The Paranoia Spreads

An opinion piece from John Hall, senior Washington correspondent of Media General News Service, 6 August 2005 on the Unocal Corp aborted take-over by CNOOC, the Chinese national oil company begins to lay out its potential consequences.

The tone reminds me of my Cold War years spent studying defence economics and the economics of war. In particular, I am minded of the fascinating research done by Professor A. F. K. Organski and his colleague Jacek Kugler which produced “The War Ledger” (University of Chicago Press, 1980), an attempt to measure why international wars happened, how they ended and the relevance of the research for the nuclear stand-off between the Soviet Union and the USA.

Are others from that era dusting down their old textbooks, research papers and notes from the symposia they attended on both sides of the Atlantic? I hope it remains nostalgia and not the beginning of a return to the study of general war in the 21st century.

Among the Organski and Kugler findings from data starting in the late 19th century through to the 1980s is that wars are more likely to become a possibility when two nations, one powerful and the other very much an underdog in global power terms. Their designation of this most dangerous episode in their relations is in the period (perhaps lasting twenty years) when the underdog nation grows rapidly and begins to threaten to overtake the powerful nation in GNP. This produces the instability that makes the large nation’s elite sensitive to a ill-defined threat from the overtaker. Of course, it is all a lot more complicated than just that, but you can see the flavour of their model of the causes of war. Read the book.

Hall sees the fallout from the current Chinese headlong boom leaning towards heightened tension against the USA around the world; in foreign policy terms there is much in dispute – Iraq, Korea, Taiwan – and in domestic terms there is China’s abysmal human rights situation, the communist system of tyrannical government. Given China’s spirited exhibition of flaunting its independent voice in international affairs, its access to the UN Security Council with its veto as a permanent member, there will be plenty of occasions to irritate the USA government, media and electorate.

Yet China is a long, long way from overtaking USA GDP, the supposed trigger of dangerous drifts to war. Its headlong expansion of its military capability looks worse than it is because of the low base from whence it starts. But, as I have noted here before, the image is enough to put sections of the media and individual political leaders into ‘panic’ and ‘paranoia already.

And that is the danger of the distant drumbeats of protectionism. Is it the perceived threats that promote protectionism or protectionism that promotes threats?

To quote Hall:

“China's phenomenal industrial growth and its dizzying dash towards prosperity have made it the world's second-largest consumer of oil and third-largest importer. This growth has happened almost overnight, but it has been accomplished without much political liberty. And China's wealth has been accompanied by a buildup in military might that so far has not been explained by any real threat to China's security”

Which leads Hall to:

“China could retaliate by cashing in the huge wad of American debt it is holding, which is supposedly sustaining an American housing-mortgage bubble of stupendous proportion. It could also begin turning its back on American investors and giving better terms to competitors in other countries.”

And so it goes on. Theoretical Tit-for-Tat exchanges feed the ever resident paranoia – ‘fight ‘em now or we fight then in California’, the home state of Unocal Corp, etc.

Hall writes:

“The United States is known far and wide as a country that believes in open markets and practices what it believes. It is headed by a conservative president and its Congress is dominated by Republicans. The Adam Smith necktie is still a major fashion statement.”Yet if this was true (and I have my doubts), the reaction to the attempted Unocal purchase by China would not have been so virulent. Where were the wearers of the ‘fashion statement’ during these months?

But, of course, fashion is a fickle mistress.