KAMPALA – The debate about who will be the next big thing in terms of economic power has been raging for years until when China decisively took over as the world’s factory and as the world’s second-biggest economy after the United States of America (USA). It is clearly a leading contender. The Coronavirus pandemic has brought the subject to the table. The battle lines are drawn. In 1980s, Japan was a contender until when it was humbled with a currency revaluation in 1985, at the New York plaza, The Yen declined by 51%. The Japanese Yen was from 242 to 153 Yen per dollar. The effect was reducing the value of the Japanese economy by 50%. This led to a recession in the Japanese economy, for a decade. Japan attempted to revive the economy, but the monetary expansionist policies did not help.
Japan felt the 10 years after the currency revaluation was a lost decade. It never recovered to challenge the American economy, smart Americans. Indeed, they were. The strength of the American economy lies in its currency and the hold they have over the world. Today the US GDP is US $21.44 trillion (2019 figure), Japan is a paltry US $5.15 trillion and China US $14.14 trillion. With its currency demanded in all countries the US can arm twist any country in the world, can it handle China as it did Japan? Japan remains World’s number three in GDP. Meanwhile, India has been lagging behind China in economic growth. India has potential, it has many things that favour it and as the West loses its economic might, India may be the country they want to push not to lead the world but to rival China. But can India measure up? The Coronavirus effect is bringing India to the table in debate of who is next.
India and Chain Compared
India and China have two different political systems, India is a democracy, by Western standards, while China is a communist country. Both countries are in Asia, and China has a population of approximately 1.4 billion people while India has a population of approximately 1.3 billion people. India is the second largest country in the world in terms of population coming after China. It is believed that the Chinese economic growth was orchestrated by government using, in the Western language, dictatorial methods, central planning and central allocation of resources. The state decides what happens. Whereas India as a democracy has been growing with less government direction with its own checks and balances imposed by the freedom associated with democracy. India presently has a free market economic system as its leading economic philosophy. Immediately after independence, India decided on a “Socialist pattern of Society”. It drew lessons from the Soviet Union. It started hundreds of parastatals but sold them off in the 1980s and 1990s. It abandoned this policy in the 1990’s. India’s current dominant political thinking is capitalism, but romances with socialism now and again.
India is the 5th largest country in the world in terms of GDP. When you compare both countries at the moment. China GDP (nominal US $14.14 trillion PPP US $ 27.31). India GDP (nominal US $ 2.94 trillion, PPP US $10.51). India has a long way to go. India is still a poor (middle income) country in terms of per capita GDP (US $2019 in 2019). The number of poor are still very many, 68.8 percent of the population live on less than US $ 2 per day! Whereas China has been able to bring out a very large number of poor people to the economic main stream to create a middle class. China now has 850 million people out of poverty. Those who live on or less than US $ 2 a day are about 1.7%!
The Domination of Capitalism and the West
The world has up to now been divided in to the two major philosophies. The capitalist philosophy and communist philosophy. Capitalism continues to rule the world as communism was rested with the demise of the Soviet Union in the early1990s.Capitalism has provided us with all these amazing products that we consume today, the progress that the humankind has attained has come from capitalism. Capitalism through competition has been able to create new cheap but high-quality products, improve the efficiency in production and delivering of services. It has been amazing how the world has developed. The last 40 years of developments are beyond one’s imagination. Capitalism is associated with the “Western” countries and Western values led by USA. The success of capitalism has been safeguarded with development of a military-industrial complex. The US-led this with highly sophiscated military hardware.
But capitalism has its shortcomings, for instance in the US one percent (1%) of the population hold more wealth than the entire middle class! Middle class in the US has 2 groups (upper and lower middle class). They both total about 68% of the population. The development of the underclass in Western countries is common problem in capitalist countries. About 10% of the American population live below the poverty line. This should not happen in such a wealthy state. It perpetuates inequality among people. But that is capitalism. Capitalism develops policies that deliberately disadvantage other countries. They are subjected to conditionalities for loans. They are forced to accept issues like homosexuality to benefit from grants and loans. Those who don’t comply Zimbabwe, Venezuela, Cuba among others are left to hyaenas to feed on.
The deliberate keeping back of countries in Africa, Asia and Latin America has been a policy of capitalism. These countries are rich in minerals and other resources, they are kept back so that they don’t exploit the resources and grow. This allows the West to extract raw materials from them. The Western capitalist countries are able to secure the resources which are used in developing products they use. Capitalism has also been responsible for environmental damage. The relentless exploitation of resources without thinking of its effects on the environment has led to climate change. The US has refused to ratify the Kyoto Protocol to protect the environment because it limits its economic activity. The current international world order which appears to be crumbling has been based on capitalism and Western values. It is only the US’s hold on the world with the dollar that is delaying the change. China and possibly India are in waiting.
At the end of World War II, the countries that won the war created an alliance, what we call NATO today, the “North Atlantic Treaty Organization” which is a military alliance to safeguard capitalism from invasion by communism. The NATO alliance is redundant today because there is no military threat to the Western countries unless if it is escalated by a combination of Russia and China.
NATO includes countries like Germany and Japan and Italy which were the main adversaries of the West in World War II and lost the war. This Western alliance was essentially against the Soviet Union then. The Soviet Union as it was known then had taken over most of the countries in Eastern Europe and created a powerful alliance of nations during and after World War II. When the Soviet Union crumbled in the 1990s ending communism, the various countries that had been part of that Union became independent. Indeed, many of them became part of the European Union and also became part of NATO. These were 15 states including Georgia, Lithuania, Estonia, Armenia, Latvia Belarus, among others.
Testa to Capitalism
The dominance of the World by the West and Capitalism has been prominent for the last 200 years or so. World War I and II were not ideological wars. It was Germany, Japan and Italy, all capitalist countries fighting UK and France. They were fighting for markets. The UK and France had already established their colonies around the world, which made them wealthy, Germany and Japan did not have markets. The West then called those countries, fascists. An appropriate name is always found for an enemy. The wars were a result of conspiracies but largely motivated by trade or the lack of it. After World War II, the United Nations (UN) was established to ensure peace. All this was possible when the United States, the richest country then, with about 40% of the world GDP entered the war and tilted the balance in favor of the Alliance, the UK, France and the Soviet Union.
The World Wars tested capitalism because they dictated that the states command resources for the war. Capitalism does not allow the state to allocate resources. But these wars didn’t have a large effect. The biggest test capitalism has ever had was during the period of the great depression in 1929-1939. This is when the New York Stock Exchange crushed. This was a period of misery in the capitalistic countries with very high unemployment. After World War II, the Alliances split into two groups, the West and East. At that time, Russia had become the central country in the Soviet Union and its army, the red army, had overrun all the armies in Europe. The Soviet Union was stopped after it had taken over part of Germany which came to be known as East Germany. There was fear among capitalist countries, that communism was engulfing Europe. This was one of the reasons that drew the US in World War II. It had earlier been reluctant to join,
The World entered the period of a cold war. A war without arms but just attitude propaganda and hostility towards one another. It was a silent war between the West, capitalist countries led by the US and the East, the socialist countries led by the Soviet Union. As the Soviet Union disintegrated in the 1990’s, capitalism won and the West continued to dominate the world with only one superpower the USA. The West really believes that there’s no alternative to its system both economic and social. The economic system has been led by the US and of course Japan, Germany, the UK, France and Italy have been the main countries that dominate the economic system among the Western countries. This is what is commonly known as the “International Community” It has been an extremely successful system. Other than bringing inequalities and exploiting developing countries, it has been a very attractive system. By the way Nordic countries, while capitalist have dealt with the inequalities through fiscal policies. The West created a system where the world looks at Communism negatively. Communism has never, in the eyes of the West been able to have any good. It has always been seen as a repressive and an undesirable system of governance and today as the Americans storm out of the lockdown, they are fighting for their freedom, the freedom to die as they say! Under the communist countries you can’t exercise that freedom.
The Emergency of China
China became a communist country in 1949 when Mao Zedong took over the country after 5 years of an internal war. China as a communist country did not grow fast economically until the 1980s. This was after rehabilitation of Deng Xiaoping who had been sidelined as a leader. Deng Xiaoping introduced reforms in China that led to the current Chinese economic prowess. He introduced elements of market forces.
The economic rise of China, a communist country, has threatened the world order established by the West. So, it is true that the world is changing, but as it changes what’s going to happen as China attempts to take over the world. The Coronavirus has awaked those dreams and fears. India is some way behind. Can India overtake China? Can India be fast-tracked to compete with China? Can India be the next big thing?
China will be fought by all means through Western propaganda machinery. The “International community” as it is known, controls the press, it controls the world financial system. It controls trade and most important, the US dollar reigns supreme as a global currency. The Western system will condemn China in whatever it does. It will organize boycott of Chinese products. Some Americans have the audacity to sue China for US $ 6 trillion for how it has handled the coronavirus pandemic!
The writer, Prof. Waswa Balunywa, is the Principal of Makerere University Business School