Disruptive China
People in the technology world love the word, “disruption.” Though widely mis-used, the concept draws valuable attention to the fact that change is sometimes discontinuous. Nassim Taleb’s idea of the black swan similarly resonated because it emphasized that the present is not always a good guide to the future.
The most important potential disruptor in the world today isn’t a technology or a company. It’s a country: China. Over the next few decades, China could alter the foundations of the longstanding world order. Those of us in the West need to consider this possibility. Not just in the naïve sense of “countering the Chinese threat.” To make strategic decisions, we need to understand what it would mean to live in a China-centric world.
Disclaimer: I’m not a China expert. I’ve only been to the country once, for a few days in Shanghai. I don’t speak the language. Books, online sources, and conversations only go so far. And the generalizations I make here are necessarily imprecise. Neither China’s government nor its people are monoliths. I’m writing about the topic partly as a means of learning. Please give me feedback and point me to useful resources.
Francis Fukuyama memorably described the current era as the end of history: relative peace, liberal democracy as the dominant political system, and the United States as the dominant world power. Alternatives such as the Taliban in Afghanistan, Venezuelan socialism, and Russian kleptocapitalism are exceptions that prove the rule. Although the Soviet Union and Nazi Germany once represented credible threats, they failed.
For all the talk of accelerating change, the world has had the same political/ideological configuration for most of a century.
What might shift it? If you care about technology, or about your kids, this is what you’re always asking yourself. Whether Facebook, Google, or a startup in someone’s dorm room becomes the world’s most valuable company isn’t an existential question. A basic reorientation of the world would have deep ramifications for the way we all live our lives. I’m not just talking about a traumatic event like 9/11 or a revolution in one country; I mean something that undermines the underlying global consensus.
There are three kinds of disruptive scenarios we can easily imagine. One is some ecological catastrophe: nuclear or biological warfare, climate change, or genetic modification gone wild. One is technological: The AIs will kill us all or the robots will take our jobs. These have all been the subjects of significant attention among or political, business, and intellectual leaders. What about geopolitics? What could undermine the dominance of the U.S. and liberal democracy?
There is one serious answer: China. We hear about Chinese human rights abuses and trade practices. We don’t take seriously enough the possibility that the 21st will be the Chinese Century, as the 20th was the American.
What makes this blind spot surprising is that eventual Chinese hegemony is the base case for the future. China is the world’s second-largest economy. Experts disagree only on the timing of when it will surpass the United States. That would restore China to the position it occupied vis-a-vis the West for much of recorded history, as the chart below illustrates.
Yes, these numbers reflect China’s massive population; on a per-capita basis it remains far behind the developed West. And economic scale is not the same as dominance in the realms of military might, political soft power, culture, or ideas. Apple makes and sells many iPhones in China, but it’s an American company and a product of the American Silicon Valley system. China still has a long way to go.
It’s going there. Of the top ten companies on Forbes’ Global 2000 list for 2018, half are American and half are Chinese. China is rapidly moving up the technology stack, from manufacturing cheap goods to precision assembly to deep R&D in areas from artificial intelligence to stem cell therapies. And its consumer internet market is already much larger than America’s.
The two critical factors to keep in mind are the impact of compounding growth over the long run, and the speed of change in the short term. When a country grows at 7–9% a year for decades, as China has, the numbers escalate much faster than those of a country like the U.S. growing at 3%. (Even if some of China’s reported economic numbers should be taken with a grain of salt.) And when the combination of economic conditions and culture promote rapid adoption, things can change in a blink of an eye. Mobile payments are a new technology. They depend on smartphones, which were introduced fairly recently and originally were far more prevalent in America. Yet mobile payments in China were roughly $9 trillion in 2016, compared to $100 billion in the U.S.
These trends seem likely to continue. In particular, big data is becoming increasingly central to business. The most valuable asset in a big data world is access to more data to drive machine-learning algorithms. China has two in-built advantages. It has the most people, who are generating all that data. And it lacks the restrictions on both private and government data collection that are rapidly becoming more extensive in the West. There are any number of reasons why this line of thinking about China’s tech-fueled economic dominance might be mistaken, but they generally require something to change between now and then.
A simple extension of trend-lines points in China’s favor.
The economic competition between American and Chinese companies is only the surface issue. The deeper question is whether the Chinese model for economic and political development will become an equal or more powerful alternative to liberalism of the West. This is the possibility that Americans have a hard time confronting.
China is not a capitalist democracy. It has elements of both. Where it diverges from the West is in the foundational belief in individual rights and the rule of law. Western liberalism requires governments to give up control over society. This was achieved over time through bloody revolutions and Enlightenment ideology. The Chinese model is different. It puts social stability at the foundation, not freedom. As a result, government never fully subjects itself to the constraints of the rule of law, and individuals are not guaranteed the same rights through bureaucratic institutions.
In the Western imagination, economic dynamism and human flourishing are tied inextricably to human rights and the rule of law. Countries that forswear the latter two cannot achieve the former two. China begs to differ.
China pulled a billion people out of abject poverty and created a technology-driven economy to rival America’s without accepting the premises of liberal democratic capitalism. In particular, China has established a radically entrepreneurial society. Yes, there is widespread theft and copying of Western technology, but that’s far from the whole story. Those who go to China frequently come back raving about the speed of development and how relentless the people are about business formation and growth. The dominant sociological account in the West, Max Weber’s attribution of the “spirit of capitalism” to the Protestant ethic, gives us few insights about China. If the Chinese model wins, or even just becomes an equal competitor to the American model, the rest of us need to understand it.
Nowhere is the tension in the Chinese model more stark than in the field I study, blockchain and cryptocurrencies. China banned cryptocurrency exchanges and initial coin offerings, and has shut down businesses attempting to take payments in Bitcoin. Yet at the same time, both entrepreneurial and investment activity around cryptocurrencies in China is by all accounts frenetic; the People’s Bank of China is seriously exploring a tokenized version of the renminbi, the official currency; most of the world’s largest exchanges are connected to China; and local governments are offering huge subsidies for blockchain development.
China is very clearly trying to do to the blockchain what it effectively did to the internet, which most of us in the West considered impossible: enjoy the benefits of decentralized networked connectivity while maintaining centralized control and oversight. Perhaps this time China will fail. We should at least consider the possibility not only that it will succeed, but that its blockchain vision will predominate. Not that truly decentralized networks will be stamped out; but that most of the world, most of the time, will experience blockchains with a Chinese character.
China is not an unstoppable juggernaut. It faces very serious internal challenges and has many strong dependencies on the West. Its debt-fueled growth may be unsustainable, just as the “Japanese miracle” hit a brick wall in the lost decade of the ’90s. I don’t know with any confidence whether the endemic corruption or something else will derail China’s rise. All I know is that it hasn’t yet.
The immediate question is how we in the West think about China. Or more accurately, how we don’t.
China strategy is an important topic in American foreign policy circles, and occasionally the subject of histrionics from politicians. There is a U.S.-China trade war raging. Yet we don’t consider China as a rival in the broad sense.
With the Soviet Union, the West engaged not only in a military and political conflict, but ideological debate. Respectable Western intellectuals made argument for socialism or communism. Not all were Soviet dupes. Even now, neo-Marxists offer thoughtful critiques of rising inequality, and politicians like Bernie Sanders and Alexandria Ocasio-Cortez embrace the “socialist” label. The fact that Soviet-friendly ideology was taken seriously all those years was, in the end, a healthy thing. The socialist-leaning left provoked a response from defenders of capitalist liberalism. Much of today’s economic orthodoxy grew out of the intellectual efforts of the Austrian school to discredit communism.
I don’t see any prominent western intellectuals advocating for the Chinese model of development. Or even acknowledging it represents a new model, not accurately summarized as “authoritarianism” or “communism.” Perhaps it’s that until recently, China made no effort to internationalize its ideology. The Soviets did so from the beginning because they saw themselves as the vanguard of a global socialist revolution. China has recently been taking steps to expand its sphere of influence through its Belt and Road initiative, but that’s a geopolitical more than an ideological move. Its alliances with rogue states like North Korea are similarly based on self-interest.
Perhaps the issue is that the Chinese model is so linked to Chinese culture. China is exceedingly ethnically homogenous for a large country, although it does have a number of oppressed minorities like the Uighurs. It has always had an inward-facing bent, confident in Chinese distinctiveness from those outside its borders.
Yet that seems to be changing. China’s leaders are increasingly talking to external audiences not just about about developing their country, but about becoming a superpower and steering the world. They have to. The logic of the Chinese model is driven by exports and trade. Even though China has a massive and growing internal market, it needs the rest of the world. And the rest of the world is a better place for China if it follows the Chinese ideological model. At some point, for example, the logic of market competition is that Chinese companies will want to extend the social credit reputation system overseas, just as Europe hopes to globalize its (rather different) vision of data protection. The Chinese government no longer just pushes back defensively when foreigners criticize its internet censorship. It points to the American chaos of fake news and online trolling, and then argues that its emphasis on social harmony is the better path. And not just for China.
China’s vision isn’t something I welcome, even though I find most Americans too quick to dismiss it as a caricatured version of Stalin-era totalitarianism. The dynamism of liberalism, its openness to diversity and social mobility, and its robust concept of justice are things the world would be impoverished to lose as guiding lights. I’m no longer so sure we aren’t losing them already. (A topic for another post.)
Maybe, in the end, the problem is that we don’t even have a good label for the Chinese model. It’s so easy to fall back on “the inscrutable mystery of China.” But if the world in the coming decades faces a choice of its dominant organizing principle, shouldn’t we do everything we can to understand the second option?
Thanks to John Artman, Lionel Wang, and Avery Goldstein for helpful input and feedback.
