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Economic Nation Building

The engineers at NASA have been warning for at least a decade that the constellation of junk orbiting the Earth is reaching critical levels. Beyond a certain point, the junk multiplies through collision with working satellites. I first became aware of this as a just-deserts illustration: a nation had launched a satellite with a loose wrench on board. When the satellite failed, they launched its replacement into the same orbit. Shortly after activation, the wrench, still in orbit, sheared through the boom that tethered the solar panel to the antenna.

NASA tracks space junk large enough to cause such incidents, and satellites commonly maneuver to stay out of their path. The job was made far harder when China, without notice to the international community, decided to demonstrate its ability to threaten global communications by blowing a satellite out of orbit. This was not done in a clever way, which would have been to destroy the satellite from higher orbit, pushing the fragments into the atmosphere. Instead, the Chinese destroyed the satellite from below, creating fully one third of our orbital space junk in a single incident.

This is only one example of a large number of similarly irrational incidents. When I stopped to chat with a Chinese co-worker one day, he was pulling his hair in exasperation. The pig farmers upstream from Shanghai had overbred, and many could not sell their stock. Rather than negotiating with their neighbors, they simply pushed the pigs into the river. Thousands of pig carcasses were floating through Shanghai to the ocean. The Three Gorges Dam, once seen as a manifestation of the efficiency of authoritarian rule, is a large open septic pit, filled with junk that is damaging the dam wall. More recently, we have the idiotic bulldozing of coral reefs in the South China Sea to create a landing strip to support Chinese claims to resource rights. The Obama Administration has chosen to thumb their nose, sailing naval vessels within the artificially created “territorial waters.”

When fighting a war to suppress authoritarian rule, we are confronted daily with death and destruction, and tend to bemoan the difficulty of nation building. The situation in China is a disaster in slow motion, but the fundamental problem is the same: where in Iraq the political preconditions for multi-party rule had not been established before Saddam’s ouster, in China the preconditions for a managed economy had not been established.

Foremost among these is a clear separation of economic, military and political spheres of influence. When Russian liberalized its economy, Western advisers recommended a distribution of state assets to the public. While the common share holder was generally defrauded of their ownership, the strategy did create a class of corporate ownership that can resist totalitarian excess. As Putin has fought to reassert totalitarian control, many of them have relocated to England, where Gazprom reportedly has headquarters in London.

No such separation exists in China. This means, for example, that when China realized that it could not divest itself of its US Treasury debt, and in fact had to continue to finance it to avoid watering down of its existing holdings, it choose to extend its global reach by repurposing consumer electronics technology received from the West for military applications.

Given our deep dependency on China for manufacturing of our electronics, it’s not clear how we are going to wriggle out of this situation. Industrial automation is one possibility – I am aware that Philips has resumed manufacturing of electric razors at a lights-out facility in the Netherlands. The maker movement pushed forward by hobbyists in America may spawn a flood of such innovations over the next generation.

More immediately, we have the Pacific Trade Pact, which allows companies to sue governments for unfair trade practices. I am hoping that this includes fair labor, industrial hygiene and environmental preservation as criteria. This removes the problem of jurisdiction faced by federal negotiators attempting to negotiate trade disputes involving multinational corporations. But the likely outcome will be to force China to reduce its cultural bias against foreign investment, with the result that labor and environmental justice will lose its focus.

And then there is the standard proposition of economic nation building: concentration of wealth drives competition for creative minds, which creates a population that lobbies for universal rights. The alternative, of course, is the creation of a privileged class that looks only to its own interests, as illustrated in The Hunger Games, or as actually existed in the European nobility that successfully suppressed capitalism through the use of royal monopolies until the monarchy in England was distracted by a long struggle over succession.

In Russia, the West is in some sense fortunate that Putin has chosen to cement his power through military aggression. We have prior experience in resisting that practice, primarily through the application of economic pressure. But China has carefully insulated itself from that pressure, while simultaneously reaping the profits from manufacturing operations relocated by cost-cutting multinationals that cannot be regulated by any single national government. Worse, the Supreme Court’s Citizens United hearing the ruled that corporate political spending is “free speech” came suspiciously close on the tail of revelations that China was funneling money into the American political process through our Chamber of Commerce. China’s trade surplus is being used to control our political decision making.

What worries me most about this situation is that the problem of nation building through military intervention is a subject of open dialog in our policy institutes. No such focus appears to exist for the theory, practice and dangers of economic nation building.

Hitler created a German boom by renouncing reparations during the Great Depression, and rode the authority granted by the German people into World War II. The rest of Europe did not recognize the threat he represented, and ultimately had no leverage over his conduct. China is creating growth by exploitation of the environment and workers, and has proceeded to military breast-beating. Do our leaders in government and industry recognize the potential threat, and what are they doing to ensure that we can reign in the Chinese ruling class?

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