The 1997 debt crisis
Having looked at the way in which Japan
suffered strategic competitive defeat after 1973 we will now examine the
unfolding of the international debt crisis in 1997 in the South East Asian
Slide 42 shows the percentage of GDP
devoted to investment in the country that was the initiator of the 1997 South
East Asian debt crisis - Thailand. Slide 43 shows Thailands GDP growth rate
expressed as a five year moving average in order to eliminate the effect of
purely short term fluctuations. Note the fall in the percentage of GDP devoted
to fixed investment in Thailand after 1997. Note also the deceleration
in growth in slide 43. This is the same pattern as Japan after 1973, only of
course over a shorter timescale.
Slides 44 and 45 gives
the same data for South Korea. Note again the fall in the percentage of GDP
devoted to fixed investment in South Korea after 1997 and also the deceleration
in the growth rate. This is again the same pattern as Japan after 1973.
Slides 46 and 47 repeat the same data for
Singapore. Again note the decline in the percentage of Singapores GDP devoted
to investment after 1997 and also the deceleration of the growth rate. Again, the
same pattern as after Japan in 1973. Similar graphs could be given for
many South East Asian economies.
The effect of the 1997 debt crisis, the
second Asian financial crisis, was therefore the same as the first. The level
of investment of the South East Asian economies was forced downwards, as
Japans had been after 1973, and their growth rates were reduced. This aided
the competitive position of the US in relation to the South East Asian
The third Asian financial crisis
From the analysis of the first two Asian
financial crises it becomes clear what are the competitive
tactics of the US in the third Asian financial crisis that is the
present one. It is to try to force China to raise the exchange rate of the RMB
significantly, at a faster rate than can be sustained by the increasing competivity of Chinasa economy,
and to force down Chinas investment rate. This is the combination which
defeated Japan and it is therefore the one the US can utilise in competition
However the consequences of a slowdown of
Chinas economy would be far more serious than those of Japan. Japan was, and
is, a developed economy. Japan may have lost its earlier economic dynamism but
the standard of living of its population remains among the highest in the
world. China, however, is still a developing country. It has only just lifted
620 million people out of absolute poverty. Its GDP per capita, even expressed
in realistic Parity Purchasing Powers, is only one eighth that of the US and
at official exchange rates it is only one twelfth. For Chinas economy to
significantly slowdown means not to achieve a decent standard of living for
more than one billion people.
Of course, actually, this is the
inescapable logic of any attempt of the United States to prevent China becoming
the largest economy in the world - and the same will apply to India later in
this century. The population of China is four times that of the United States.
An attempt by the US to remain the largest economy in the world, rather than
China, simply means that the GDP per capita, and the living standard, of China
must never be allowed to reach even a quarter of that of the US. The same
arithmetic in the future will apply to India.
The US is the third most populous country
in the world - with slightly over 300 million inhabitants. This ensures that
the US will always be one of the most important countries in the world. If
economic democracy operated, that is there were equal GDP per capita, the US
would be the worlds third largest economy (Britains would be 22nd).
On that basis towards the end of the 21st century the largest
economy in the world would be India because India will overtake China before
2030 in terms of total population. Indeed, if it had not been for the British
partition of India, India would already be the most populous country in the
world as the inhabitants of the Indian subcontinent already exceed those of
An attempt by the US to remain the
largest economy in the world is simply the demand that a citizen of India or a
citizen of China never have even one quarter the living standards of a citizen
of the US. As such a policy not only is unjust and immoral but also has no
practical chance whatever of succeeding inevitably in the course of this
century the US will lose its position as the worlds largest economy.
In looking at these two competitive
tactics of the US first the question of an increase in the exchange rate of the
RMB will be considered. Some of the issues involved may appear rather technical
but as the question is of great importance for the world economy it is
necessary to go into it in some detail.
would be the consequences of RMB revaluation?
The first point, as already noted, is
that the forty year increase in the exchange rate of the yen achieved no
reduction in Japans trade surplus at all as a percentage of Japans GDP it
is the same as it was in 1971.
Second, the question of the effect of an
RMB revaluation is not a purely theoretical one. It can be studied as a
practical issue. And the outcome of that test is very clear.
The exchange rate of the RMB did actually
go up for almost 4 years between 2005 and 2008. This may be seen on Slides 39
and 40 as the short (red) line in the left hand corner that rises in a smooth
curve the line is short because the increase in the exchange rate of the RMB
started only five years ago whereas it commenced almost 40 years ago for Japan
The RMBs exchange rate increased between
2005 and 2008 in a far more controlled way than the yen or the D-mark
after 1971. Nevertheless after five years the increase in the exchange rate of
the RMB against the dollar, roughly 20%, is the same as in the initial five
year period of the rise in the exchange rate of the yen although less than
the revaluation of the D-Mark in the same time period.
Therefore, by historical standards, the increase in the exchange rate of the
RMB is already rather significant. It remains to be seen whether China will
permit, or will be pressured, to allow further increases in the exchange rate
of the RMB on the scale, and with the same effect, as those which so
drastically slowed down Japans economy after the beginning of the 1970s.
What was occurring at the same time in
terms of Chinas trade surplus as his RMB revaluation occurred is shown in
Slide 48 - which shows Chinas monthly trade surplus in dollars. As may be
seen, until 2004 China did not run a significant trade surplus. A large trade
surplus began to appear only in 2005.
However, 2005 was the year when the RMBs
exchange rate started to go up against the dollar. As may be seen from
Slide 49, as the RMBs exchange rate went up Chinas trade surplus actually increased
for a three year period and as the final year, 2008, was that of the outbreak
financial crisis it is not clear if the marginal decline in that year was due
to this latter factor. The pattern is clear an increase in the RMBs exchange
rate led to an increase in Chinas trade surplus and not a decrease over
at least a three year period.
To make that trend clear Slide 49 shows
change in the exchange rate of the RMB and Chinas trade surplus over the
period since 1994. The fact that as the RMBs exchange rate went up Chinas
trade surplus increased is evident.
In order to be able to interpret what
this trend of a rising exchange rate being associated with a rising trade
surplus signified, Slide 50 shows Chinas exports and imports as a percentage of GDP. As may be
seen, until 2004 the value of both China's exports and imports rose rapidly as
a percentage of GDP. However from 2005 onwards, while China's exports continued
to rise its imports began to fall relatively in value. It was this combination
that created the trade surplus. Factually, therefore, China's surplus was
not caused by a surge of exports but by a relative fall in the value of imports.
It is easy to account for this
development of a rising exchange rate leading to an expanding trade surplus.
And it explains why there could be some very unpleasant trade surprises for the
world economy, in at least the short and medium term, if China were to raise
the RMB's exchange rate.
The hidden, implicit, assumption of those
arguing that an increase in the exchange rate of the RMB would lead to a fall
in China's trade surplus is that China's exports and imports move separately
and are price sensitive in formal economic terms that demand for them is
independent and elastic. If these assumptions were factually true then, as the
price of China's exports rose, due to an increase in the RMB's exchange rate,
demand for China's exports would fall substantially while simultaneously as the
price of China's imports fell, due to the same exchange rate shift, demand for
imports would rise. But this combination necessarily assumes that the volumes
of China's exports and imports move separately as the relative volume of
exports would in that case be falling and the relative volume of imports
The problem is that the facts indicate
that this assumption is false. An increase in the RMB's exchange rate in
2004-2008 did not lead to a major decline in China's exports but it did lead to
a sharp fall in the value of China's imports.
The factual pattern after 2004 is easily
explained if the truth is the opposite of the hidden assumption of President
Obama's advisers and others advocating RMB revaluation. That is, if China's
exports and imports do not move separately. In that case, as RMB revaluation
would increase the price of China's exports, while decreasing the relative
price of its imports, an increase in the exchange rate of the RMB will increase
China's trade surplus, in at least the short and medium term, and not reduce it
exactly the pattern seen after the RMBs exchange rate started to go up in
It is rather easy to see why China's
exports and imports do not move independently. China is the world's largest
exporter. A vast amount of its imports are inputs to its export industries.
Therefore demand for exports and imports are not separate but move in parallel.
Consequently, RMB revaluation puts up the price of China's exports while
reducing the relative price of its imports therefore China's trade gap increased
as the RMB exchange rate went up, explaining the post-2004 pattern.
This may be confirmed by looking at the
volume measures of Chinas trade. These show that between 2004 and 2008 the
volume of Chinas exports and imports increased by almost exactly the same
percentage. But because the increase in the exchange rate of the RMB put up the
relative price of exports, while reducing the relative price of imports, the
effect of the parallel movements in volume terms of Chinas exports and imports
was to increase Chinas trade surplus.
The US administrations argument that an
increase in the exchange rate of the RMB of any reasonable magnitude would
reduce Chinas trade surplus, at least over a short to medium time frame, which
is the one that is important for dealing with the financial crisis, is
What conclusions can we draw from this
for the health of the rest of the worlds economy? If the factual trends in
China's trade are considered, the consequences of RMB revaluation against the
dollar could be very unpleasant for the rest of the world in at least the short
and medium term. It may be assumed that increasing prices, due to RMB
revaluation, would slow demand for China's exports somewhat, if not a great
deal, and that China's demand for imports would slow in parallel. China's trade
surplus would again rise, primarily due to the falling value of China's
imports. Overall, this would reduce the beneficial, "locomotive"
effect that the relative increase in China's imports has had on a series of
countries during the financial crisis.
That a rise in China's export prices
relative to its import prices would be adverse for major commodity suppliers,
such as Australia or Brazil, is unsurprising. But the trade data shows the
effect would spread far more widely internationally.
The US administrations arguments for an
increase in the exchange rate of the RMB are therefore not valid. The would slow down Chinas economy, to the competitive
advantage of the US, but damage not only Chinas but the worlds economy in its
recovery from the financial crisis.
Exchange rate policies of China
China has so far resisted the pressure of
the United States to excessively, or too rapidly, put up the exchange rate of
the RMB. Over the long run the exchange rate of the RMB will, of course, go up
in parallel with the increasing productivity of Chinas economy. But the
Chinese government has resisted any premature or excessive increase in the
exchange rate of the RMB.
Here, if I may again make an aside, the
exchange rate policy of China has been more sensible than the exchange rate
policy of the Russian government. The purpose of China having a relatively low
exchange rate is not to run a big trade surplus. Indeed a very large
trade surplus has produced a negative consequence for Chinas economic policy
in that it has led to the accumulation of very large reserves in US dollars -
which over the long term, as the RMBs exchange rate goes up, will devalue with
considerable losses for China. Chinas economy grew just as rapidly as
currently prior to 2005 when, as analysed, China did not run a trade surplus.
What a relatively low exchange rate does
achieve, however, is a high proportion of exports in Chinas GDP which prior
to 2004 was matched by a similarly high level of imports. This means that
Chinas economy was participating to a high degree in the (international)
division of labour, which as we have seen is the most powerful of all
instruments for raising growth and productivity - and as part of this China was
achieving economies of scale through selling into a world market.
The Russian government, however, has
usually aimed at a relatively higher exchange rate than could have been
achieved it rejected a policy of seeking to attain the lowest possible
exchange rate that could be practically achieved. Such a policy is supported
even by some Russian economists who I know well and deeply respect. This is a
mistaken policy. Any unnecessarily high exchange rate means that almost no
sector of the Russian economy, except for energy and raw materials, is
There is an acute objective problem for
Russia that, as a large oil producer and exporter, it has a structural bias
towards a high exchange rate - with all the competitive problems this produces
for other economic sectors. Far from seeking to maintain a high exchange rate
Russia should strategically be seeking every possible opportunity to lower it
to increase the competivity of the maximum possible
number of economic sectors.
Chinas policy understood the question of
maintaining a sufficiently low exchange rate that a wide range of economic
sectors could export. Linked to this, Chinas economic policy also used its
financial resources to invest in its own domestic economy via the state in
infrastructure programmes which greatly raise the productivity of its economy.
I do not know how many people in this
room have been to Beijing, Shanghai or other Chinese cities. But apart from the
wonderful metro in Moscow the level of investment in Moscow and in other
Russian cities does not even remotely compare to the level of investment in
infrastructure and the technological processes that are taking place in China.
And the reason for this is that Chinas policy does not rely just on the market
to achieve investment. It also uses state resources as was analysed earlier.
Reduction in the level of
The second competitive aim of the US is
to persuade, or pressure, China to lower its level of investment. The reason
for this, as already noted, is because investment, after participation in the
division of labour, is the most powerful instrument of economic growth. If the
US can persuade, or pressure China into reducing its investment rate, as it did
with Japan after 1973 or the South East Asian economies after 1997, then
Chinas economy will no longer be able to grow at its previous fast rate.
This desire of sections of the US to reduce
Chinas investment rate can even take slightly humorous or bizarre forms. There was
an article in the Wall Street Journal, an impeccably business paper,
arguing we need more leftists in China. It called for the formation of
leftist and militant trade unions in China that would drive up the level of
consumption (and therefore lead to a fall in investment). However it may be
taken for granted that the printing of such an article was more to do with a
competitive desire to slow Chinas economy than to promote left wing trade
unionism on an international scale!
There should be no misunderstanding on
the issue of consumption and investment. The only purpose of economic growth in
the long run is to promote the sustainable consumption of the population. At present
China needs to increase its domestic demand which means stimulating both
domestic investment and domestic consumption. Strategically Chinese economic
policy, like that of every country, should be aiming at the highest possible
sustainable rate of growth of consumption of its population. But the best way
to achieve that is through rapid growth of Chinas economy, not via a one off
lurch into consumption that would drastically reduce the rate of investment and
thereby slow the rate of growth of its economy.
The scale of challenge that the US faces
in attempting to get China to lower its level of investment was already shown
in graphs on the comparative rates of investment in different countries given
earlier. To make it clearer Slide 51 shows the rate of investment in GDP for
To remind us how decisive the level of
investment is for growth Slide 31 earlier showed the much higher rates of
investment in China and India, the worlds second most rapidly growing economy,
compared to the US. Slide 52 shows the dramatic rate of increase in economic
growth in India associated with its rising investment rate.
Why has Chinas economy continued
to grow more rapidly than Indias?
Again, as an aside, the reason that
Chinas economy grows at about 1.5%-2.0% a year more rapidly than Indias is
evident. It was already noted that both India and China have a very efficient
use of investment from the point of view of economic growth their ICOR was
almost the same at 3.7. China however invests about 6-7% of GDP more than India
and therefore its economy grows at about 1.5%-2.0% a year more rapidly than
India. It will be seen in the future whether India raises its investment rate
further and therefore grows more rapidly.
Chinas increase in domestic
There are many other issues I could
discuss if there were time. A notable one would be the way in which Chinas
policy makers succeeded in 2009 in shifting the expansion of its economy into
domestically driven demand. In 2009 the $100 billion decline in Chinas trade
surplus meant that its fall in net exports was equivalent to a 3.9% decline in
GDP although the $100 billion increase in demand transmitted to the rest of
the world was in significant part responsible for Asias more rapid economic
recovery than the rest of the world. However an increase in Chinas domestic
investment equivalent to an 8.0% GDP growth, and an increase in domestic
consumption equivalent to a 4.6% GDP growth, meant that Chinas domestic demand
increased by 12.6% in real terms. Chinas 8.7% GDP growth was therefore
composed of minus 3.9% of GDP contraction of the external sector and plus 12.6%
GDP growth for the domestic sector one of the highest increases in domestic
demand ever achieved by any country in history. However I believe the main
strategic features of the situation have been dealt with.
Finally, if I may conclude on a personal
note, I remember the years I spent in 1992-2000 in Russia with great pleasure
in one sense. I learnt the great warmth of Russian hospitality and learnt to
appreciate even more than I had previously the greatness of Russian culture. I
made friends who have endured for almost 20 years. But, on the objective front,
unfortunately the great economic disaster that is was possible to foresee in
advance occurred. On this field it is far more gratifying to see in China
tremendous success, the rebuilding of a great state, the national pride it
creates, and the improvement of the living conditions of the people every year.
These differences between the outcomes in
China and Russia did not happen by accident. They were possible to foresee in
advance because, as we have noted, they were seen in advance.
Evidently Russia cannot mechanically
follow Chinas policies I have already outlined why no country can
mechanically follow the policies of any other country. Russian
characteristics are just as real as Chinese characteristics.
China makes no attempt to spread its
economic model. China is concerned with its own development. However anyone
is free to learn lessons from the Chinese economy. In 1992 Russia failed to do
so the result was a great economic and historic catastrophe. Hopefully, 18
years later, the economic facts now speak for themselves. I hope that at
present many people in Russia are studying what happened in China because, as I
tried to explain, it is no accident that in the intervening years China has had
the worlds most rapidly growing and successful economy, and no accident that
is has come through the financial crisis more successfully than any other country.
China recreated a great and powerful
state and simultaneously achieved a constant increase in the living standards
of its population. I hope now, as I did in 1992, that Russia will achieve the
Thank you very much for the invitation to
Sergey Kurginyan: Id like to thank John for a magnificent lecture and to give a short
response to it. My remarks will be divided into three parts: The purely
economic (I dont consider myself to be a specialist in this field and
apologize in advance for any inaccuracies on my part); the political-economic
and the social-economic; and those that take us on to politics as such (we will
pay most of our attention to this sphere).
I will begin by providing certain statistics and, having admitted the
approximate nature of those statistics, presenting those gathered here with my
rough evaluation of what has happened in China and my account of what, in
short, the "Chinese miracle," which is by no means accidental, amounts to.
I would like to stress again that my figures are very approximate. I
could make them more precise, but I dont want to. I think that in this
instance it doesnt make any difference, as the figures here are inclined to
operate as metaphors, rather than as solid, literal facts. Nevertheless, I
would like a certain pattern within the boundaries of those figures to be
maintained and taken into account.
The first point in the great Chinese plan: "What have we got? What can
we sell the world? What is our proposition? Were selling 300 million workers
of a reasonable quality. We havent got anything else. But we do have workers.
So, were selling 300 million workers."
The next point in this plan of genius: "At what price? At a price
the figures here are mine and are merely for reference of 300 US dollars a
month or 3,600 USD a year." The real figures could be doubled, or indeed
halved. It is the scheme here that is important.
The third point in the plan: "Were offering this work force in place
of western workers, who and again this is an approximation want 36,000 USD
a year, or roughly 3,000 USD a month."
The fourth point: "In this situation, the net profit in replacing one
western worker with one Chinese worker amounts to 30,000 USD a year.
About a third of that profit has to be spent on damping, which is to
say the lowering of prices of the goods produced by the worker to a level where
the goods will be in demand on the world market.
That leaves 20,000 USD from the replacement of one western worker with
a Chinese worker.
That amount can be split in two between us, the masters of the 300
million workers, and those who support our project, giving us a place on the
world market or helping us with investment. We shall call ourselves China, and
those who help us the pro-Chinese West.
The pro-Chinese West must bring us money and technology, and it must
open up to us the western market, which is by no means as closed as it may
appear, and create certain infrastructural elements for us.
In return, the pro-Chinese West receives half the profits created by
replacing an expensive non-Chinese worker with a cheap Chinese worker. We, the
Chinese state, also receive our half of the receipts from that exchange.
What does that half amount to if we use my admittedly very approximate
Half of 20,000 USD amounts to 10,000 USD a year.
If we multiply 300 million Chinese workers by 10,000 USD, we get a
total of 300 trillion dollars.
That, as a very rough calculation, done without going into details,
without nuances relating to infrastructure, investments, rhythms, balances and
much more besides being taken into account, is the model for the "Chinese
If you have a commodity like cheap labor,
and you launch that commodity on the market, then, as we they say, "resistance is futile." That is to say that there is nothing
that can stop the "Chinese miracle" within the framework of the capitalist
world economy. There is no way that you can explain to a capitalist in the West
why he should pay an American woman or a French woman (fickle, with their
unions and all sorts of limitations on the length of the working day) 36,000
USD when you can pay a Chinese woman, who will honestly and conscientiously do
far more work without a union, just 3,600 USD.
Accordingly, the western economy and indeed any economy with a high
price for the commodity that is a "work force" will lose to an economy with a
cheaper price for the same commodity.
The workers, of course, must be competitive. I love all the citizens
on the planet Earth, but I can imagine that somewhere in Central Africa there
are, say, pigmies who would work not for 300 USD a month, but for 100. But they
cant work. Or they cant do certain types of work.
We once went to central Egypt to study the cultural processes of
Ancient Egypt. The situation is fairly disturbed in Central Egypt, and we were
accompanied on our trip by guards with machineguns. And then, in the hotel
(there is nothing above three stars in Central Egypt) I saw a fellah making a
bed with hands worn and calloused from using hoes in the fields. I realized
that he couldnt make a bed or wash a glass. He would never be able to do that!
He could work the soil wonderfully with a hoe, but he couldnt do any other
kind of work.
Thus, the Chinese state spends a significant part of its profits in
ensuring that the Chinese workers put up with far more modest working
conditions than those found in the West. To this end there are social programs,
ideological programs, programs for police control and so on. In addition, there
is a deep-seated wish among the Chinese, created by their traditions, which
still exert a powerful influence, to live in their native Chinese homeland. And, in particular, to be buried in their native Chinese land.
We know that very large numbers of Chinese have dispersed around the world. But
those deep-rooted desires, which we might call, following the philosopher
Miguel de Unamuno, the Chinese intra-history (or the core of Chinese culture),
give rise to the values needed for the victory of this project, which is to say
non-material attractions. Those attractions are there. There is a mass of
non-material factors that make the "Chinese miracle" possible.
Mr. Ross has entirely confirmed my position in saying that Americans
rely upon two main factors for stopping the advance of the Chinese economy: (1)
lowering investment levels (2) activities of the unions. As soon as Chinese
workers start wanting 36,000 USD a year instead of 3,600 USD a year, it will
come to an end. But for as long as they want 3,600 instead of 36,000, the
Americans will be powerless to stop the flows of investment into China. Its
This is clear justification of Marxs contention that for the right
percentage a capitalist would sell his own father. If a capitalist is told: "Go
to China, youll get a worker for x and youll make a profit!" then he will go
there! And nobody will be capable of explaining to that capitalist why he
should remain in France or in any other western country.
In these conditions, the higher the level of globalization, the faster
China will destroy western civilization. Jiang Zemin
once told a friend of mine that "We are not against globalization! We will
support globalization in every way we can!" In other words: "We will give all
our support to globalization because its in our interests." You want to stop
the flow of investment? How will you stop it? Within the framework of the
existing world project you wont be able to stop it. And neither the resources
nor the energy are available for any other world project, as we have seen.
Whats more, no one knows what the alternative world project should be.
That means that the only hope is that, sooner or later, the Chinese
worker will refuse to work for 3,600 USD a year, having been tempted by the
prospect of 36,000 USD a year. Then China will stop. But, until then, it will
But this is no longer merely an economic game. In order to prolong
this situation, a socio-cultural, an ideological, a political game is being
How is it being played?
The playing of this game is made possible by one key factor: Apart
from the 300 million workers (again, I stress that this figure is merely used
for reference there could be just 200 million) already on the market and
already functioning, there are another 500 million living on 3 dollars per
month and ready, as it were, to tear the heads off those receiving 300 USD a
This fundamental factor, existing alongside cultural and other
factors, signals the following from the political-economical point of view.
There is a modernized layer of society in China (relatively modernized for
the foreseeable future there will be no full modernization in China) that we
can term Structure (set up) No. 1. And there is the layer of traditional
Chinese society Structure No. 2. It is only until Structure No. 1 is able to
draw its resources from Structure No. 2 does the "Chinese miracle" function.
The "economic miracle" in the USSR under Stalin operated in the same way, in
that there was a vast layer of healthy, energetic and frugal people known as
"the peasants" who could be dragged out of their traditional matrixes and
driven into the factories (with certain costs, of course, because they were not
used to industrial work).
This phenomenon is referred to with a mysterious word that our
political elite uses (despite, I have become
convinced, having absolutely no understanding of it whatsoever) with great frequency:
Modernization is the technology and means for the destruction of
traditional society for the benefit of industrial society. And that is all
there is to it! I have already grown weary of asking our leadership and
political elite what kind of modernization they think is possible in Russia.
After what Peter the Great, Stalin and Lenin, and those who have now had a
third attempt have already done? Where is this traditional society that they
want to modernize? And why should the person dealt a severe blow to the head
with the sledgehammer that was Gaidars reforms be considered "traditional"? What is it that they want to
cure him of? From what they call "sovok"
a residual Soviet mindset? That "sovok"
mindset has long since been entirely individualized, surviving in the towns
Where are these remaining peasant communities?
There is no "traditional resource" remaining in Russia. Marginalized
post-Soviet groups are not traditional resources.
In China there is a "traditional resource." And that "traditional
resource" will continually feed the fires of the Chinese economy.
True, China is not self-sufficient in terms of raw materials. And if
access to those raw materials was blocked off from all sides, then there is no
way the economy could develop. That is to say that China could be destroyed if
a global raw materials war was declared on it, if a certain type of siege
warfare was waged against it. It is enough to merely imagine the scale of such
an undertaking in order to grasp how problematic this would be.
And, finally, China could be destroyed with military-political
I would like to fill out this representation with an assertion that
inspires the largest number of questions in contemporary Russia and beyond its
borders. It relates to the concept of "the entity."
It is not a question of how many muscles youve got, how quickly you
develop them and how big a beast you are. It is an issue of the extent to which
you are a complexly organized system.
Complex systems in principle destroy simpler systems. That is a law of
life. From that point of view, the system divides into:
- Pieces in
someone elses game (you can be a very powerful figure, a queen on the
chessboard, but you are a piece being moved by someone else);
- Players who moves
- The masters of
the rules of the game ("the masters of the game");
I shall illustrate this with a very simple example from our modern
When Boris Yeltsin came to power, he acted in accordance with certain
rules of the game, at the foundations of which lay the laws of democracy. "Long
live the rule of law! Long live democracy! The 1991 Soviet Coup dEtat (GKChP) is illegal: It
breaks the laws of the Constitution in introducing a state of emergency. And
its anti-democratic. It infringes on Russian democracy, on an elected
parliament," and so on.
When, in 1993, Yeltsin realized that if he played to rules of law and
democracy he would lose the political game, he would lose in the game of chess
as the pieces were laid out, and that Khasbulatov et al would win (law was on
the side of the Supreme Soviet, as was democracy) what did he do?
Did he lay his queen on its side and say: "I have lost!
I, Garry Kasparov, have lost to Karpov"?
brushed the pieces aside, took the board and whacked his opponent over the head
with it. After which he reopened the board and said that from now on the game
would be played to a new set of rules.
Boris Yeltsin acted as a "master of the game."
What do we see happening in China?
The Chinese have agreed to play to rules that Marx would have
described as "the laws of capitalism," and Max Weber titled "the laws of the Moderne." Both titles have their significance and the right
to be applied. Each of the terminologies has its advantages. But whatever we
might call them, the Chinese agreed to play by them.
"Is economics capitalist? It is capitalist. What are we doing that is
illegal? The workforce is a commodity. We put that commodity on the market in
accordance with certain rules whilst maintaining stability."
And now the Chinese, as our preceding speaker has shown, are winning
through the use of the rules of that game. They say: "Thats enough! Dear
Americans! Dear Russians! Weve won! The game is over! Our crooked economic
indicators are on the way up! And, if youll forgive us, how could they not go
up? How could we not receive trillions for our cheap labor
force every year? And were not so stupid as to misuse those trillions. Well
use them the way they should be! Its over! You have lost, dear Americans!
Submit! You have lost!"
We have no guarantees that the American subject wont play in a manner
analogous to that adopted by Boris Yeltsin. That is to say that, sensing that
he is losing according to a certain set of rules, he
will simply try and change those global rules.
In this lies the main law: "Now we shall start playing to new rules! To rules by which we will win."
Within the confines of the global rules established today, China
cannot help but win. But that doesnt mean that there cant be an attempt to
change those rules of the game. Lenin-Hilferdings
"law of inequality in development under imperialism" can be abolished; the law
of the development of the capitalist market can be abolished. To use Max
Webers terminology, this would mean breaking the law of the Moderne.
The Law of the Moderne is a rational
community, its a national state, its markets,
And now that law is taken and abolished. We transfer from the
formation of the Moderne to some new formation.
In my opinion, that which we call the "global crisis" is, in fact, the
beginning of an attempt to change the rules of the game.
And, from this point of view, I simply cannot understand what it is,
in essence, that the Americans have lost. The Americans continually play the
impoverished, perishing maiden, saying: "Were dying out! Cant you see! We
will soon be gone!" From where, exactly, are they going?
There is a 100,000-strong contingent in Afghanistan. Are we saying
that theyre leaving Iraq? Lets see exactly when they leave Iraq, and where
they head to!
Obama is transforming into a new Bush at a brisk pace. Because the Americans have no other game to play. The only
great strength of the American economy is to be found in its aircraft carriers
and its printing presses. The aircraft carriers support the printing press, and
the printing press transports Americas problems around the world. The formula
has been fully developed.
Has someone pushed aside this quantity of aircraft carriers? Has
anyone dared to declare to the Americans that he is now the worlds leading
military superpower? No! And if that is the case, then all the problems of the
very seriously ill American economy, the condition of which we have just heard
in John Rosss brilliant talk, will be solved by the world.
You will pay for the problems of the American consumer. For now, for ever after. Not the American consumer. He wont
pay for his problems! And he doesnt want to. Because hes
got more aircraft carriers and because hes got the printing press. But
as soon as you remove the aircraft carriers or the printing press, the American
consumer will collapse. But no one in America will allow him to collapse!
Nobody will give this up without a war!
And here the "law of the inequality of development under capitalism"
arises. You want to change the leader? A state that is
developing faster wishes to become the leader? No problem! But first you
have to win a global war!
At the beginning of the 20th century, Germany was
developing faster than Great Britain? By 1914, the pace of development of the
German economy had overtaken that of the English economy? Yes, yes, of course!
Germany had the full right to be victorious in the world, but it had to win a
world war! It didnt manage to win it and that was it! It was over! Germany
collapsed, while the British Empire hung on.
Germany begins to develop again, it wants to take revenge. Well, then
it must win the Second World War! It didnt win it. It was carved up into
pieces, and only then was its economy allowed to develop as best it could! That
was its problem. American money was there, an American mentality and the like
had already been instituted there
The country was cut off at this stage! Why?
Because it didnt win the war!
A question arises: Is the Peoples Republic of China prepared to win a
war against the USA? We all understand that, at present, China is in no
position to win such a war.
Is the USA ready to organize a direct Third World War against the
Peoples Republic of China? We all understand that the USA is also not ready to
But Im putting my bets on the specific mentality and spiritual
organization of the Anglo-Saxons who never hand over power! Never! And I do not
feel any desire to criticize this it even engenders a certain feeling of
admiration within me. Without a fight, they wont give up power. If the WASP
elite is replaced with some other elite (akin to what is happening at present),
then this new elite may yield! A Latin American or some other
elite. But for as long as we are talking about a
WASP elite, that power will not be given up! They would rather die!
I dont like Alexander Zinoviev, I dont like
his works, particularly "Homo Sovieticus," because
"Homo Sovieticus" can be paraphrased as "sovok." Nevertheless, I always liked his phrase: "The
regional (Comunist Party) committee secretary wont
hang himself when caught in the bunker! Hes more likely to hang everyone else,
rather than hang himself!"
In the same way, in WASP USA, nobody in the bunker titled
"capitulation brought about by loss in a game being played according to certain
rules" will hang himself! Theyre more likely to hang everyone else. And hanging, here, means changing the rules.
And so we will be dealing with methods in the struggle for world
leadership which will bring about a change in the rules. The methods of direct
war are no use. They are no good to China because it needs another 10-15 years
to develop its military machine, and only then will it be the equal of the USA;
and America doesnt want war because if just 4 bombs were to fall on the USA,
that would already be an intolerable loss. That means that something else will
happen in the world. What, exactly?
The experience of the last 20 years has shown us that the U.S. has
only lost one battle: It has proven unable to hold on to the world power that
it has captured. On August 19, 1991 (in reality, even earlier), world power
fell into the hands of the Americans. And nobody objected to America becoming
the leading global superpower, or to the world becoming uni-polar.
America was to rule the world. Well, begin ruling, then!
In order to begin ruling, America needed very little. It needed a
three-million-strong land army. 400,000 in Iraq, 500,000 in Iran,
dictatorships, projects analogous to the Marshall Plan, for Iraq, for Iran, for
The garrisons of a New Rome in all the capitals of a world
empire, firing squads
A local population that would support this Pax Romana
The Americans did nothing of the kind. The wrecking of the Baath
party was a criminal mistake on the part of the Americans a crime committed
against themselves, because they could only rule Iraq
with the aid of the Baath party. Gates is now trying to resurrect something,
but its now impossible!
The Americans have messed up the system whereby America would have
served as the worlds gendarme. Why did they lose? Because
the American moderately intelligent and immoderately nourished doesnt want
to rule the world. To be more precise, he doesnt want to pay the price
that must be paid if you are to rule the world in the Roman way.
But nevertheless, the U.S. cannot reject hegemony. The Americans
cannot reject the formula "printing press aircraft carriers printing press
(using here Marxs extended reproduction): "commodity money commodity ").
If they do reject it, they will immediately be destroyed,
they will immediately be sent hurtling down into the abyss.
And that means it can only use the Carthaginian, Phoenician system:
"No legions, no rules. Raid, hurl missiles, hang around, and then retreat just
as fast. Turn them against one another, and so on. They will be in chaos, and
we shall reap various rewards."
If a "new world order" cant be instituted, as the Americans
themselves said (which was very reminiscent of Hitlers terminology), then a
"new world disorder" must be instituted. And as soon as a new world disorder
arises, everything will be decided. The only major site to which it would be
difficult to export disorder would be China. China doesnt want that disorder
to intrude: "Disorder wants to get in here through human rights? We will
throttle those rights. It wants to get in here using Uighur separatism,
fermented on Islamic fervor? We will throttle that
too! We will crush any fresh shoots of disorder. And with the aid of that
political stability we will provide for our economic growth."
The Americans are horrified by this Chinese approach! Obama,
continually referred to as "the American Gorbachev," has come to power. I dont
know whether or not hes a Gorbachev; some say hes another Kirienko,
while others believe him to be a new Carter
I dont know! I only know one
thing: If this man gives in to the greatest temptation of modern history known
as G-2, which is to say to a bipolar world, with the Chinese making up the
opposite polarity, then in ten years time the Chinese will be masters of the
world. Because G-2 assumes that something has to be shared with the Chinese
"younger brother," and that something must be given to it in exchange for this
I can tell you with full confidence that the only thing that can be
shared is us, which is to say Russia! Any G-2 is, effectively, an agreement on
the division of the Russian inheritance. It can be nothing else. Nothing else
is worthy of discussion. But any division of the Russian inheritance
presupposes a swift strengthening of China. That is why Obama is no Gorbachev,
because he will not agree to this. And if he is a Gorbachev, then we are moving
on to a new stage in the development of this tragedy.
But if he is no Gorbachev, then a question arises: What will be the
Americans next step? Will they adopt a strategy of chaos? Will they really opt
for thermonuclear war? Will they attempt to combine a strategy of chaos with
war? Or will they move off the global historical stage?
In my estimation, the likelihood that the Americans will leave the
historic stage voluntarily is precisely equal to zero. And that means that they
will either adopt a brutal military strategy or another strategy of chaos,
perhaps a more complex version.
In any event, however, the main challenge for America is China, as was
brilliantly demonstrated by our previous speaker.
John Ross (answers
I was asked about Chinas statistics with
a claim that they were unreliable. Im sorry but it is simply not the case that
Chinas statistics are unreliable in any qualitative sense in indicating its
very rapid rate of growth. First, because they can be checked, in the case of
trade, against other countries and they correlate. Second,
because where physical as well as financial data can be measured (output of
cars, output of computers etc.) they are essentially accurate.
because to the degree there have been changes in Chinese statistics, they have
revised Chinas growth rates upwards because they underestimated the degree of
development of the small service sector. So I just dont accept Chinas
statistics are qualitative unreliable. Those who claim this are simply trying
to ignore the reality of Chinas tremendous economic growth.
Risk of transferring economic
issues to the military level
the question that Sergey Kurginyan asked about the
attempt of the US to transfer questions to the military sphere. I agree this is
a tendency. This is one of the biggest current dangers because economically the
United States is decreasing in competitiveness while militarily it remains
extremely strong. This leads to a potential temptation to try to solve economic
problems by military means and this leads to consequences such as the war in
Iraq and attempts to station missile systems in Eastern Europe. It also
encourages unstable adventurers, such as Georgian President Saakashvili,
to engage in military actions which are aimed to bring in stronger powers.
In the case of Georgia the US, wisely,
refused to have anything to do with Saakashvilis
military attack but he may not be the last foolhardy adventurer to engage in
actions designed to try to get wider and
stronger powers to support them and this creates a risk of miscalculation
However in the case of China any attempt
to settle economic issues by military means, by anyone, would risk a world and/or nuclear war and
that is quite a different scale of issue to invading Iraq, military adventures
by Georgia, or missiles in Eastern Europe. The reason that the Cold War
remained cold was that no one was prepared to undertake a world war in a
nuclear era. Even if some extremist neo-conservative circle dreamt of
resolving issues with China by means of war all other means would be tried
The first hope of even the most
neo-conservative circles is that China will wreck itself that is commit
suicide. After all this has occurred before. The Soviet Union committed
suicide it was not destroyed from the outside, it destroyed itself from the
inside. Japan could have attempted to resist the economic policies imposed on
it but it chose not to, so Japan also wrecked itself. Even if a US
administration at present wished to wage a war with China, which it doesnt, it
is not is a position to it has too many other problems at present. It is
better to hope that China would wreck itself, commit suicide.
Why does the US not raise its
rate of investment?
I was asked why the US doesnt raise its
own level of investment in order to compete? This is
due to political reasons.
If a country wants to raise its level of
investment, and has no extra source of finance from abroad, then by simple
arithmetic it must cut its consumption. One way to achieve this would be for
the US to cut personal consumption but that would be drastically unpopular and
probably lead to the defeat of whichever party attempted it. Another would be
to reduce US military spending which from an economic point of view is
government consumption. Over 5% of US
GDP is devoted to military spending. If that was reduced to a normal level for
other countries, say 2.5% of GDP, that would give the resources for a big
increase in investment. But it would also require a huge change in the US
foreign policy so at the moment it has not been happening. One thing that is
being protected in US federal government spending is the military budget.
As for cutting the household consumption
of the US population we have already looked at why that would be drastically
unpopular in examining the cases of Presidents Nixon and Carter. Nixon was not
forced from office simply because of the scandal of the Watergate break in and
Carter was not a fool, but a very intelligent person. But both attempted to
recreate the competitivity of the US economy by
increasing investment via reducing the consumption of the US population which
was the accompaniment of their presiding over dollar devaluations. That is why
they were unpopular.
President Reagans policy was to import
the capital necessary to finance investment in the United States, while
maintaining a high level of consumption, by borrowing from the rest of the
world. And the rest of the world for a certain period was prepared to finance
this both under both Presidents Reagan and Clinton that is why they were able
to maintain their popularity. President Obama at present is reducing US
consumption somewhat although not as severely as Presidents Nixon or Carter.
Therefore he is becoming unpopular. The ability to raise the investment level
of the US therefore has a deep political dimension.
The RMBs exchange rate
I was asked about the RMBs exchange rate
and what would be a correct one? I have already dealt with the RMBs exchange
rate at some length but the simple answer is that the right exchange rate is
one which, over a period, permits a relative balance in the trade balance.
As was analysed earlier Chinas economic
policy has a great interest in having a very high level of exports because that
allows it to engage in the international division of labour and to achieve
efficiencies through economies of scale. One of the great failures of the
Soviet Union was that its leadership didnt understand the question of
international division of labour, which is what foreign trade is, and therefore
didnt aim at a high level of exports and imports. But China has an interest in
a high level of trade that is one aspect of the openness of its economy. It
has no interest as such in a large trade surplus - thats a different thing.
There is no problem if a country has a
high level of exports provided it has a high level of imports as well. And as I
noted during most of Chinas economic reform period, from 1978 to 2005, Chinas
trade was more or less in balance very high exports, very high imports. Its
only in the last 4-5 years that a big trade surplus has developed and it is now
going down again. Strategically I think
the RMBs exchange rate will evidently go up as the productivity of Chinas
economy develops but it should be in line with that productivity increase and
not ahead of it.
Coming to a question about the role of foreign
investment, or as it was slightly provocatively put of the selling of Chinas
labour to foreign companies. Most labour in China work for Chinese companies. About 5%
of Chinas investment each year comes from abroad and around 4% from Hong Kong
and Macao. 91% of Chinese investment is domestic.
It is true that in the early period of
reform the role of foreign investment was greater, and foreign investment is
still very important in areas such as exports. Also foreign investment allows
the importation of advanced technology. So its real
role is certainly bigger than 5%. But it is simply not true that Chinas
economy is essentially dependent on investment from abroad. And it is becoming
less and less true.
I am grateful to Mr.Ross
for the valuable addition, although as is quite obvious it does not change the
essence of the issue.
First. Mr. Ross himself is saying that all started
with the different way of participation of foreign investors in sharing of the
aggregate export product of China.
and the most important. It is irrelevant who and in what way sells the cheap
Chinese labor to the West and the world at
large. Whether Chinese or non-Chinese
companies are doing it, they are selling. They are not doing anything
different. When you lack your own spare capital to do it (that was the case at
the initial stage in China) you invite foreigners. But when your assets are
enough (China possesses enormous amounts today) why should you give away the
key part of the super-profit? You keep it to yourself.
and Mr. Ross is perfectly aware of that: the fine game is being played where
the watershed between "own capital" and "attracted capital" notions is blurred.
The "own" capital is in fact not exactly "own". The "attracted capital" is not
exactly "foreign". But these are indeed fine points.
Apologizing to Mr.Ross for this intervention
in his answers, I have to once again express my gratitude for his important
clarification. As to intervention, I
only deem it excusable because of the importance of the subject
and since, as everybody understand, the answer to some extent was addressed to me.
It is also very important to understand what is the real
economic process from the point of view of the standard of living. An
urban income in China is three times a rural one. A peasant
who moves to a city, whether they work for a foreign company or not, on average
triples their income. Wages in China may still appear, and are, low from
the point of view of the advanced world but anyone who triples their income is
going to see that as a huge step forward. Simultaneously they are making a
product which can be sold on the world market and it is competitive on the
world market. It is, in a phrase the Chinese authorities use, a win-win
situation. And the value added, and the wages, become higher each year.
If a person puts up their income by 300%
their immediate reaction is not going to be that they are super exploited
more likely they feel it is a brilliant breakthrough in life.
Of course China was only able to pursue
its economic course initially under certain conditions. One was that China
benefitted from the military protection given by the Soviet Union. Despite the
Sino-Soviet dispute, and border skirmish, China knew that the US could not
militarily launch an all out attack on it because the USSR would never have
allowed the US to exercise dominance along Russias long eastern border. Deng
Xiaoping was able to cut Chinas military
budget, which was one of the initial ways in which funds were raised to
stimulate consumer demand and investment, in part because China was protected
from the North by the Soviet Union. Without that China would have had to
concentrate on heavy industry to build armaments to protect itself
and on that basis it could never have had the economic success it has
achieved. The industrialisation process of the Soviet Union historically
created a protected space in which China could develop its economy.
Why can China sustain such a high
rate of investment
I was asked why China is able to achieve
such a high level of investment. The technical answer is because it has a very
high rate of savings by definition every act of investment must be financed
by an equal act of saving. But this, of course, simply raises the question of
how can China have such a high savings level?
The answer to that does not lie in the
level of household savings. China has a much higher rate of household savings
than Europe, not to speak of the United States, but it is a lower level than
India for example. The answer lies in the extremely high levels of saving, that
is profits, by companies. China has created, strangely enough together with
France, something which had never existed in the world before - which is highly
efficient internationally competitive state owned companies. How this was
achieved, and why it was not in the USSR for example, would be the source of a
whole talk by itself so I cannot deal with it here. I will simply state it as a
fact you can verify independently. It is one of the cores of Chinas socialist
market economy and one of its consequences, as we saw, is Chinas ability to
regulate its overall level of investment.
Science and technology
I was asked about the development of
science and technology in China. This is purely a question of expenditure and
time. The United States spends more than 3.5% of GDP on science and research
it is a developed economy and can afford this. China as recently as 1995, a
much poorer country, could spend only 0.5% of its GDP on science. By 2005, the
latest date for which I have figures, that had tripled to 1.5% of GDP. This, of
course, is still far behind the US but the rising trend is clear. In some
areas, for example its high speed trains, and renewable energy, Chinas technology
is now highly advanced and among the best in the world. As Chinas scientists
and technologists are neither more nor less inherently talented than those of
any other country it is simply a matter of time and expenditure before the
science and technology of China is on the same level as the United States and
The same applies to the question of the
development of the sophistication of products and creation of brands. When Japans companies started to export
their products in the 1950s, or South Koreas firms did in the 1970s, they were
initially of very poor quality. Toyotas cars in the mid-1950s drastically
overheated when used in the US and had to be withdrawn from the market. Samsung
was producing black and white televisions when that was a totally antiquated
technology. Toyota today may be having a few product difficulties but it
remains a totally world class company which defeated Ford and General Motors in
competition. Samsung has become a byword for design excellence.
The development of science and technology
is not a question of individual genius it is just a question of time and
money as in every country historically. It should be pointed out Chinas
government fully understands the decisive role of science, technology and research
it is emphasised in almost every major speech on the economy.
Will China wreck itself
I was asked whether China will follow the
pattern of the Soviet Union and commit suicide - that is destroy
itself. I dont know. That is a matter the people of China will decide not
foreigners. But I do believe the only way China can fail is if destroys itself.
The US cannot launch a war against China even if it wished because that would
mean a world nuclear war. Not only would no one else go along with this, as
people have a strong desire to stay alive, but the calculation would have to be
that it would not be a war confined to the US and China. Japan would be
attacked. The US would have to calculate Russia might join in. Certainly the
military planning of the US and Japan would have to take into account a
simultaneous war against China and Russia. This would be utter madness and
quite impossible to undertake in the next ten to fifteen years if ever. But
in ten to fifteen years time Chinas economy can be as large as that of the US
and that will solve the military issue once and for all for in military tests
of strength it is not GDP per capita that is decisive but the absolute size of
So unless China wrecks itself, that is
abandons the policies which have brought it such success, the overtaking of the
US economy by first China and then India is inevitable. As I stated Goldman
Sachs calculates Chinas economy will be bigger than that of the US by 2026,
and India will overtake the US around 2050. Purely mechanical extrapolation of
growth rates gives earlier dates. Evidently these dates can move around by a
few years but the trend, unless China or India commits suicide, is clear.
Historical relation of Russia and
Somebody asked me the question whether
the Russian and Chinese people are brothers. As I am neither Russian nor
Chinese it would be inappropriate of me to attempt to answer that question and
therefore I will not do so. But I can make a few observations on history.
A most fundamental fact of the 20th
century, as I see it, is that each time that that Russia/ the Soviet Union and
China were united they were victorious. And when they were divided one or other
Why was the Soviet Union able to win the
Great Patriotic War/the Second World War? First and foremost
of course due to the great heroism of the Soviet people and their gigantic
efforts to achieve that victory. But a precondition for victory was that
they were not simultaneously attacked from the East by Japan.
And the reason Russia was not attacked
from the East was twofold. The first was that the Soviet Union won the military
battles against Japan in 1938 and 1939. But in 1941 Russia was engaged in a life
and death struggle to its West. If Japan had attacked the Soviet Union with the
full weight of its military forces in 1941 Russia would not have been able to
deploy sufficient forces to defeat both Nazi Germany and Japan simultaneously.
The major reason Japan did not attack Russia from its East in 1941 was that
Japan was trapped in the war in China. The resistance of China to Japans
invasion was hugely stronger than the latter had envisaged. The Soviet Union
was protected from its East by China.
After World War II the fact that there
was an alliance between China and the Soviet Union then, of course, aided the
creation of the Peoples Republic of China that is the establishment of a new
independent China. Because no matter how great the resistance of China to
Japan, and 30
million people died in Chinas war against Japan, without the military
assistance that was given to the Chinese Communist Party (CCP) by the Soviet
Union, the CCP could not have emerged victorious and resisted the threat of
military intervention against China by the United States. General MacArthur was
prevented from using nuclear weapons against China during the Korean war by President Truman, among other reasons, because the US
feared nuclear retaliation by the USSR.
To move on, the US has only lost one war
in Vietnam. Despite the Sino-Soviet split China never stopped the military
support that was given to Vietnam by the USSR crossing Chinese territory. It was simultaneously the
struggle waged by Vietnam and the combined forces of China and the Soviet Union
that resulted in the US defeat in Vietnam.
Then there came a great period of
division between China and Russia during which, as we may say, the Soviet Union
committed suicide and China was left by itself.
What remains the case, and it is
something I profoundly believe in and have attempted to explain above, is that in the modern era, in an advanced economy, a
country-size economy does not work by which I mean one on the scale of a
traditional West European nation state. Only a continental-size economy
possesses adequate division of labour, and sufficient economies of scale, to
work really efficiently.
So if I could repeat
what a Russian friend said about Russia - and Im only repeating what a Russian
said to me. He said the break-up of the Soviet
Union has a result like a deep-sea diver who has gone down to a great depth and
has got the bends that is the formation of gas bubbles in the blood.
When he comes to the surface, and has the bends, you dont
not know how long its going to take but he is going to be paralysed or
The breakup of the economic space of the
former USSR was a historical catastrophe not merely for Russia. The economic
space that was the Soviet Union was far more integrated than was the European Union
for example. It is regrettably cynical that US administrations which promoted,
for example, the economic integration of Western Europe today set as one of
their number one goals in the world preventing integration between Russia and
Russia is too small by itself to be a
truly successful economy. Im afraid reality shows that the minimum size of a
really successful economy in the modern world is around 300-400 million people
- the smaller figure being the size of the US. A 140 million people state just
wont do in the modern world. China is a continental scale economy. The US is a
continental scale economy. India is a continental scale economy. Western Europe
is large enough to be a continental scale economy if it could unify itself. The
USSR was a continental scale economy. But Russia by itself cannot be a
continental scale economy. A large geographical space is not decisive. It is
the number of people and their productivity that counts.
Russia will never be allowed into
Western Europe in the real sense - and it is simply an illusion to believe it
is possible. The core of the European Union is the alliance between Germany and
France -around which is grouped Italy, Holland, Belgium, and Spain. That is 250
million people but it is the alliance of France and Germany that dominates. To
allow Russia into Europe, given the population of Russia is equal to Germany
and France combined, would be to create a Europe in which the alliance of
Germany and France could no longer dominate. And for that reason Russia will
never be allowed into Europe.
The Soviet Union was an entity large
enough to take its place alongside China and Western Europe. That is why
Vladimir Putin was right to describe the break-up of the USSR as a geopolitical
catastrophe. Today, evidently, Russia,
which has been greatly weakened by the break up of
the USSR, has an interest in good relations with both Western Europe and China.
How it will resolve the geopolitical disaster created by the break-up of the
USSR involves far wider questions than economics. But the parameters set by
economic questions I think are clear and I have tried to outline some of them.
Thank you .
Sergey Kurginyan: Wrapping up, I would like to touch on three issues.
I will begin with what Mr. John Ross has just
said. In answer to the question "What must be done for investment to flow into
America?" he replied: "Either cut consumption, or
military expenditure" (in other words, non-productive expenditure)
I would be grateful if someone could explain to
me what doesnt fit into the general outline that I have given here (albeit
having specified that it has been simplified for reference and so on)? If
something does not fit into the framework that I have given, then it must be
further developed, and a further complexity added on.
Again, what does the term "develop" mean here?
Developing the picture and adding in further detail by no means needs to be
carried out in economic terms or language. Economic language offers no
prospects for politics it does not function in this sphere. Explain in
normal, simple Russian words: What makes a country attractive for investors?
Describe various scenarios for attraction
The first level of Chinas attraction, without
doubt, is its cheap labor force. But, as our
respected speaker noted, the peasants have now begun to receive more. What does
that mean? That means that gradually the traditional structure is fracturing.
And the donor is fracturing. It is this that we can identify as an element of
"the Chinese suicide."
As soon as the Chinese workers want to receive
36,000 USD instead of 3,600 USD, as soon as the lower section of the country
stops impatiently knocking at their door from below, the development will be
over. These are the two sources of linear modernizing growth.
Will more complex sources of attraction appear?
Let us describe them! While the coarser sources more or less account for the
"Chinese miracle," one does not need more refined sources. Its the principle
of Occams razor: do not complicate an essence! There is no need. That is the
Secondly. Who creates a situation that causes investment
Of course, there are forces that could perhaps
regulate investment flows. I am the first to point out that there are subjects
in the process. The process does now flow of its own accord. There are masters
within it certain people that control that process. But I have never said
that there are only masters! There are objective processes. There is an
objective name for an objective process "attractiveness" or "maximum profit."
Investment flows to wherever it can receive a
maximum profit. And special efforts must be made in order for it to flow in the
opposite direction. In order for water to flow uphill you need hydraulic
devices, pumps and the like. And to make it flow downhill you merely need to
pour it. And it will flow.
For now, this "water" is flowing into China,
largely because the attraction indicated is present there. When and I stress
this again! the Chinese peasant gets comfortable,
and the Chinese worker becomes leftist and unionized, these sources of investment will come to an end.
Then, no doubt, other, more refined sources will be found. Well, we shall see.
I would like to again stress the following. China
has agreed to play by modernizing or capitalist (depending on whether you
prefer Weber or Marx) rules. It has agreed to play to the rules that the master
of the rules has proposed. And it wants to win.
I dont believe that China will reject its
rightful win. The Chinese are a far less "warlike" people than the Vietnamese
or the Japanese. But they are not so soft that they will reject a win that they
are rightfully entitled to. We shall have to see what China will do! But China
has agreed (and it is in this (this!) that the fundamental weakness of the
great political strategist Deng Xiaoping lay) to play by the internationally
The USSR refused to play by them for a certain
period of time. Yes, it collapsed. But this is not a matter of the rules
themselves coming to an end. And perhaps the destruction of the Soviet Union
came about precisely because it was frightening that the USSR had its own
non-modernizing project for development, that it had created its own,
alternative rules. And first those rules had to be shut off, and only then the
development as such. Otherwise you would shut off the normal development, and
everyone would go running to the Russians for their models. But now they dont
go running to the Russians. Or that is believed to be the case.
Thirdly, there is the division of the
inheritance. Do the results of the collapse of the USSR give the USA some
opportunities or not?
Let me tell you certain things of which Im
convinced. Over the course of the last two decades, we have managed to hang on
to Siberia only thanks to the Pentagons fear that the Chinese would take it.
In some sense they didnt quite let us fall apart in 1992, in 1993 and so on,
as a result of the Pentagons enormous fear that Siberia and the Far East would
be occupied by the Chinese.
Highly placed Americans specifically told me the
following with regard to this: "Imagine that youre ants. There are little ants
crawling about. Then throw a load of sugar under your bed. And just take a look
at what kind of ants will be climbing around after five years! Why did the ants
get so big? Because they got sugar, which is to say
resources. If the Chinese are given Russian (or, rather, Siberian)
resources, then theyll start running about so fast that we wont be able to
hold them back. So, Russians, please dont crumble! Were afraid of that and
dont want it to happen simply because of the above-mentioned reason."
Americans of a Republican orientation and the
Pentagon feared this in particular, even to a greater extent than the CIA. They
were really afraid of this!
But more recently something started to happen.
And everything that we now see is the result of what is happening. Were again
seeing that, despite Obamas declarations of friendship with Russia and so on,
the financing of the collapse of Russia by the Americans is being strengthened.
And the whole time it remains unclear what is
it that they dont like? To be honest, I really dont understand what it is
that they dont like about Putin, who they hate, and this is doubly true of Medvedev
Whats going on?
As the result of a conversation with one of the
members of the Club, I was overcome by a sacrilegious idea (and I am very
grateful to the Club member for it): "What if the Americans have suddenly
become extremely worried that the existence of a unified Russia in the form
that it now possesses will speed up its transition into a province of China?"
Just think about that idea! What if American
minds have been overcome by the following thought: "Is it possible that if we
dont start breaking Russia up right now, then China can incorporate a unified
Russia much faster than a Russia that has broken up into separate parts?"
With a little assistance from a series of
Russias pro-China politicians (or, rather, senior administrators), we signed a
package of economic agreements with China that was so large that it couldnt
avoid being an event in global politics. What if the Americans, in horror,
analyze those agreements, and discover that in effect Russian state power is
becoming a means by which China can swallow Russia? If that is the case, then
the Americans will destroy those means! And you can embrace the Americans as
much as you want, but it wont help. If Russia is a means for the strengthening
of China, then the USA must destroy that means!
Look at all of the presss content-analysis, Karaganovs articles, those of other authors
about this! If we remove the rhetoric, then its all about this! In recent
times, the Americans have stopped being afraid of the Chinese swallowing up the
Russians if the Russians collapse. Why have they stopped being afraid of that?
Because they have understood that the Chinese will swallow up the Russians
anyway! And they may do it faster! In that sense, something in America has
True, here in Russia a hope is regularly
expressed that the Americans will "commit suicide"
But for how many years can
we carry on hoping that theyll commit suicide? "Hope feeds youth
Lets imagine that a competitor company has taken
from us a bank, a railway line
I say: "Perhaps the head of that company will
die?" And it goes and takes another bank. And its representative says: "Yes,
yes! Hell definitely die! In three years time!"
What if these hopes of mine are being encouraged
by the competitor-company in order to "keep me in line"?
This is called "enticement through weakness."
Its an approach that has been employed by many: "Theres no need to fight
Brezhnev, hes about to die
Theres no need to fight
Yeltsin, hes about to die
" This tactic has been known for thousands of years.
Will they "kill themselves" by
organizing an American Perestroika? Yes or no?
They are going through a very serious crisis. All
that Obama has done is print several trillion dollars. And hand them out. The
money sped into oil futures. Why? Whats going on? Perhaps the Americans are
preparing to commit suicide? Or perhaps they arent ready for that?
If they are ready to do so, then they will sign
up to G-2 with China. It is enough for Obama to do that for him to become an
American Gorbachev. Although I think that China wont go for such an alliance.
But if the Americans arent yet ready to commit
suicide (and its my belief that they are not), then they cant hand Russia, or
a part of Russia, over to China. This is what must be analyzed, coolly and
carefully observing the development of events.
"Reset"? Im sorry, but in politics it is not a friend
that is needed, but a person who operates in your interests. Bush hated Russia.
But at the same time he operated entirely in its interests: he raised the
prices for oil, transferred American aggression from Russia to Iran, which is
to say against Islam, and "forgot" about human rights!
What if Bushs antagonist wont hate us in the
same way, but at the same time will do everything we want? Operating on his
understanding of U.S. interests?
What understanding? For
example, an understanding based on the phenomenon of "delay." A certain
American political leader believes that if Siberia is slowly given to the
Chinese, then a certain delay can be received while China "digests" Siberia
(just as the Federal Republic of Germany "digested" the German Democratic
Republic I understand that the comparison has its limitations, but
nevertheless it can be made).
And so, Bushs American antagonist signs up to a
"delay" of this kind. The Chinese "digest" Siberia,
and the Americans says: "Well, at least theyre not digesting us for the time
being!" Or, as Putin once said: "Mr. Wolf knows best who and when hes going to
Is such a variant possible? In principle, it is.
What are we to do if the process begins to move in this direction?
Please allow me to once again express my deep
satisfaction with Mr. John Rosss talk. Id like to thank him on behalf of all
those gathered here today and say that we have a great interest in further
collaboration and greatly value his materials, his thoughts and his high level