ones it’s true, such as Greece, Portugal and Ireland, are already on this path. The solution, however, has been neoliberal. And I doubt that this resolves the problem, without getting down and remodeling the countries in their current system of governance. Then, as a thing of the future, what seems to appear on the historical horizon is the passage from American unipolarity to the bipolarity of China and the U.S. In that, the decisive question has everything to do with the role of the state in all its dimensions, from the strategic plan to the constitution of the structures of the state and of the reorganization of its bureaucracy.

The battle is on the chessboard. On this board, the dispute will widen; U.S.-Chinese tension is going to compose the harmony and discord of basic opposition, which will order the alignment (or misalignment) of too many states, including Brazil. The political constellation will be organized by this fundamental contest. The make-up of the hierarchical cast of characters of the other powers and nations depends on the ever-stronger contrast between the two great powers and on the role of the state. The elementary conflict is proceeding, even imperceptibly, but definitely. The long duration of capitalism, still undisputed in its force, already starts to dispose the actors towards future structural change. What will change is the conflict that organizes politics, at the same time that this context will permit the emergence of a new economic pattern, a new “Golden Era” as Carlota Pérez calls it. The chill up the spine, however, comes from the recession that approaches. The question is obvious: will this conflict be creative or destructive? The way out, mostly still hidden, has one face that proclaims more capitalism — but, nonetheless, with more state involvement and with a different relationship between finance and manufacturing.