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Cold War II?

February 18th, 2010

After two decades of global supremacy, the United States’ role as the world’s only superpower is about to be challenged. China – with a nuclear arsenal, the world’s largest standing army and the second largest economy – has the potential to create the same type of bipolar power structure that existed between the Soviet Union and the United States during the Cold War.  

Already, China has begun throwing its weight around the international community, frustrating the United States by resisting calls for harsher United Nations sanctions on Iran and blocking attempts to set national emissions targets at the global climate summit last December. 

Is this combination of growing Chinese power and confidence setting the stage for “Cold War II”?

Perhaps, but barring any changes in China’s political system, the United States shouldn’t be too worried. Just like the Soviet Union, China has set itself up for failure. 

To understand why, you first have to look at the history of China and the Soviet Union in the 20th century. Just like the world wars destroyed the Russian economy, China’s experimentation with communism under Mao Zedong in the 1950s and 1960s wiped out its economy completely. When both of these countries began their recoveries, they basically had to start from scratch. 

At the same time, however, both had a massive amount of undeveloped natural resources and raw materials at their disposal. This is how the Soviet economy was able to keep up with the U.S. during the Cold War. It’s also how China’s economy was able to grow by over eight percent last year while the U.S. economy, battered by the global recession, shrank by two percent. Simply put, if you can increase economic inputs, then you increase economic output, or growth.

But the thing about this strategy, which economists call “extensive growth,” is that it’s not sustainable. Each economy only has a limited amount of natural resources and raw materials that it can use. Once it’s utilizing all its inputs, it must rely on increases in efficiency (i.e. doing more with less, which economists call “intensive growth”) to expand economically. The Soviet Union reached its limit of extensive growth in the 1980s and was unable to foster intensive growth. Why? Authoritarianism. A government cannot promote economic ingenuity and suppress freedom of thought at the same time. As a result, its economy stagnated and the Soviet Union collapsed. 

China also has an authoritarian government. It doesn’t respect its citizens’ right to privacy and effectively bans freedom of speech and press. So although it hasn’t yet reached its limits of extensive growth, when it does, it will stagnate just like the Soviet Union – unless, of course, it democratizes. And by democratize, I don’t just mean have elections. It must also respect basic human rights and liberties. Only then will it create a favorable environment for sustainable economic growth, and only then will China be able to compete as an equal to the United States.