To explain the meaning of ‘Asian engagement’ and APEC regionalism under the Hawke and Keating ALP governments, I’m posting something I wrote back in 2003.
The near-simultaneous visits to Canberra of George W. Bush and Hu Jintao had prompted me to write a long essay (part 1, part 2, part 3) on Canberra’s attempts to straddle and exploit the dyadic competition between the hegemon and its challenger.
In a public speech given that October, Keating deplored the Howard government’s posture as ‘vicar of empire, or deputy of the United States’. He compared it unfavourably to the ‘multilateral regionalism’ of his own government.
But was it really possible to distinguish Keating’s ‘strategic promiscuity’ from Howard’s ‘realism’? And, if so, then what explained the apparent switch by Australian state elites from one stance to the other?
I wrote at the time:
October’s events in Canberra were not a pageant of Napoleonic bourgeois solidarity, but signs of an historical impasse. The issue of strategic orientation figures in all the semi-public theoretical models and policy discussions of Australian imperialism right now.
Last month former PM Paul Keating addressed a congress in Melbourne on ‘Australia’s Economic and Geopolitical Positioning’.
It is precisely because Keating is the avatar of Australia-in-Asia, of the integration of Australian state and capital within some fantasized Asian co-prosperity sphere, and in the geostrategic architecture of an ASEAN-type framework, that his views so clearly reveal the various underlying tensions and projects at the heart of the Australian state at a time of tectonic movements between Japan, China and the USA.
They do more than indicate an individual’s mindset: the joint visits of Bush and Hu saw a rash of ruling-class strategic daydreaming around altering Australia’s historical relationship with US imperialism.
Of course, Canberra cannot choose or decide to do anything, tied as it is by millions of economic, political and military threads to US strategy, unless there is first of all a substantive regional weakening of US hegemonic power, which could only come about through failure to compete with China…
While the world market and international financial architecture continue to function under US protection and political legitimation, then the Australian state and its capitalist firms continue to benefit as a regional power from access to markets and resources, maintained asset values, custodial military support and inward investment.
As a lesser regional power, Canberra depends upon the successful functioning and continued growth of the capitalist world market, and while it may have real interests and goals which strongly contradict those of the US, it is nonetheless committed to aiding, sponsoring and materially supporting US hegemony.
The same applies to larger rival states such as Japan, Germany and China.
This mechanism of internal social reproduction and external geopolitical regulation, whereby states acquire missions and operate in an imperial world system, serves as an efficient model of accumulation, and is the only alternative to revolutions and inter-imperialist wars.
The failure of the US-Australian alliance will only occur when internal social unrest interacts with external geopolitical realities to produce ruptures in the system.
What deeper currents lay beneath the shimmering, rippling surface appearances of Canberra’s foreign policy?
In the wake of the 1997-98 Asian financial crises, new entities like ASEAN Plus Three (China, Japan, the Republic of Korea along with the 10 ASEAN nations) and the Asia-Europe Meeting were created. These were supposed to allow regional coordination in the event of balance-of-payments and liquidity problems, thus easing dependence on the IMF for dollar borrowing.
Australia and the United States had deliberately been excluded from these bodies. Malaysian PM Mahathir had long suggested the creation of an East Asian Economic Caucus (‘caucus without Caucasians’).
The first major step towards breaking dependence on extra-regional funds and currencies came in 2000 with the Chiang Mai Initiative, a bilateral and multilateral currency-swap agreement concluded by ASEAN Plus Three finance ministers. This had followed a series of smaller bilateral swap facilities. The Singapore meeting of September 2000 announced the initial step on the road towards a 10+3 free trade agreement.
ASEAN Plus Three began developing into a key institution of East Asian organization and Chinese regional authority.
Beijing’s growing ability to exert political and diplomatic influence in regional capitals arose from its ability to offer credit and provide funds. This in turn derived from China’s own very strong balance-of-payments position as a powerful exporter with external capital controls.
Following the Manila heads of government meeting of November 1999, regional cooperation had acquired momentum and matured at a rate exceeding most expectations, through bodies such as the Shanghai Cooperation Organisation, Asia Cooperation Dialogue and the Boao Forum for Asia, some of which spoke of currency unification, until then an unthinkable proposition.
In November 2002 China signed several agreements with the ASEAN 10, including the Framework Agreement on Comprehensive Economic Cooperation Between ASEAN and the PRC, the Declaration on Conduct of Parties in the South China Sea, and the Joint Declaration on Cooperation in Non-Traditional Security Issues.
Further negotiations on sovereignty in the Spratly and Paracel islands involving the Philippines, Vietnam, Malaysia and Taiwan seemed likely to cement Chinese maritime control of the South China Sea, a key strategic, commercial and energy-supply zone.
In 2003, the ALP’s foreign policy spokesman, Kevin Rudd, called for the revival and reform of the APEC project. Rudd claimed to have ‘grave concern for our future trade and our future exports to these areas and therefore our future standard of living in this country’. He suggested that the Australian government needed to take up the APEC drive alongside Japan, as had occurred under former Labor PM Bob Hawke and, of course, his successor Paul Keating.
At the same time, the Sinophile Rudd reiterated the priority of the US ‘special relationship’, the base-rock of Australian imperialism, which anchored Canberra firmly (and perhaps finally) in the US geopolitical framework. Rudd would later return to this project as Prime Minister, in his plan for an Asia Pacific Community. This initiative provoked Washington’s hostility before Rudd’s sudden removal from office in June 2010.
One of the favourite images of ‘engagement’ mythology – popular at this time among critics of the Howard government – was Bob Hawke’s speech in Seoul in January 1989, in which he proposed ‘a more formal vehicle for regional co-operation’. This was to become APEC, an organization initiated mostly by diplomats from Australia and Japan’s Ministry of International Trade and Industry (MITI).
What was the nature of APEC? It allowed Australia and Japan to fulfil their special roles as US Trojan horses in the regional architecture, rather like Britain and some eastern European states do in the European Union (Washington encouraged London to join the European Community during the 1960s).
By implementing the US-sponsored economic reforms of the 1980s (e.g. removing capital controls and trade barriers), the Australian state had (unwittingly?) furthered the integration of domestic economic activity with northeast Asia.
Labor governments, under the stewardship of Hawke and Keating and the aegis of ‘consensus’, helped to liquidate Australia’s industrial base, deeming it ‘a completely uncompetitive lump of industrial archaeology’ (Keating).
With the withdrawal of subsidies and tariffs, manufacturing firms like CSR and the steelmaker BHP moved increasingly into minerals extraction and processing. (Mining, together with finance, had become the most internationalized industry in Australia from the late 1960s.) Manufacturing output collapsed to just 12% of GDP, amid mass unemployment, de-unionization and declining real wages.
Trade was thereafter structurally skewed towards Asian markets. East Asian and Southeast Asian firms displaced local steel producers, car makers, heavy engineering and clothing, textiles and footwear manufacturing, etc. This shifted the centre of gravity of Australian-based production toward agricultural and mining commodities and simply-transformed raw materials, with most of them exported to industrializing East Asian countries. By 1996, Japanese trading houses made up six of the ten largest exporting firms in Australia.
In a famous report to Prime Minister Hawke, Ross Garnaut spoke of the trade ‘complementarity’ resulting from the ‘northeast Asian ascendancy.’
This sectoral re-composition of the Australian economy, which reallocated labour between industries, also meant a change in the material form taken by the social surplus product (the output over and above that required to meet the consumption needs of producers), i.e. the visible embodiment of class power and appropriated wealth.
From the Hawke-Keating years onwards, a smaller portion of this surplus was embodied in capital goods: buildings, machinery, etc. Instead it increasingly took the form of luxury consumption goods and services (e.g. the grand harbourside house of Hawke himself) and unproductive expenditure on ‘financial services’, advertising, administration (which then took the form of new offices for financial institutions and law firms, the personal consumption of bankers), etc.
This was a more complex regional division of labour than might have appeared by looking merely at bilateral trade relationships.
Despite high rates of investment (recycled from retained earnings), wages were so low in China and ASEAN countries that the domestic market was not sufficient to absorb produced output. A large fraction of the Chinese surplus product was therefore appropriated by the propertied classes in external-deficit countries like Australia.
But a disproportionately large fraction of the Australian economy was devoted to unproductive activity like finance. So this capital could not be imported productively (i.e. funding investment in new plant and equipment). Therefore it was absorbed in the form of consumer credit, borrowed mostly on US and European financial markets, themselves made liquid by the currency reserves of Chinese and Japanese central banks. Unproductive consumption was financed by loan capital: external borrowing was a way to accommodate global trade imbalances, including the permanent export surpluses of China, Japan and Germany and the structural trade deficits of Australia, the US and Britain.
Meanwhile Tokyo lost its economic competition with Washington in the 1980s. Nixon’s abandonment of the Bretton Woods/gold convertibility system in the 1970s was followed by successive dollar devaluations in a bid to secure manufacturing competiveness. The competitive strategy of Japanese firms (along with those from the German federal republic) was to raise domestic labour productivity through increasing quantities of capital per worker, alongside technological advance and wage restraint.
The Japanese elite thus, for a time, made a virtue of necessity. They used the enforced deflationary consequences of high yen currency values as a mechanism to restructure domestic capital. They raised manufacturing quality and productivity, instead of themselves devaluing to avoid the loss of external markets.
The neo-mercantilist strategy led to a Japanese bubble which, despite the stock market crash of 1987 in New York and London, permitted Tokyo alone to maintain prices and keep world markets afloat long enough to prevent global depression. In fact, the Nikkei thereby took the strain of global reflation, and following the asset-price boom it paid the bill for Eighties excess. The Japanese bust of the Nineties was (until 2007) the biggest of them all.
At the same time, US capitalism garnered almost all the fruits of NATO victory in the Cold War. For decades the unstable situation of inter-imperialist rivalry and bitter battle for long-term economic supremacy, created by Washington’s refurbishment of Japanese (and West German) capitalism after 1945, had been contained within a framework of Cold War unity and alliance.
First as anti-communist glacis and client state, then as imperial rival, both the Japanese boom and bust were determined by Japan’s subordinate place as the anchor of US policy in Asia.
The collapse of Japanese competitiveness against the USA obliged future restructuring of the regional order in line with new realities.
This was calculated to prevent the future re-emergence of a potent competitor: China. It would fatally trap Japanese capital on an export-led platform (in case anyone in Tokyo considered a temporary 1930s-style autarkic withdrawal from the world market involving deficit spending, restructuration, rearmament and future forced re-entry through warfare and aggression).
The new arrangement would ideally bind the Japanese elite into even greater dependency than before, preventing them from forming a regional bloc independent of US capitalism and its strategic interests.
This was the story behind the founding and subsequent development of APEC, in which historians now consider the Japanese MITI to have been the initiator and key player, as opposed to the traditional Australian-centred view.
For several decades Japan’s stock of fixed capital (buildings, equipment, etc.) had grown at a much faster rate than its workforce, leading eventually to declining rates of return.
Japanese firms responded by looking abroad for profitable investment.
The country’s large trade surplus put it into a position to be a substantial capital exporter, converting dollar holdings into equity capital and building up a stock of overseas assets. Capital outflow increased from $US3 billion in 1975 to $US81 billion in 1985. Much of this was directed towards south-east Asia, leading to rapid development of the so-called Asian Tigers.
Tokyo’s initial plans to further East Asian integration, in line with its own imperial interests and plans for regional hegemony, were co-opted by the US agenda.
After strong US criticism of the proposed New AID plan for coordinating Japanese trade and investment in Asia, MITI considered a US-Japan free trade agreement to avoid a protectionist contest it could no longer win, before eventually proposing a multilateral network for regional economic co-operation in trade and investment. ie. for the implementation of GATT and the Uruguay Round, SAPs and trade liberalization.
Washington originally viewed the new arrangement as a typically effete and ineffectual creation, incapable of securing its own future. This stance changed as APEC grew in authority, allowing the region’s two subordinate imperial powers, Japan and Australia, to respectively act as the ‘northern and southern claws of the US crab’ and its strategic interests (as Beijing put it).
Through joint US-Japanese-Australian efforts, APEC quickly became a forum for structural reform and regional trade liberalization, with ministers agreeing at the 1990 meeting that ‘it was desirable to reduce barriers to investment and trade in goods and services among participants – and liberalization in a manner consistent with GATT principles’. Australia chaired the Informal Group on Regional Liberalization, which formed an eminent persons group with US economist Fred Bergsten as chairman and effective head of APEC. Through Bergsten’s aggressive direction, outlined in ‘A Vision of APEC’, the move to liberalization accelerated with the celebrated Bogor leaders’ summit in 1994, which agreed on a timetable for free trade and investment.
The Bogor summit was assuredly the zenith of APEC ‘new regionalism’, and probably the highpoint of Keating’s ‘Asian engagement’. Keating’s regionalist project involved a recognition that Japan was Australia’s ‘natural ally’, with a shared outlook on Asia-Pacific affairs based on the US alliance, common interests in security matters, an approach to free trade and the APEC partnership.
This was a remnant of Cold War geopolitical realities and the evolution of both Japanese and Australian economies, but also an aftershock from the collapse of Tokyo’s competition with the USA and declining regional power.
Japan became Australia’s largest trading partner in the 1970s, and the two states signed a Basic Treaty of Friendship and Cooperation in 1976, after three years of planning.
DFAT submitted a paper to a Senate inquiry into Japanese defence policy in 1992, stating that the two countries were the ‘southern and northern “anchors” of the Western alliance in the Western Pacific’. In line with this approach, Keating declared in a 1995 visit to sign the Joint Declaration on the Australia-Japan Partnership, that Australia was Japan’s only real regional partner, and that Japan should ‘take the reins of leadership’ in APEC.
From this perspective, Keating’s engagement followed a logic later shared by the Howard government. The latter’s 1997 White Paper described the Japanese relationship as ‘by far the most substantive and successful’, and called for the upgrading and consolidation of defence and security ties with Japan.
The Coalition government identified the US and Japan as the two most important strategic relationships in the rapidly shifting regional equation, which called for a US-Japan-Australia strategic triangle. Howard’s Foreign Minister Alexander Downer called for Japan to ‘enhance regional security and the security architecture’.
This merely continued the basic thrust of Keating’s regionalism, particularly its underlying anti-Chinese framework.
While Defence strategic planning after Howard’s victory declared that ‘it would not be in Australia’s interests for China’s growing power to result in a diminution of US strategic influence’, this was in no way distinctive or opposed to Keating’s earlier programme, which moved closer to Indonesia due to strategic concerns about China.
The focus of Keating’s ‘special relationship’ with Indonesia was to encourage closer engagement between Indonesia and the US alliance network in Asia-Pacific, ensuring that Australia and Indonesia were not pulled into China’s orbit.
This move culminated in the Australia-Indonesia Agreement on Maintaining Security, signed by Keating and Soeharto in 1995. This formalized a network of military and security arrangement, cooperative activities and regular consultation.
Keating leaned towards Indonesia as a buttress for regional security and Australia’s imperial sphere of influence: in his words, Australia did not want to be in the ‘Chinese orbit’ or the ‘pull of gravity of China’ (interestingly, Downer criticised these remarks).
Indonesia itself had always been concerned over China’s territorial claims in the South China Sea and Natuna Islands, and of course was home to general anti-Chinese chauvinism, resentment and repression. According to Keating, Indonesian foreign policy was defined by suspicion of China and its maritime capacity in the South China Sea.
Meanwhile Australia was anxious that Japan’s declining regional imperialism was destined to create a new Asian power-axis of Chinese economic and political dominance over Japan, and opposed to the US.
The 1994 Defence White Paper, ‘Defending Australia’, foreshadowed this change in the regional balance of power, with Chinese growth eventually surpassing Japan, forming a regional bloc which would rival the US and cause competitive conflict for markets and resources:
This will affect global power relationships and become a dominant factor in the strategic framework of Asia and the Pacific. Economic growth is already allowing China to increase its military capabilities, especially of its maritime forces.
Chinese displacement of the US as dominant regional power was in the script, and formed the basis of Australian strategic manoeuvring.
A DFAT report circulated in late 1995, leaked and published in the Fairfax press in January 1996, stated that China constituted the greatest security threat in the Asia-Pacific. Indonesia was in turn ‘our most important [relationship] in the region and a key element in Australia’s approach to regional defence engagement’.
Throughout the early to mid-Nineties, publications in the official journal of the Japanese Ministry of Foreign Affairs (Gaiko foramu) frequently echoed this general line, which was the basis of APEC partnership and the goal of creating an Australia-Japan negotiating axis within APEC and other multilateral forums.
Australia and Japan thus advocated the full ‘engagement’ of the US in the region, and participated as junior partners towards maintaining the successful function of American hegemony and its imperial world system, international trade and investment architecture, and the US-regulated world market.
Led of course by Washington’s Bergsten, APEC advocacy of structural adjustment and trade liberalization (along with the benefits of seigniorage, the IMF and other parastatal institutions) allowed North America to export its own accumulation crisis to Asia.
This strategy was inherently limited and self-defeating. The Washington Consensus and SAPs obliged wrenching, stressful change.
From the late 1990s this led to the complete collapse of societies and failure of states in the Asia-Pacific region. The loss of functional integrity experienced by the Melanesian states has been described as ‘the Africanization of the South Pacific.’
Meanwhile endemic deflationary pressures strangled Japanese growth in the 1990s. The symptoms of Japanese crisis – over-saving, deflation, high unemployment levels – were outcomes of an historical defeat, of internal social policies to increase productivity and export capacity, and of US offloaded costs.
They were the obverse to the US debt pyramid, with the emission of dollar-denominated liabilities forcing central banks to hoard dollars and reinvest them in US Treasury bills, reducing the available pool of capital elsewhere.
The Asian financial crisis, which began in July 1997, was caused by short-term foreign credit and overvalued fixed exchange rates, defended by foreign reserves which were rapidly drained, leading to devaluation, defaults on dollar debts, and sudden capital flight.
The meltdown was clear proof that Japan’s decline implied the ultimate failure of its regional authority, collaborative formations and political institutions. While intra-regional trade cooperation was strengthened throughout the 1990s, internal East Asian financial and investment flows were still light. There was no strong Asian debt or bond market, causing an over-reliance on short-term external loans denominated in foreign currencies. When lack of foreign exchange (mostly dollar) assets disturbed debt repayment and led to the devaluations and financial devastation of 1997-98, there was no regionally-aligned financing facility ready to provide liquidity.
In short, the Asian financial architecture was uncoordinated and underdeveloped, resulting in a vicious spiral of crisis.
Simultaneously, APEC began its terminal decline, as the strong US and Australian push for the Early Voluntary Sectoral Liberalization (EVSL) program, part of the ‘concerted liberalization’ mechanism, met Japanese opposition and broke down at the Kuala Lumpur summit.
With the onset of financial crisis, the Indonesian state apparatus showed signs of increasing disarray and limited custodial capacity for its resources, people, property rights and frontiers. Among other problems, this implied the possibility that Jakarta’s agreement with Canberra on development of the Timor Sea oil and gas fields could be nullified.
Acute generalized disorder presented itself to the imperialist ruling classes on many different fronts at once.
An underlying ‘arc of instability’, hitherto largely invisible, had seen whole regions slide stealthily off the economic map, with societal and state failure. All the efforts of Washington to privilege the unique weight and power of its economy had done nothing to resolve US problems, and everything to exacerbate them.
The devastating blow dealt to the idle dreams and pretensions of hegemonic rivals such as Japan, the overheads of crisis exported to global economic extremities, had only creating wastelands of despair and turmoil, intensified contradictions and produced evolving multiform crises whose blowback-effect now threatened the geopolitical formations of the US late-imperial system.
Suddenly an abyss had opened at the feet of the ruling classes, generating political incoherence, confusion and loss of strategic direction.
Behind the hypnotic repetition of mindless apologetics and delusional mantras, the soft words of its diplomats and academics, the liturgy of neoliberalism – with its polite talk of reforms, open markets and global democratic freedom – foundered abruptly as its intellectual models and practical policies faced grim new challenges.
It was time to stop the rot and reconstruct the framework of imperialism in Southeast Asia, to restabilize strategic positions there before rivals (above all Beijing) rushed in to fill the vacuum with promises of development aid and long-term investment. In this abrupt change of direction, vestigial international structures without real power or influence were discarded: the choices were now incalculably starker, and couldn’t be left to social-democratic wimps and their faint-hearted multilateralism.
This is the meaning of the so-called Howard Doctrine as it was implemented from 1999, through military and police interventions (‘stability operations’) in East Timor, the Solomon Islands and Papua New Guinea.
In Fred Benchley’s notorious 1999 interview with John Howard in the Bulletin, the Prime Minister apparently described Australia as Washington’s ‘deputy sheriff’ in the southwest Pacific and southeast Asia. According to the PM, the INTERFET operation in East Timor was a ‘turning point in external relations’, with Australia responsibly acting ‘above and beyond its immediate interests’, bringing into play its ‘unique characteristics as a Western country in Asia – with strong links to North America’.
The ‘arc of instability’ (a favoured term of Rudd’s) forced Australia to become ‘the strong man of Asia’, with a large scope for war-preparation, undisguised repression and the political reconstruction of alliances and coalitions of interest.
These were political methods of last resort, which state breakdown and basic disequilibria in the peripheries made both desirable and necessary. Thus future restructuring of the global or regional order demanded the creation of a new Asia-Pacific power-axis.
This meant colonial intervention in the peripheries and reassumption of the ‘White Man’s Burden’ of colonial administration by US-aligned states like Australia and New Zealand.
Nonetheless, the Howard Doctrine only arose because history had temporarily closed off all options for the Australian ruling elite. Despite the long-run systemic disarray of US hegemony, there had been as yet no successful historical move for Asian economic integration and the definitive emergence of a powerful Asian politico-military competitor to the US.
In these profoundly constraining historical circumstances – with the current absence, yet with the looming possibility, of a powerful centralized East Asian state gaining strategic and economic domination of Asia as a whole, saturating its markets and controlling its skies, sealanes and information networks, and ending US unicentric financial domination – Canberra became ever more tightly aligned with Washington.
Kevin Rudd’s suggested APEC solution therefore suffered from the fatal combination of being both too much and too little.
It was impossible to remake the utterly anachronistic APEC omelette, which was at any rate an institution of US regional hegemony, not some assertion of ‘independence’ from Washington.
At the same time, avoidance of full-scale Australian participation in US adventures was politically unacceptable to Washington in the epoch of its decline (‘You are either with us or against us’) and would be regarded as the passive, effeminate, perfidious action of an unreliable subordinate obviously in need of constant supervision. [So it seems to have turned out for Rudd in 2010!]
Any Australian government that tried this trick would get smacked over the head with a balance of payments crisis, while imperilling the bilateral security cooperation which is the basis of subimperial strategic planning and Canberra’s main source of advanced military technology (the information network arising from the UKUSA agreement is also the technical basis for Australian signals intelligence and geospatial imagery).
The claim that Australia ‘can have a thoroughly robust alliance with the US while pursuing an independent policy of engagement with Asia’, because ‘foreign policy is not a zero-sum game’, ignored the inevitable fate of the US-regulated world market, in which competitive conflict underlies the lesser powers’ overt support for the hegemon.
What would happen when a downturn cut short growth trends, and when systemic breakdown and crises of international markets and finance capital stifled international trade and investment flows?
The fragmented regional blocs (EU, East Asia), which were economic and political rivals of the US, would be forced into autarkic restructuration and remilitarization. As the regional architecture was rebuilt, possibly under Chinese hegemony, some fractions of Australian capital and state would evolve a position of overt opposition to the USA, despite fear of what a vengeful US could still do. Some political wing, most likely the ALP, would then take up this cause, draped in the finery of the ‘national interest’, i.e. whatever it took to preserve capitalist property relations in Australia.
Their principal source of demographic support would nonetheless come from various non-bourgeois social layers, stung by the collapse of the US Ponzi scheme and the global debt pyramid… Such a vicious collapse would surely elicit a minimum of popular resistance, cause internal unrest and threaten social peace, even from the cowed population that vocally supports the chauvinist hysteria of the Howard regime.
This open crisis would expose the hitherto latent and concealed contradictions between the Australian propertied classes and the US elite.
Manipulation of public attitudes and mass consciousness has been sufficiently refined by the ruling class to build on a small but established base-rock of anti-American chauvinism, if necessary. The nationalism of the Australian Greens may be useful here, though the party has nurtured an even more virulent Sinophobia.
Howard and the more canny members of the Australian ruling class do not really base their ad-hoc international Realpolitik on ‘special relationships’, but through an ideological prism of ‘the national interest’ and tactical blocs dictated only by short-run advantage. Howard will anyhow be long gone before the occasion of a split and strategic reorientation, replaced by a more suitable figure.
While the panjandrums will continue to inexorably press ahead on all fronts until they are confident of achieving both short-term and long-term aims, which means aligning with the United States for now, Australian sub-imperialism is ultimately confronted with an impasse, and the possibility of being destroyed in future competitive conflict between East Asia and the US. For the moment they cling feebly to the thesis of complementarity, mutual dependency, ‘international community’ and generalized bourgeois law and right.
That is, they speak as if paid-up Chinese membership in the capitalist club will prevent regional conflict and geopolitical crises.
Keating’s position reveals the truth behind this evasion.
The kinds of policies he recommends, while superficially innocuous (going for RMB revaluation, China satisfying domestic demand more etc.) are potentially devastating to US rentier-imperialism, whose predicament mirrors that of late c19 Britain: while controlling global money, and possessing military force-of-last resort, the hegemon is comparatively uncompetitive relative to rivals experiencing intensive, deflationary productivity growth.
China may indeed abandon the export-led path and transfer production towards satisfying the domestic market, as Keating predicts: Wen Jiabao has recently foreshadowed this long-term reorientation, which emerged officially if not in reality in the ninth and tenth Five-year Plans (1996-2000 and 2001-2005). Feldman and Xie suggest this has already occurred if we integrate mainland and Hong Kong trade data into a single unit.
It is nonetheless unlikely to initiate such a move.
The US, with its own wild external deficit, should eventually try to rebalance its economy through out-competing its trade rivals in export markets. Such a move would imply a massive reduction in US consumption levels and a slump in global demand, hitting major exporters such as China. Despite the blather about US productivity gains and the New Economy, China surely has the competitive edge in any such conflict, which would not be the beneficent positive-sum struggle of Keating’s neoliberal lore.
Rather, the scenario suggests the fragmentation of the world market amidst a turbulent deflationary spiral of protectionism, currency devaluations and militarization, of profit crises, mass unemployment and colonial redivisions of markets and resources.
Readjustment of Chinese production and the industrial base towards domestic demand entails economic war with the US, a restructuration of Asian economic and political space, and in turn an ineluctable step-change for Australia.
China’s pretensions for regional dominance may appear strong, but it would have to ride the tiger of its own internal contradictions, with real potential for demographic, agricultural and ecological catastrophe.
Since re-entering the capitalist world market, Chinese development has continued the traditional trajectory of Chinese development, centred on an axis embracing Shanghai, Jiangsu and Guangdong’s Pearl River Delta. The eastern coastal provinces have historically been tied in closely with the world market, both functionally through transport links and structurally through the interlinking of domestic Chinese capital, diasporic investors and foreign finance capital.
Recent decades have seen a demographic wave of displacement from the Chinese countryside towards the cities and towns, correlating to the law of combined and uneven development, which drains out peripheries and concentrates development and populations around poles of accumulation. Beijing’s scheme to increase effective demand by tilting the economic axis towards innercontinental development in the northern and western hinterlands (Sichuan, Yunnan etc – the ‘West China Plan’ itself has received RMB 600 billion in investment over two years) may well combine with interethnic conflict, the rural strains of WTO accession, tidal immigration and the fate of state-owned enterprises in the Northeastern rustbelt to threaten internal stability and external relations with adjacent neighbours: South Asia, Russia, Central Asia and the menace of US bases beyond Tien Shan.
Continued growth will eventually – rather soon – come up against ecological and resource limit-points. These factors mitigate against the possibility of any true imperial succession with China supplanting US global hegemony. They increase the likelihood of prolonged global turmoil punctuated by war and revolution.
Possible outcomes include deepening systemic disarray and outright endgame of the capitalist world economy, a cul-de-sac from which there will be no escape.
It is clear that the United States must maintain its pre-eminent position, and cannot voluntarily cease to be world hegemon: its productive forces are too irrational and geared to military-industrial requirements to allow anything else, while 400 years have effectively exhausted the raw materials and energy resource base of the Americas.
Meanwhile the US government’s Energy Information Administration predicts that China will consume oil at the rate of 10.5 million barrels per day by 2020, indicating that it will eventually oppose US strategic manoeuvring and cut its own deal with Middle Eastern energy suppliers.
The short-term outcome to this stalemate – along with the fate of the dollar and the priceless benefits of seigniorage – is being decided in Iraq.