Which superpower is more threatened by its “extractive elites”?
By Ron Unz | April 18, 2012
The rise of China surely ranks among the most important world
developments of the last 100 years. With America still trapped in its
fifth year of economic hardship, and the Chinese economy poised to
surpass our own before the end of this decade, China looms very large on
the horizon. We are living in the early years of what journalists once
dubbed “The Pacific Century,” yet there are worrisome signs it may
instead become known as “The Chinese Century.”
But does the Chinese giant have feet of clay? In a recently published book, Why Nations Fail,
economists Daron Acemoglu and James A. Robinson characterize China’s
ruling elites as “extractive”—parasitic and corrupt—and predict that
Chinese economic growth will soon falter and decline, while America’s
“inclusive” governing institutions have taken us from strength to
strength. They argue that a country governed as a one-party state,
without the free media or checks and balances of our own democratic
system, cannot long prosper in the modern world. The glowing tributes
this book has received from a vast array of America’s most prominent
public intellectuals, including six Nobel laureates in economics,
testifies to the widespread popularity of this optimistic message.
Yet do the facts about China and America really warrant this conclusion?
China Shakes the World
By the late 1970s, three decades of Communist central planning had
managed to increase China’s production at a respectable rate, but with
tremendous fits and starts, and often at a terrible cost: 35 million or
more Chinese had starved to death during the disastrous 1959–1961 famine
caused by Mao’s forced industrialization policy of the Great Leap
Forward.
China’s population had also grown very rapidly during this period, so
the typical standard of living had improved only slightly, perhaps 2
percent per year between 1958 and 1978, and this from an extremely low
base. Adjusted for purchasing power, most Chinese in 1980 had an income
60–70 percent below that of the citizens in other major Third World
countries such as Indonesia, Nigeria, Pakistan, and Kenya, none of which
were considered great economic success stories. In those days, even
Haitians were far wealthier than Chinese.
All this began to change very rapidly once Deng Xiaoping initiated
his free-market reforms in 1978, first throughout the countryside and
eventually in the smaller industrial enterprises of the coastal
provinces. By 1985, The Economist ran a cover story praising
China’s 700,000,000 peasants for having doubled their agricultural
production in just seven years, an achievement almost unprecedented in
world history. Meanwhile, China’s newly adopted one-child policy,
despite its considerable unpopularity, had sharply reduced population
growth rates in a country possessing relatively little arable land.
A combination of slowing population growth and rapidly accelerating
economic output has obvious implications for national prosperity. During
the three decades to 2010, China achieved perhaps the most rapid
sustained rate of economic development in the history of the human
species, with its real economy growing almost 40-fold between 1978 and
2010. In 1978, America’s economy was 15 times larger, but according to
most international estimates, China is now set to surpass America’s
total economic output within just another few years.
Furthermore, the vast majority of China’s newly created economic
wealth has flowed to ordinary Chinese workers, who have moved from oxen
and bicycles to the verge of automobiles in just a single generation.
While median American incomes have been stagnant for almost forty years,
those in China have nearly doubled every decade, with the real wages of
workers outside the farm-sector rising about 150 percent over the last
ten years alone. The Chinese of 1980 were desperately poor compared to
Pakistanis, Nigerians, or Kenyans; but today, they are several times
wealthier, representing more than a tenfold shift in relative income.
A World Bank report recently highlighted the huge drop in global
poverty rates from 1980 to 2008, but critics noted that over 100 percent
of that decline came from China alone: the number of Chinese living in
dire poverty fell by a remarkable 662 million, while the impoverished
population in the rest of the world actually rose by 13 million. And
although India is often paired with China in the Western media, a large
fraction of Indians have actually grown poorer over time. The bottom
half of India’s still rapidly growing population has seen its daily
caloric intake steadily decline for the last 30 years, with half of all
children under five now being malnourished.
China’s economic progress is especially impressive when matched
against historical parallels. Between 1870 and 1900, America enjoyed
unprecedented industrial expansion, such that even Karl Marx and his
followers began to doubt that a Communist revolution would be necessary
or even possible in a country whose people were achieving such widely
shared prosperity through capitalistic expansion. During those 30 years
America’s real per capita income grew by 100 percent. But over the last
30 years, real per capita income in China has grown by more than 1,300
percent.
Over the last decade alone, China quadrupled its industrial output,
which is now comparable to that of the U.S. In the crucial sector of
automobiles, China raised its production ninefold, from 2 million cars
in 2000 to 18 million in 2010, a figure now greater than the combined
totals for America and Japan. China accounted for fully 85 percent of
the total world increase in auto manufacturing during that decade.
It is true that many of China’s highest-tech exports are more
apparent than real. Nearly all Apple’s iPhones and iPads come from
China, but this is largely due to the use of cheap Chinese labor for
final assembly, with just 4 percent of the value added in those
world-leading items being Chinese. This distorts Chinese trade
statistics, leading to unnecessary friction. However, some high-tech
China exports are indeed fully Chinese, notably those of Huawei, which
now ranks alongside Sweden’s Ericsson as one of the world’s two leading
telecommunications manufacturers, while once powerful North American
competitors such Lucent-Alcatel and Nortel have fallen into steep
decline or even bankruptcy. And although America originally pioneered
the Human Genome Project, the Beijing Genomics Institute (BGI) today
probably stands as the world leader in that enormously important
emerging scientific field.
China’s recent rise should hardly surprise us. For most of the last
3,000 years, China together with the Mediterranean world and its
adjoining European peninsula have constituted the two greatest world
centers of technological and economic progress. During the 13th century,
Marco Polo traveled from his native Venice to the Chinese Empire and
described the latter as vastly wealthier and more advanced than any
European country. As late as the 18th century, many leading European
philosophers such as Voltaire often looked to Chinese society as an
intellectual exemplar, while both the British and the Prussians used the
Chinese mandarinate as their model for establishing a meritocratic
civil service based on competitive examinations.
Even a century ago, near the nadir of China’s later weakness and
decay, some of America’s foremost public intellectuals, such as Edward
A. Ross and Lothrop Stoddard, boldly predicted the forthcoming
restoration of the Chinese nation to global influence, the former with
equanimity and the latter with serious concern. Indeed, Stoddard argued
that only three major inventions effectively separated the world of
classical antiquity from that of 18th-century Europe—gunpowder, the
mariner’s compass, and the printing press. All three seem to have first
appeared in China, though for various social, political, and ideological
reasons, none were properly implemented.
Does China’s rise necessarily imply America’s decline? Not at all:
human economic progress is not a zero-sum game. Under the right
circumstances, the rapid development of one large country should tend to
improve living standards for the rest of the world.
This is most obvious for those nations whose economic strengths
directly complement those of a growing China. Massive industrial
expansion clearly requires a similar increase in raw-material
consumption, and China is now the world’s largest producer and user of
electricity, concrete, steel, and many other basic materials, with its
iron-ore imports surging by a factor of ten between 2000 and 2011. This
has driven huge increases in the costs of most commodities; for example,
copper’s world price rose more than eightfold during the last decade.
As a direct consequence, these years have generally been very good ones
for the economies of countries that heavily rely upon the export of
natural resources—Australia, Russia, Brazil, Saudi Arabia, and parts of
Africa.
Meanwhile, as China’s growth gradually doubles total world industrial
production, the resulting “China price” reduces the cost of
manufactured goods, making them much more easily affordable to everyone,
and thereby greatly increases the global standard of living. While this
process may negatively impact those particular industries and countries
directly competing with China, it provides enormous opportunities as
well, not merely to the aforementioned raw-material suppliers but also
to countries like Germany, whose advanced equipment and machine tools
have found a huge Chinese market, thereby helping to reduce German
unemployment to the lowest level in 20 years.
And as ordinary Chinese grow wealthier, they provide a larger market
as well for the goods and services of leading Western companies, ranging
from fast-food chains to consumer products to luxury goods. Chinese
workers not only assemble Apple’s iPhones and iPads, but are also very
eager to purchase them, and China has now become that company’s second
largest market, with nearly all of the extravagant profit margins
flowing back to its American owners and employees. In 2011 General
Motors sold more cars in China than in the U.S., and that rapidly
growing market became a crucial factor in the survival of an iconic
American corporation. China has become the third largest market in the
world for McDonald’s, and the main driver of global profits for the
American parent company of Pizza Hut, Taco Bell, and KFC.
Social Costs of a Rapid Rise
Transforming a country in little more than a single generation from a
land of nearly a billion peasants to one of nearly a billion
city-dwellers is no easy task, and such a breakneck pace of industrial
and economic development inevitably leads to substantial social costs.
Chinese urban pollution is among the worst in the world, and traffic is
rapidly heading toward that same point. China now contains the second
largest number of billionaires after America, together with more than a
million dollar-millionaires, and although many of these individuals came
by their fortunes honestly, many others did not. Official corruption is
a leading source of popular resentment against the various levels of
Chinese government, ranging from local village councils to the highest
officials in Beijing.
But we must maintain a proper sense of proportion. As someone who
grew up in Los Angeles when it still had the most notorious smog in
America, I recognize that such trends can be reversed with time and
money, and indeed the Chinese government has expressed intense interest
in the emerging technology of non-polluting electric cars. Rapidly
growing national wealth can be deployed to solve many problems.
Similarly, plutocrats who grow rich through friends in high places or
even outright corruption are easier to tolerate when a rising tide is
rapidly lifting all boats. Ordinary Chinese workers have increased their
real income by well over 1,000 percent in recent decades, while the
corresponding figure for most American workers has been close to zero.
If typical American wages were doubling every decade, there would be far
less anger in our own society directed against the “One Percent.”
Indeed, under the standard GINI index used to measure wealth inequality,
China’s score is not particularly high, being roughly the same as that
of the United States, though certainly indicating greater inequality
than most of the social democracies of Western Europe.
Many American pundits and politicians still focus their attention on
the tragic Tiananmen Square incident of 1989, during which hundreds of
determined Chinese protesters were massacred by government troops. But
although that event loomed very large at the time, in hindsight it
generated merely a blip in the upward trajectory of China’s development
and today seems virtually forgotten among ordinary Chinese, whose real
incomes have increased several-fold in the quarter century since then.
Much of the Tiananmen protest had been driven by popular outrage at
government corruption, and certainly there have been additional major
scandals in recent years, often heavily splashed across the pages of
America’s leading newspapers. But a closer examination paints a more
nuanced picture, especially when contrasted with America’s own
situation.
For example, over the last few years one of the most ambitious
Chinese projects has been a plan to create the world’s largest and most
advanced network of high-speed rail transport, an effort that absorbed a
remarkable $200 billion of government investment. The result was the
construction of over 6,000 miles of track, a total probably now greater
than that of all the world’s other nations combined. Unfortunately, this
project also involved considerable corruption, as was widely reported
in the world media, which estimated that hundreds of millions of dollars
had been misappropriated through bribery and graft. This scandal
eventually led to the arrest or removal of numerous government
officials, notably including China’s powerful Railways Minister.
Obviously such serious corruption would seem horrifying in a country
with the pristine standards of a Sweden or a Norway. But based on the
published accounts, it appears that the funds diverted amounted to
perhaps as little as 0.2 percent of the total, with the remaining 99.8
percent generally spent as intended. So serious corruption
notwithstanding, the project succeeded and China does indeed now possess
the world’s largest and most advanced network of high-speed rail,
constructed almost entirely in the last five or six years.
Meanwhile, America has no high-speed rail whatsoever, despite decades
of debate and vast amounts of time and money spent on lobbying,
hearings, political campaigns, planning efforts, and
environmental-impact reports. China’s high-speed rail system may be far
from perfect, but it actually exists, while America’s does not. Annual
Chinese ridership now totals over 25 million trips per year, and
although an occasional disaster—such as the 2011 crash in Weizhou, which
killed 40 passengers—is tragic, it is hardly unexpected. After all,
America’s aging low-speed trains are not exempt from similar calamities,
as we saw in the 2008 Chatsworth crash that killed 25 in California.
For many years Western journalists regularly reported that the
dismantling of China’s old Maoist system of government-guaranteed
healthcare had led to serious social stresses, forcing ordinary workers
to save an unreasonable fraction of their salaries to pay for medical
treatment if they or their families became ill. But over the last couple
of years, the government has taken major steps to reduce this problem
by establishing a national healthcare insurance system whose coverage
now extends to 95 percent or so of the total population, a far better
ratio than is found in wealthy America and at a tiny fraction of the
cost. Once again, competent leaders with access to growing national
wealth can effectively solve these sorts of major social problems.
Although Chinese cities have negligible crime and are almost entirely
free of the horrible slums found in many rapidly urbanizing Third World
countries, housing for ordinary workers is often quite inadequate. But
national concerns over rising unemployment due to the global recession
gave the government a perfect opportunity late last year to announce a
bold plan to construct over 35 million modern new government apartments,
which would then be provided to ordinary workers on a subsidized basis.
All of this follows the pattern of Lee Kwan Yew’s mixed-development
model, combining state socialism and free enterprise, which raised
Singapore’s people from the desperate, abject poverty of 1945 to a
standard of living now considerably higher than that of most Europeans
or Americans, including a per capita GDP almost $12,000 above that of
the United States. Obviously, implementing such a program for the
world’s largest population and on a continental scale is far more
challenging than doing so in a tiny city-state with a population of a
few million and inherited British colonial institutions, but so far
China has done very well in confounding its skeptics.
America’s Economic Decline
These facts do not provide much evidence for the thesis in Why Nations Fail
that China’s leaders constitute a self-serving and venal “extractive”
elite. Unfortunately, such indications seem far more apparent when we
direct our gaze inward, toward the recent economic and social trajectory
of our own country
Against the backdrop of remarkable Chinese progress, America mostly
presents a very gloomy picture. Certainly America’s top engineers and
entrepreneurs have created many of the world’s most important
technologies, sometimes becoming enormously wealthy in the process. But
these economic successes are not typical nor have their benefits been
widely distributed. Over the last 40 years, a large majority of American
workers have seen their real incomes stagnate or decline.
Meanwhile, the rapid concentration of American wealth continues
apace: the richest 1 percent of America’s population now holds as much
net wealth as the bottom 90–95 percent, and these trend may even be
accelerating. A recent study revealed that during our supposed recovery
of the last couple of years, 93 percent of the total increase in
national income went to the top 1 percent, with an astonishing 37
percent being captured by just the wealthiest 0.01 percent of the
population, 15,000 households in a nation of well over 300 million
people.
Evidence for the long-term decline in our economic circumstances is
most apparent when we consider the situation of younger Americans. The
national media endlessly trumpets the tiny number of youthful Facebook
millionaires, but the prospects for most of their contemporaries are
actually quite grim. According to research from the Pew Center, barely
half of 18- to 24-year-old Americans are currently employed, the lowest
level since 1948, a time long before most women had joined the labor
force. Nearly one-fifth of young men age 25–34 are still living with
their parents, while the wealth of all households headed by those
younger than 35 is 68 percent lower today than it was in 1984.
The total outstanding amount of non-dischargeable student-loan debt
has crossed the trillion-dollar mark, now surpassing the combined total
of credit-card and auto-loan debt—and with a quarter of all student-loan
payers now delinquent, there are worrisome indicators that much of it
will remain a permanent burden, reducing many millions to long-term debt
peonage. A huge swath of America’s younger generation seems completely
impoverished, and likely to remain so.
International trade statistics, meanwhile, demonstrate that although
Apple and Google are doing quite well, our overall economy is not. For
many years now our largest goods export has been government IOUs, whose
dollar value has sometimes been greater than that of the next ten
categories combined. At some point, perhaps sooner than we think, the
rest of the world will lose its appetite for this non-functional
product, and our currency will collapse, together with our standard of
living. Similar Cassandra-like warnings were issued for years about the
housing bubble or the profligacy of the Greek government, and were
proven false year after year until one day they suddenly became true.
Ironically enough, there is actually one major category in which
American expansion still easily tops that of China, both today and for
the indefinite future: population growth. The rate of America’s
demographic increase passed that of China over 20 years ago and has been
greater every year since, sometimes by as much as a factor of two.
According to standard projections, China’s population in 2050 will be
almost exactly what it was in 2000, with the country having achieved the
population stability typical of advanced, prosperous societies. But
during that same half-century, the number of America’s inhabitants will
have grown by almost 50 percent, a rate totally unprecedented in the
developed world and actually greater than that found in numerous Third
World countries such as Colombia, Algeria, Thailand, Mexico, or
Indonesia. A combination of very rapid population growth and doubtful
prospects for equally rapid economic growth does not bode well for the
likely quality of the 2050 American Dream.
China rises while America falls, but are there major causal
connections between these two concurrent trends now reshaping the future
of our world? Not that I can see. American politicians and pundits are
naturally fearful of taking on the fierce special interest groups that
dominate their political universe, so they often seek an external
scapegoat to explicate the misery of their constituents, sometimes
choosing to focus on China. But this is merely political theater for the
ignorant and the gullible.
Various studies have suggested that China’s currency may be
substantially undervalued, but even if the frequent demands of Paul
Krugman and others were met and the yuan rapidly appreciated another 15
or 20 percent, few industrial jobs would return to American shores,
while working-class Americans might pay much more for their basic
necessities. And if China opened wide its borders to more American
movies or financial services, the multimillionaires of Hollywood and
Wall Street might grow even richer, but ordinary Americans would see
little benefit. It is always easier for a nation to point an accusing
finger at foreigners rather than honestly admit that almost all its
terrible problems are essentially self-inflicted.
Decay of Constitutional Democracy
The central theme of Why Nations Fail is that political
institutions and the behavior of ruling elites largely determine the
economic success or failure of countries. If most Americans have
experienced virtually no economic gains for decades, perhaps we should
cast our gaze at these factors in our own society.
Our elites boast about the greatness of our constitutional democracy,
the wondrous human rights we enjoy, the freedom and rule of law that
have long made America a light unto the nations of the world and a
spiritual draw for oppressed peoples everywhere, including China itself.
But are these claims actually correct? They often stack up very
strangely when they appear in the opinion pages of our major newspapers,
coming just after the news reporting, whose facts tell a very different
story.
Just last year, the Obama administration initiated a massive
months-long bombing campaign against the duly recognized government of
Libya on “humanitarian” grounds, then argued with a straight face that a
military effort comprising hundreds of bombing sorties and over a
billion dollars in combat costs did not actually constitute “warfare,”
and hence was completely exempt from the established provisions of the
Congressional War Powers Act. A few months later, Congress
overwhelmingly passed and President Obama signed the National Defense
Authorization Act, granting the president power to permanently imprison
without trial or charges any American whom he classifies as a
national-security threat based on his own judgment and secret evidence.
When we consider that American society has experienced virtually no
domestic terrorism during the past decade, we must wonder how long our
remaining constitutional liberties would survive if we were facing
frequent real-life attacks by an actual terrorist underground, such as
had been the case for many years with the IRA in Britain, ETA in Spain,
or the Red Brigades in Italy.
Most recently, President Obama and Attorney General Eric Holder have
claimed the inherent right of an American president to summarily execute
anyone anywhere in the world, American citizen or not, whom White House
advisors have privately decided was a “bad person.” While it is
certainly true that major world governments have occasionally
assassinated their political enemies abroad, I have never before heard
these dark deeds publicly proclaimed as legitimate and aboveboard.
Certainly if the governments of Russia or China, let alone Iran,
declared their inherent right to kill anyone anywhere in the world whom
they didn’t like, our media pundits would immediately blast these
statements as proof of their total criminal insanity.
These are very strange notions of the “rule of law” for the
administration of a president who had once served as top editor of the Harvard Law Review and who was routinely flattered in his political campaigns by being described as a “constitutional scholar.”
Many of these negative ideological trends have been absorbed and
accepted by the popular culture and much of the American public. Over
the last decade one of the highest-rated shows on American television
was “24”, created by Joel Surnow and chronicling Kiefer Sutherland as a
patriotic but ruthless Secret Service agent, with each episode
constituting a single hour of his desperate efforts to thwart terrorist
plots and safeguard our national security. Numerous episodes featured
our hero torturing suspected evildoers in order to extract the
information necessary to save innocent lives, with the entire series
representing a popular weekly glorification of graphic government
torture on behalf of the greater good.
Now soft-headed protestations to the contrary, most governments
around the world have at least occasionally practiced torture,
especially when combating popular insurgencies, and some of the more
brutal regimes, including Stalinist Russia and Nazi Germany, even
professionalized the process. But such dark deeds done in secret were
always vigorously denied in public, and the popular films and other
media of Stalin’s Soviet Union invariably featured pure-hearted workers
and peasants bravely doing their honorable and patriotic duty for the
Motherland, rather than the terrible torments being daily inflicted in
the cellars of the Lubyanka prison. Throughout all of modern history, I
am not aware of a single even semi-civilized country that publicly
celebrated the activities of its professional government torturers in
the popular media. Certainly such sentiments would have been totally
abhorrent and unthinkable in the “conservative Hollywood” of the Cold
War 1950s.
And since we live in a entertainment-dominated society, sentiments
affirmed on the screen often have direct real-world consequences. At one
point, senior American military and counter-terrorism officials felt
the need to travel to Hollywood and urge its screenwriters to stop
glorifying American torture, since their shows were encouraging U.S.
soldiers to torture Muslim captives even when their commanding officers
repeatedly ordered them not to do so.
Given these facts, we should hardly be surprised that international
surveys over the past decade have regularly ranked America as the
world’s most hated major nation, a remarkable achievement given the
dominant global role of American media and entertainment and also the
enormous international sympathy that initially flowed to our country
following the 9/11 attacks.
An Emerging One-Party State
So far at least, these extra-constitutional and often brutal methods
have not been directed toward controlling America’s own political
system; we remain a democracy rather than a dictatorship. But does our
current system actually possess the central feature of a true democracy,
namely a high degree of popular influence over major government
policies? Here the evidence seems more ambiguous.
Consider the pattern of the last decade. With two ruinous wars and a
financial collapse to his record, George W. Bush was widely regarded as
one of the most disastrous presidents in American history, and at times
his public approval numbers sank to the lowest levels ever measured. The
sweeping victory of his successor, Barack Obama, represented more a
repudiation of Bush and his policies than anything else, and leading
political activists, left and right alike, characterized Obama as Bush’s
absolute antithesis, both in background and in ideology. This sentiment
was certainly shared abroad, with Obama being selected for the Nobel
Peace Prize just months after entering office, based on the widespread
assumption that he was certain to reverse most of the policies of his
detested predecessor and restore America to sanity.
Yet almost none of these reversals took place. Instead, the
continuity of administration policy has been so complete and so obvious
that many critics now routinely speak of the Bush/Obama administration.
The harsh violations of constitutional principles and civil liberties
which Bush pioneered following the 9/11 attacks have only further
intensified under Obama, the heralded Harvard constitutional scholar and
ardent civil libertarian, and this has occurred without the excuse of
any major new terrorist attacks. During his Democratic primary campaign,
Obama promised that he would move to end Bush’s futile Iraq War
immediately upon taking office, but instead large American forces
remained in place for years until heavy pressure from the Iraqi
government finally forced their removal; meanwhile, America’s occupation
army in Afghanistan actually tripled in size. The government bailout of
the hated financial manipulators of Wall Street, begun under Bush,
continued apace under Obama, with no serious attempts at either
government prosecution or drastic reform. Americans are still mostly
suffering through the worst economic downturn since the Great
Depression, but Wall Street profits and multimillion-dollar bonuses soon
returned to record levels.
In particular, the continuity of top officials has been remarkable.
As Bush’s second defense secretary, Robert Gates had been responsible
for the ongoing management of America’s foreign wars and military
occupations since 2006; Obama kept him on, and he continued to play the
same role in the new administration. Similarly, Timothy Geithner had
been one of Bush’s most senior financial appointments, playing a crucial
role in the widely unpopular financial bailout of Wall Street; Obama
promoted him to Treasury secretary and authorized continuation of those
same policies. Ben Bernanke had been appointed chairman of the Federal
Reserve by Bush and was reappointed by Obama. Bush wars and bailouts
became Obama wars and bailouts. The American public voted for an
anti-Bush, but got Bush’s third term instead.
During the Cold War, Soviet propagandists routinely characterized our
democracy as a sham, with the American public merely selecting which of
the two intertwined branches of their single political party should
alternate in office, while the actual underlying policies remained
essentially unchanged, being decided and implemented by the same corrupt
ruling class. This accusation may have been mostly false at the time it
was made but seems disturbingly accurate today.
When times are hard and government policies are widely unpopular, but
voters are only offered a choice between the rival slick marketing
campaigns of Coke and Pepsi, cynicism can reach extreme proportions.
Over the last year, surveys have shown that the public non-approval of
Congress—representing Washington’s political establishment—has ranged as
high as 90–95 percent, which is completely unprecedented.
But if our government policies are so broadly unpopular, why are we
unable to change them through the sacred power of the vote? The answer
is that America’s system of government has increasingly morphed from
being a representative democracy to becoming something closer to a
mixture of plutocracy and mediacracy, with elections almost entirely
determined by money and media, not necessarily in that order. Political
leaders are made or broken depending on whether they receive the cash
and visibility needed to win office.
National campaigns increasingly seem sordid reality shows for
second-rate political celebrities, while our country continues along its
path toward multiple looming calamities. Candidates who depart from the
script or deviate from the elite D.C. consensus regarding wars or
bailouts—notably a principled ideologue such as Ron Paul—are routinely
stigmatized in the media as dangerous extremists or even entirely
airbrushed out of campaign news coverage, as has been humorously
highlighted by comedian Jon Stewart.
We know from the collapsed communist states of Eastern Europe that
control over the media may determine public perceptions of reality, but
it does not change the underlying reality itself, and reality usually
has the last laugh. Economics Nobel Laureate Joseph Stiglitz and his
colleagues have conservatively estimated the total long-term cost of our
disastrous Iraq War at $3 trillion, representing over one-fifth of our
entire accumulated national debt, or almost $30,000 per American
household. And even now the direct ongoing costs of our Afghanistan War
still run $120 billion per year, many times the size of Afghanistan’s
total GDP. Meanwhile, during these same years the international price of
oil has risen from $25 to $125 per barrel—partly as a consequence of
these past military disruptions and growing fears of future ones—thereby
imposing gigantic economic costs upon our society.
And we suffer other costs as well. A recent New York Times
story described the morale-building visit of Secretary of Defense Leon
Panetta to our forces in Afghanistan and noted that all American troops
had been required to surrender their weapons before attending his speech
and none were allowed to remain armed in his vicinity. Such a command
decision seems almost unprecedented in American history and does not
reflect well upon the perceived state of our military morale.
Future historians may eventually regard these two failed wars, fought
for entirely irrational reasons, as the proximate cause of America’s
financial and political collapse, representing the historical bookend to
our World War II victory, which originally established American global
dominance.
Our Extractive Elites
When parasitic elites govern a society along “extractive” lines, a
central feature is the massive upward flow of extracted wealth,
regardless of any contrary laws or regulations. Certainly America has
experienced an enormous growth of officially tolerated corruption as our
political system has increasingly consolidated into a one-party state
controlled by a unified media-plutocracy.
Consider the late 2011 collapse of MF Global, a midsize but highly
reputable brokerage firm. Although this debacle was far smaller than the
Lehman bankruptcy or the Enron fraud, it effectively illustrates the
incestuous activities of America’s overlapping elites. Just a year
earlier, Jon Corzine had been installed as CEO, following his terms as
Democratic governor and U.S. senator from New Jersey and his previous
career as CEO of Goldman Sachs. Perhaps no other American had such a
combination of stellar political and financial credentials on his
resume. Soon after taking the reins, Corzine decided to boost his
company’s profits by betting its entire capital and more against the
possibility that any European countries might default on their national
debts. When he lost that bet, his multi-billion-dollar firm tumbled into
bankruptcy.
At this point, the story moves from a commonplace tale of Wall Street
arrogance and greed into something out of the Twilight Zone, or perhaps
Monty Python. The major newspapers began reporting that customer funds,
eventually said to total $1.6 billion, had mysteriously disappeared
during the collapse, and no one could determine what had become of them,
a very strange claim in our age of massively computerized financial
records. Weeks and eventually months passed, tens of millions of dollars
were spent on armies of investigators and forensic accountants, but all
those customer funds stayed “missing,” while the elite media covered
this bizarre situation in the most gingerly possible fashion. As an
example, a front page Wall Street Journal story on February 23,
2012 suggested that after so many months, there seemed little
likelihood that the disappeared customer funds might ever reappear, but
also emphasized that absolutely no one was being accused of any
wrongdoing. Presumably the journalists were suggesting that the $1.6
billion dollars of customer money had simply walked out the door on its
own two feet.
Stories like this give the lie to the endless boasts of our
politicians and business pundits that America’s financial system is the
most transparent and least corrupt in today’s world. Certainly America
is not unique in the existence of long-term corporate fraud, as was
recently shown in the fall of Japan’s Olympus Corporation following the
discovery of more than a billion dollars in long-hidden investment
losses. But when we consider the largest corporate collapses of the last
decade that were substantially due to fraud, nearly all the names are
American: WorldCom, Enron, Tyco, Global Crossing, and Adelphia. And this
list leaves out all the American financial institutions destroyed by
the financial meltdown—such as Lehman, Bear Stearns, Merrill Lynch,
Washington Mutual, and Wachovia—and the many trillions of dollars in
American homeowner equity and top-rated MBS securities which evaporated
during that process. Meanwhile, the largest and longest Ponzi Scheme in
world history, that of Bernie Madoff, had survived for decades under the
very nose of the SEC, despite a long series of detailed warnings and
complaints. The second largest such fraud, that of Allen R. Stanford,
also bears the label “Made in the USA.”
Some of the sources of Chinese success and American decay are not
entirely mysterious. As it happens, the typical professional background
of a member of China’s political elite is engineering; they were taught
to build things. Meanwhile, a remarkable fraction of America’s political
leadership class attended law school, where they were trained to argue
effectively and to manipulate. Thus, we should not be greatly surprised
that while China’s leaders tend to build, America’s leaders seem to
prefer endless manipulation, whether of words, money, or people.
How
corrupt is the American society fashioned by our current ruling elites?
That question is perhaps more ambiguous than it might seem. According
to the standard world rankings produced by Transparency International,
the United States is a reasonably clean country, with corruption being
considerably higher than in the nations of Northern Europe or elsewhere
in the Anglosphere, but much lower than in most of the rest of the
world, including China.
But I suspect that this one-dimensional metric fails to capture some
of the central anomalies of America’s current social dilemma. Unlike the
situation in many Third World countries, American teachers and tax
inspectors very rarely solicit bribes, and there is little overlap in
personnel between our local police and the criminals whom they pursue.
Most ordinary Americans are generally honest. So by these basic measures
of day-to-day corruption, America is quite clean, not too different
from Germany or Japan.
By contrast, local village authorities in China have a notorious
tendency to seize public land and sell it to real estate developers for
huge personal profits. This sort of daily misbehavior has produced an
annual Chinese total of up to 90,000 so-called “mass incidents”—public
strikes, protests, or riots—usually directed against corrupt local
officials or businessmen.
However, although American micro-corruption is rare, we seem to
suffer from appalling levels of macro-corruption, situations in which
our various ruling elites squander or misappropriate tens or even
hundreds of billions of dollars of our national wealth, sometimes doing
so just barely on one side of technical legality and sometimes on the
other.
Sweden is among the cleanest societies in Europe, while Sicily is
perhaps the most corrupt. But suppose a large clan of ruthless Sicilian
Mafiosi moved to Sweden and somehow managed to gain control of its
government. On a day-to-day basis, little would change, with Swedish
traffic policemen and building inspectors performing their duties with
the same sort of incorruptible efficiency as before, and I suspect that
Sweden’s Transparency International rankings would scarcely decline. But
meanwhile, a large fraction of Sweden’s accumulated national wealth
might gradually be stolen and transferred to secret Cayman Islands bank
accounts, or invested in Latin American drug cartels, and eventually the
entire plundered economy would collapse.
Ordinary Americans who work hard and seek to earn an honest living
for themselves and their families appear to be suffering the ill effects
of exactly this same sort of elite-driven economic pillage. The roots
of our national decline will be found at the very top of our society,
among the One Percent, or more likely the 0.1 percent.
Thus, the ideas presented in Why Nations Fail seem both true
and false. The claim that harmful political institutions and corrupt
elites can inflict huge economic damage upon a society seems absolutely
correct. But while the authors turn a harsh eye toward elite misbehavior
across time and space—from ancient Rome to Czarist Russia to rising
China—their vision seems to turn rosy-tinted when they consider
present-day America, the society in which they themselves live and whose
ruling elites lavishly fund the academic institutions with which they
are affiliated. Given the American realities of the last dozen years, it
is quite remarkable that the scholars who wrote a book entitled Why Nations Fail never glanced outside their own office windows.
A similar dangerous reticence may afflict most of our media, which
appears much more eager to focus on self-inflicted disasters in foreign
countries than on those here at home. Presented below is a companion
case-study, “Chinese Melamine and American Vioxx: A Comparison,”
in which I point out that while the American media a few years ago
joined its Chinese counterparts in devoting enormous coverage to the
deaths of a few Chinese children from tainted infant formula, it paid
relatively little attention to a somewhat similar domestic public-health
disaster that killed many tens or even hundreds of thousands of
Americans.
A society’s media and academic organs constitute the sensory
apparatus and central nervous system of its body politic, and if the
information these provide is seriously misleading, looming dangers may
fester and grow. A media and academy that are highly corrupt or
dishonest constitute a deadly national peril. And although the political
leadership of undemocratic China might dearly wish to hide all its
major mistakes, its crude propaganda machinery often fails at this
self-destructive task. But America’s own societal information system is
vastly more skilled and experienced in shaping reality to meet the needs
of business and government leaders, and this very success does
tremendous damage to our country.
Perhaps Americans really do prefer that their broadcasters provide
Happy News and that their political campaigns constitute amusing reality
shows. Certainly the cheering coliseum crowds of the Roman Empire
favored their bread and circuses over the difficult and dangerous tasks
that their ancestors had undertaken during Rome’s rise to world
greatness. And so long as we can continue to trade bits of printed paper
carrying presidential portraits for flat-screen TVs from Chinese
factories, perhaps all is well and no one need be too concerned about
the apparent course of our national trajectory, least of all our
political leadership class.
But if so, then we must admit that Richard Lynn, a prominent British
scholar, has been correct in predicting for a decade or longer that the
global dominance of the European-derived peoples is rapidly drawing to
its end and within the foreseeable future the torch of human progress
and world leadership will inevitably pass into Chinese hands.
Ron Unz is publisher of The American Conservative and founder of Unz.org.
