8 Οκτωβρίου 2015

Regional Integration Without Empire - part I.

By
Henry C.K. Liu

Presented at the 2015 Eurasian Workshop at IIASA, Luxemburg, Austria – Sept 15-16


Regional integration is a multi-national political process in which sovereign nation states within a region voluntarily agree to enhance cooperation in regional affairs through participation in supranational institutions governed by integrated regulatory regimes to facilitate the region’s common goals and objectives in socio-economic development, while retaining individual state sovereignty.

It is important that regional integration does not degenerate into empire structure dominated by any one nation state, or one group of nation states.

As a political process, regional integration aims to achieve within a region economic, social, cultural and political integration. This goal is to be achieved through the promotion of international trade by reducing trade barriers within a region, such as reduction or removal of tariffs to create a single regional market, and to adopt unified rules on trade, standards on goods quality and service performance, legal framework and a common currency, or at least a free convertibility of currencies of member states.

The process also orchestrates multilateral governmental support from sovereign states in a region for tackling common regional problems that transcend national borders, such as protection of the environment, maintenance of public health, safeguard of cross-border water purity and supply, setting standards for food safety, policing of transnational crime, particularly illegal cross-border traffic of narcotic drugs and controlled substances, undocumented immigration, violation of financial regulations and fraudulent business practices, and illicit money laundering.

Regional integration as it has developed nowadays focuses primarily on economic issues, particularly through market liberalization in international trade and finance and concerted efforts to create a region-wide single market, operating under the assumption that prosperity can best be achieved through trade and that prosperity is a sine qua non for achieving socio-cultural and political integration .

Yet many regional problems are not purely economic or financial, but are social-political problems with economic and financial dimensions. Such socio-economic-political problems cannot be understood, let alone solved, through doctrinaire market fundamentalism. This is because the market is only one narrow aspect of the economy and while the market can give a quick fix on economic conditions at a specific moment, it is not informative to view the market itself as the economy, particularly as an input in socio-political policy deliberation.

Historically, the most effective venue for regional integration has been the empire structure of the 19th century. As WWI brought about the end of Age of Empire, it also gave life to a new Age of Imperialism gamely practiced by democratic governments of new bourgeois sovereign republics that followed the demise of imperial monarchies.

WWII ended the Age of Colonialism but gave a second life to Neo-Colonialism as whitewashed by Winston Churchill’s fantasy propaganda of the victorious Allies as “The Democracies” and “Defenders of Freedom”, and because neocolonialism could be used as an effective program to stop the spread of global communism, it deserved the support of the US as the superpower of the capitalistic democratic camp.

It is particularly pathetic that Churchill himself was nor democratically elected Prime Minister, but appointed by the King as an emergency arrangement to form a war-time coalition government with the opposing Labor Party without an election being held.

Predictably, lingering colonialism drove many national liberation movements to turn toward communism in pursuit of self determination. Post-war France was consumed by civil war to suppress national liberation in Algeria and Vietnam seeking self determination.

Anti-communist fixation in the US forced the guarantor of self-determination to support residual French colonialism, dragging the country into a protracted Vietnam War that instead of bringing peaceful unification in the small distant Asian country, caused a deep split in US public opinion, radicalizing US politics and exposing US government to populist mass protests. The high cost of the no-win war in Vietnam torpedoed LBJ’s grand vision of Great Society as massive resources were siphoned off to fund foreign war to save French colonialism.

Real Politik

Han Morgenthau in his Politics among Nations: The Struggle for Power and Peace (New York: McGraw-Hill Education, 2005) sets forth six fundamental principles of real politik. The first principle of political realism maintains that politics are grounded in observable laws of human nature – any idealistic attempt to challenge these laws will only lead to failure. Therefore, the project of political realists is “the testing of this rational hypothesis against the actual acts and their consequences that gives theoretical meaning to the reality of international relations” He describes US post-war behavior as imperialistic.

Moegenthau’s second principle of political realism is the centrality of power. Political realists believe that power is the main articulation of political interest, a hypothesis that can be tested by the observable actions of statesmen throughout history. By focusing on the study of political power, realists create a continuity of analysis of policy: each state can then be analyzed in terms of power politics.

However, Morgenthau warns against two common misconceptions: the first, trying to understand the motives of statesmen, is faulty because motives do not always align to actual policy or outcomes of policy; and the second, the alignment of ideology with action, to which the realist responds that a policy may be articulated in terms of popular ideologies, but nevertheless remains a product of considerations of power. Only a rational foreign policy built off a reasoned analysis of international relations will be a successful foreign policy.

The third principle is that while power is a “universally valid” concept, realism does not endow that concept with a meaning that is fixed for once and all.” While the focus of analysis remains power, the method and articulation of power throughout centuries has changed and will continue to change. It is possible for a shift in scalar units of analysis (away from then nation-state), since “the contemporary connection between interest and the nation-state is a product of history and therefore bound to disappear in the course of history.” However, realists still disagree with their idealist counterparts in believing that the transition away from the nation-state system will occur as a product of the laws of international relations – not by the reasoned pleas of a utopian minority.

The fourth principle states: “political realism is aware of the moral significance of political action”. However, the moral principles relevant to a particular policy must be historicized and contextualized. Therefore, ethics is incorporated into political realism through the calculation of the political consequences of a particular policy or action.

The fifth principle holds that “political realism refuses to identify the moral aspirations of a particular nation with the moral laws that govern the universe”. Since nations have and will continue to disguise their particular ambitions within the language of universal morality, the shrewd realist sees through their rhetorical maneuver. Instead, power forms the basis for judging the actions of other countries and developing appropriate reactions to those actions.

Lastly, the sixth principle is the acknowledgment of the primacy of political analysis in the sphere of the political. Morgenthau warns that policy repeatedly guided by legal and moral guidelines instead of strictly political considerations endangers the power of a country and the welfare of its citizens. Instead, realism advocates that policy must arise out of purely political analysis: an analysis of power. In a world order of sovereign state interacting in free trade financial capitalism operating through markets with a price mechanism, policy must arise from an analysis of market power, which can be defined as a participant’s ability to effect price to his benefit in an open market without alienating other participants to the extent of causing market failures.

Virtual Synthetic Empires

Even today, the formation of regional integration frameworks is at constantly risk of dominant states exploiting the creation of ideologically preferred integration frameworks in which preeminent states can exercise exclusive imperialistic influence over other weaker member states in a virtual form of synthetic empire building.

In this context, including and excluding of certain target countries in regional integration schemes are essentially stealth empire building measures by dominant states, as can be observed in the distinct feature of the US engineered Trans-Pacific Partnership (TPP) in its pointed exclusion of the People’s Republic of China (PRC).

Boycotts or nonparticipation in regional integration initiatives is a negative form of empire building as US position of the China-proposed Asian Infrastructure Investment Bank (AIIB), an international financial institution focused on supporting infrastructure construction in the Asia-Pacific region.

AIIB was proposed as an initiative by the government of China and was supported by 37 regional and 20 non-regional members as Prospective Founding Members (PFM), 51 of which have signed the Articles of Agreement that form the legal basis for the proposed bank. AIIB starts operation after the agreement enters into force, which requires 10 ratifications, holding a total number of 50% of the initial subscriptions of the Authorized Capital Stock. Countries with a large GDP that did not become PFMs are the US, Japan (which dominated the ADB) and Canada.

AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States. The United Nations has addressed the launch of AIIB as "scaling up financing for sustainable development" for the concern of Global Economic Governance.

AIIB was proposed by China in 2013 and the initiative was launched in Beijing in October 2014. The Articles of Agreement (AOA) were signed by 50 PFMs on 29 June 2015, which become a party to the agreement through ratification. As of July 2015, one member state (Myanmar) has ratified the agreement, formally becoming a founding member.

AIIB was proposed as an initiative by the government of China and was supported by 37 regional and 20 non-regional members as Prospective Founding Members (PFM), 51 of which have signed the Articles of Agreement that form the legal basis for the proposed bank. AIIB starts operation after the agreement enters into force, which requires 10 ratifications, holding a total number of 50% of the initial subscriptions of the Authorized Capital Stock. Countries with a large GDP that did not become PFMs are the US, Japan (which dominated the ADB) and Canada.

AIIB is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which are regarded as dominated by developed countries like the United States. The United Nations has addressed the launch of AIIB as "scaling up financing for sustainable development" for the concern of Global Economic Governance.

AIIB was proposed by China in 2013 and the initiative was launched in Beijing in October 2014. The Articles of Agreement (AOA) were signed by 50 PFMs on 29 June 2015, which become a party to the agreement through ratification. As of July 2015, one member state (Myanmar) has ratified the agreement, formally becoming a founding member.

Rise of China Upsets US

Within US policy circles, the rapid rise of China as a major force in the global economy is provoking a reconsideration of whether free trade is still in the US national interest. The prospect that China can be a major economic power is feeding wide-spread paranoia in the US. The fear is that developing nations led by China and India may out-compete the advanced nations for high-tech jobs while keeping the low-skill, labor-intensive manufacturing jobs they already won.

China already is the world's biggest producer and exporter of consumer electronics and it is a matter of time before it becomes a major player in auto exports. Shipbuilding is now dominated by China and aircraft manufacturing will follow. The US Navy is now dependant on Asia, and eventually China, to build its new ships and eventually the economics of trade will force the US Air Force to procure planes assembled in China from parts made in Asia.

The fear of China by the US dates back to almost two centuries of institutional racial prejudice, ever since Western imperialism invaded Asia beginning in early 19th century. Notwithstanding that it is natural, ceteris paribus, that the country with the world’s largest population, an ancient culture and long history would again be a big player in the world economy in modern times as it modernizes, the fear that China might soon gain advantages of labor, capital and even technology that would allow it to dominate the world economy and gain the strategic advantages that go along with such domination, is enough to push the world’s only superpower to openly contemplate preemptive strikes against it.

Furthermore, Chinese culture commands close affinity with the population in Asia, the main concentration of the world’s population and a revived focal point of global geopolitics. Suddenly, socio-economic Darwinism of survival of the fittest, celebrated in the US since its founding, is no longer welcome by US policymakers when the US is no longer the fittest and the survival of US hegemony is at stake. To many in the US, particularly the militant neo-conservatives, international trends of socio-economic Darwinism now need to be stopped by war.

China has more than 1.3 billion people, a fifth of the world’s population, and a work force of 700 million as against a US work force of 147 million, at a ratio of 5 to 1. To avoid being over taken by China in aggregate national income, US wages would have to maintain a gap of five times over Chinese wages. Historically-based technological and economic advantages currently give US workers a nominal wage gap of over 35 to 1 over Chinese workers, or 9 to 1 on purchasing power parity (PPP) basis. This comfortable gap is not based on current productive differentials but rather on unbalanced terms of trade and geopolitical incongruity left by history. Yet until wage parity is attained, free trade will continue to be driven by cross-border wage arbitrage in favor of China. But with wage parity, the Chinese economy will be five times the size of the US economy, a prospect not particularly welcomed by the US geopolitical calculations. It was the superior US economy that enabled the US to emerge as victor in the two world wars and to prevail in the Cold War.

Free Trade leads to Unbalance Trade

The US is waking up from its self delusion about free trade to the reality that free trade never leads to balanced trade. Free trade always works against the weaker trading partner, notwithstanding Ricardian principle of comparative advantage. The British promoted free trade when it’s early industrial economy was the strongest in the world.

Friedrich List, in his National System of Political Economy (1841), asserts that political economy theory as espoused in England, far from being a valid science universally, was merely British national opinion, suited only to British historical conditions.

List’s school of institutional economics asserts that the doctrine of free trade was devised to keep England rich and powerful at the expense of its trading partners and such free trade must be fought with protective tariffs and other protective measures of economic nationalism by trading countries with weaker economies. Henry Clay’s "American system" was a national system of political economy.

The US was happy to promote free trade when unbalanced trade was in favor of the stronger US economy. Balanced trade between unequal partners requires managed trade to reduce market power of the stronger partner, which is achieved by the weaker economy resorting to government interference on free trade for more favorable terms of trade. Such government interference is driven by the politics of trade. When managed trade is conducted against the weaker partner, it is economic imperialism. When it is conducted against the stronger partner, it is known as leveling the playing field. Yet some in the US are engaging in New Speak when they seek the perpetuation of economic imperialism by demanding a leveling of the playing field in trade with weak, less-developed economies with low wages.