Tue, Apr 19, 2005 page8

• How economic superpowers rise

  • By Harold James
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  Anti-Japanese riots across China have heightened tensions in Asia. Indeed China-mania, a mixture of hopes, but mostly fears, is sweeping the world due to China's rapid economic rise. Should the world really be more fearful than hopeful?

  Americans fear their markets being flooded by Chinese goods. Mexico, Brazil, Central Europe, Indonesia and even Sri Lanka are worried about competition from lower wages. Europeans may be more cheerful, believing that the Chinese market will open not only for European engineering products and machine tools to equip the new workshop of the world, but also for luxury goods and even the tourism demanded by a new and affluent Chinese middle class. Everyone feels that a seismic shift is under way.

  Such rapid industrial rises are rare, but not unprecedented. The most interesting analogies are Germany's rise in the 19th century and Japan's in the 20th.

  Even prior to that time, England was the economic wunderkind of Europe. What had been an offshore European island with bad weather emerged as the world's major economy, whose products, from textiles to railroad equipment, came to dominate world markets. England was a pioneer in industrialization and was deeply shocked by the presumption of newcomers who soon entered the same stage.

  By the end of the 19th century, however, Germany, with much lower wages levels, had overtaken England in steel production, and was clearly dominant in the new technologies of electrical goods, chemicals and dyes, as well as in many aspects of fine engineering. But Germany also swamped world markets with mass-consumption goods: cheaper musical instruments than the traditional makers in France or Italy could produce, and lithographic prints used for Christmas cards and seaside postcards.

  Indeed, German products were omnipresent. When an irate British writer, E.E. Williams, wrote a protest entitled Made in Germany, he began by recording his discomfort that the pencil he was using was a German product as well.

  The "Made in Germany" scare of the late 19th century foreshadowed the reaction in the US to Japan's industrial success in the 1960s and 1970s. Americans were frightened by Japanese consumer products -- TVs, which wiped out domestic production, and automobiles, which seemed so malignly efficient.

  In both the German and the Japanese cases, the existing industrial powers complained that there was some sort of nefarious and unfair mechanism behind the newcomer's advantages. Such explanations included government intervention or a new sort of industrial organization, and unfair patent infringements by the new producers who copied products and then blocked off their own markets from import competition.

  But the economics of the rise of industrial Germany and Japan should hold comforting lessons for us today. The fears were misplaced, because the world benefited from cheaper and more readily available products. Thanks to German manufacturers, pianos were no longer restricted to aristocratic salons or the professional middle class, but began appearing in respectable working-class homes. Thanks to Japanese car producers, US manufacturers learned to produce more efficiently and competitively.?

  The classical liberal free-trade argument about the universal economic benefits of greater commerce and open markets proved to be unambiguously correct. It did not matter that the catch-up countries' economic "miracles" were produced in part by illiberal policies guided by government bureaucracies. The outcome was an endorsement of the lessons of economic liberalism.

  But changing economic balances also lead to changing political balances. At the moment, it looks as if there is nothing to fear from China. Like Germany in the mid-19th century, or Japan in the 1960s, China sees many advantages in participating in the international order more or less as it is currently configured.

  Can this change? Germany certainly became assertive, owing mostly to the social pressures and tensions incited by rapid economic growth. When it feared that it might be overtaken by the next rising economic power, the vast Russian empire, assertiveness turned into aggression. By the early 20th century, Germans had concluded that Russia's faster demographic growth and industrialization posed a military threat.

  China can already see considerable problems in the medium term. In 40 years, a demographic implosion within China, the consequence of its one-child policy, will make European and Japanese concerns about aging populations look trivial.

  Before then, profound inequalities between China's poor countryside and its dynamic industrial centers will generate tensions, which may be increased by the gender imbalance -- young men greatly outnumber young women. Combine this with a tottering authoritarian regime, and something like the pre-1914 German scenario looks realistic.

  A government impressed by past national achievement, but fearful of being overtaken and deeply worried about its own legitimacy, is likely to look for an outlet in foreign policy to mobilize domestic support or ward off opposition.

  So there is no need for a strategy to deal with China's economic rise; but there is a need to lock in China's prosperity and reduce the chances of political eruption.

  Japan in the second half of the 20th century had stable politics, due in large part to a good Constitution and democratic institutions. If China is to avoid the fate of early 20th century Germany, it must bolster modernization with constitutional and political reform.

  Harold James is a professor of history at Princeton University and author of The End of Globalization: Lessons from the Great Depression.

  Copyright: Project Syndicate
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