Balancing globalized trade and capital flows with domestic self-reliance and control of credit and capital is a positive development for everyone.
This week's focus is on self-reliance, a topic of increasing relevance than is more complex that it may seem.
The flip side of the decline of hyper-globalization is the rise of national self-reliance. We can see this dynamic expanding in real time across the globe, particularly in China and the U.S.: though still bound by trillions of dollars / RMB in investment and trade, the two nations are seeking to balance their dependency on the other by increasing their self-reliance with their own resources and technologies.
This reduction of a potent source of instability (dependency) in favor of national self-reliance is a positive development. Just as household self-reliance doesn't mean self-sufficiency (something I explain in Self-Reliance in the 21st Century), national self-reliance doesn't mean self-sufficiency: trade and diplomatic ties with other nations are beneficial, but it doesn't serve anyone's interests to be so beholden to other nations that blackmail become a temptation.
But withdrawing from the world has risks, too. The ideal is a dynamic balance between national interests and global ties that benefit everyone, that is, ties that nurture cooperation and global stability.
In other words, national self-reliance is not a substitute for global engagement and cooperation, it is a stabilizing force that enables beneficial global ties. Dependencies are sources of instability and risk, as each side is under pressure to preserve whatever is viewed as essential, and this tends to increase the risk of rash decisions and actions.
The ideal global arrangement is a transparent flow of ideas and information that enables every participant to adapt to changing conditions. From this perspective, the risk isn't that China seeks to become less dependent on Western technology, i.e. becoming more self-reliant; the risk is China blocking the flow of ideas from outside sources with the Great Firewall. (My sources report no U.S. news sites are available in China except a handful of anti-establishment sites.)
In the long sweep of its history, China has opened to the world and prospered, and then closed itself off and stagnated. A century after the glories of Admiral Zheng He's massive fleet reaching the shores of Africa in the early 1400s, China banned all oceangoing vessels and suppressed maritime trade sought by other nations.
That outside ideas are viewed as potential threats to the domestic status quo is a common feature of history. Many national elites have tried to block ideas and information while seeking to attract technologies and capital, as these benefit not just the domestic economy but the elites' personal wealth and their power base.
Capital and technology are tricky, however. Capital flowing into a developing nation can be beneficial, but it can also overwhelm and exploit the domestic economy, leading to the neo-colonialization of the nation's productive assets. Capital flowing out of a nation with excess savings can be a positive source of investment opportunities, but this draining of capital can also hollow out the economy, especially if it is accompanied by a parallel loss of human capital leaving for better opportunities elsewhere.
Cheap credit looks attractive to credit-starved nations, but it comes with a terrible cost as the debt levels quickly rise to unsustainable levels and both borrowers and lenders are forced to absorb losses and retrench. China is receiving a 21st century education in these dynamics via the Belt and Road Initiative, which has been dialed back as loans sour and asset transfers ignite fears of neo-colonialism from the East.
Technology that's borrowed ends up stagnating unless the entire system that enabled the development of that technology is also imported. The key feature of that technology-engine isn't money, though that is one ingredient; the most important feature is the free flow of ideas and information, unencumbered by elite / political interference.
Balancing domestic self-reliance and global trade and capital / information flows is not easy. Closing the door to outside ideas, capital and information tends to lead to stagnation, while opening the floodgates with no constraints tends to lead to destabilizing dependencies, credit bubbles, exploitation and neo-colonialism.
National self-reliance has spawned an entire vocabulary. In China, President Xi Jinping has called for a "whole-nation approach" to increase domestic production of technology. In the U.S. the vocabulary includes reshoring, onshoring, friend-shoring and strategic alliances.
Hyper-globalization wreaked havoc on many levels in many places. Balancing globalized trade and capital flows with domestic self-reliance and control of credit and capital is a positive development for everyone. A more balanced global economy offers the potential for continued global cooperation and engagement and domestic development for every nation that pursues the dynamic stability of both self-reliance and global engagement.
Gordon Long and I discuss trade and supply chains in depth in our podcast on Self Reliance (45 min).
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I began my study of China over 50 years ago when I earned a degree in Philosophy at the University of Hawaii at Manoa, where I was a student of two widely admired professors of Chinese philosophy, Chang Chung-yuan and Cheng Chung-Ying. It seems to me that Chinese philosophy--Confucianism, neo-Confucianism, Legalism (Mencius et al), Chan Buddhism, Taoism and in the 20th century, China's version of Marxism--remain foundations beneath the great flux of China's often tumultuous history. In this sense, Chinese philosophy is perhaps the ideal path to understanding the history and culture of China.
I haven't maintained a list of the many books I've read on China; I've listed a few below that I recall. Please note that I am not an expert or a scholar, I am merely an informed observer.
1587, A Year of No Significance: The Ming Dynasty in Decline
Creativity and Taoism: A Study of Chinese Philosophy, Art and Poetry
The Long March: The True History of Communist China's Founding Myth
The Man Who Loved China (Joseph Needham)
Daily Life in China on the Eve of the Mongol Invasion, 1250-1276 (Southern Song Dynasty)
Red Roulette: An Insider's Story of Wealth, Power, Corruption, and Vengeance in Today's China
The Roman Empire and the Silk Routes: The Ancient World Economy and the Empires of Parthia, Central Asia and Han China
The Golden Peaches of Samarkand: A Study of Tang Exotics
Foreign Devils on the Silk Road
All the Tea in China
Red Sorrow: A Memoir
The Great Wall and the Empty Fortress: China's Search for Security (Andrew J. Nathan)
The Good Women of China: Hidden Voices (Xinren Xue)
Here are a few books which illuminate the complexities of the flow of trade, ideas and capital from the Bronze Age to the present:
The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good
Global Crisis: War, Climate Change and Catastrophe in the Seventeenth Century
The Great Wave: Price Revolutions and the Rhythm of History
The Loss of El Dorado: A Colonial History
Tristes Tropiques
The Great Transformation: The Political and Economic Origins of Our Time
Civilization and Capitalism, 15th-18th Century, Vol. 1: The Structure of Everyday Life (Fernand Braudel)
Civilization and Capitalism, 15th-18th Century, Vol. 2: The Wheels of Commerce
Civilization and Capitalism, 15th-18th Century, Vol. 3: The Perspective of the World
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My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century. Read the first chapter for free (PDF)
