Page 3 of 4 OBAMA, CHANGE AND CHINA, Part 1
The song stays the same
By Henry C K Liu
The US's peaceful-evolution strategy for China is dangerous wishful thinking
because unregulated market fundamentalism is in basic conflict with Chinese
socio-economic and political culture. Even if the US strategy should succeed
temporarily, the resultant structural inequality will end up pushing Chinese
politics to repeat what happened to Pahlavi rule in Iran, to be overthrown by
an otherwise preventable fundamentalist revolution. The current global crisis
is a wake-up call for a fundamental review of Chinese economic policy of the
last three decades to keep the good and correct the bad.
New world order emerging
The global financial crisis that began in July 2007 has accelerated the
emergence of a new world order with a fundamental shift in the
balance of power from a US-centric uni-polarity to a multi-polarity that
reflects that rise of the BRIC (Brazil, Russia, India and China) nations. US
attempts in the final 18 months of the Bush administration to restore
unregulated failed markets failed spectacularly because such attempts tried to
restore the very conditions that had caused the failure. There is no hope of a
"recovery" to the good old days of unregulated predatory market fundamentalism.
The only hope lies in a fundamental restructuring of the predatory global
financial and economic order into a more just world order.
The Obama team may or may not bring about "changes we can believe in", or it
may merely try to restore a dysfunctional financial system that will again
produce serial financial crises at regular intervals. So far, the composition
of the Obama team does not inspire confidence as the key cabinet positions are
drawn from the same talent pool of people who had caused the problem earlier.
They are mostly the same "all the king's men" who had earlier pushed the Humpty
Dumpty economy off the financial wall. The only change appears to be in the
presidential rhetoric, not in the administration or the legislative branch of
the government, notwithstanding a Democrat-controlled Congress.
Obama and FDR
Compared with Franklin D Roosevelt, whose administration brought in a host of
new faces in progressive politics from academia, the Obama administration so
far looks more like business as usual from the Clinton era. FDR's New Deal was
a continuation of the Progressive Movement of 1890 that had been put in deep
freeze in the 1902s under Hoover, combining policies derived from Theodore
Roosevelt and Woodrow Wilson. The Progressive Party was founded in 1910 when
progressive Theodore Roosevelt lost the Republican nomination for presidential
candidacy to conservative Robert Taft. The movement split the Republican vote
to allow progressive Democrat Woodrow Wilson, an intellectual liberal, to
become the 28th president of the United States.
FDR derived loyal support from elements not then identified with the Democratic
Party: organized labor, small farmers and middle class reformers. The Democrat
Party then had been controlled by southern conservatives and machine
politicians in northern cities with large numbers of immigrant voters. The 1932
election marked the beginning of a long period of Democrat ascendancy. Yet
constant conflict between conservative and progressive fractions within the
party weakened the New Deal, some of the most bitter opponents of which were
Democrats. Two of the three most influential New Dealers - Harold Ickes,
Secretary of the Interior and Henry A Wallace, Secretary of Agriculture - were
former Progressive Republicans, while Frances Perkins, Secretary of Labor, the
female cabinet member in history, was a social worker/reformer from Boston.
FDR created a "brains trust" of academicians, writers and social reformers,
with direct and frequent access to the White House, exerting critical influence
on national policy formulation. New Deal programs were administered by
unapologetic ideologues from mid-level bureaucracy with direct operation
expertise and experience with government operations, not cabinet members of
previous administrations. Such a group has yet to emerge in the Obama
administration.
The strategic purpose of the New Deal was to save capitalism from itself. Its
priority was to check the downward spiral of deflation and bankruptcies to
restore market confidence by bringing about through government intervention a
general simultaneous increase in prices, wages and consumer purchasing power to
correct the structural imbalance in the economic system. From early reports,
the Obama stimulus package appears light or even nonexistent on raising wages
while placing emphasis on keeping asset prices from falling. Until the Obama
team takes measures to address the wage/price imbalance, the financial crisis
will continue.
The New Deal continued the Hoover program of encouraging bank lending to
business, saving property owners from foreclosure and adopting new measures to
aid distressed sectors in the economy. This appears to be similar to the
approach adopted by Obama: bank bailouts, foreclosure relief and aid to
automakers, but the Obama scale of intervention is generally considered as
inadequate for the task. The most glaring difference seems to be the Obama
team's acceptance of layoffs as a necessary component in turning around
distressed companies.
FDR declared in 1934 that his administration sought "balance in the economic
system - between industry and agriculture, between the wage earner and the
employer and the consumer." The National Industrial Recovery Act (NIRA) was
designed to stabilize falling industrial prices, raise wages and promote
collective bargaining. The Agriculture Adjustment Act (AAA) aimed at raising
farm prices to booster farm income. Such measures were combined with banking
and financial market reform to increase the supply of money and credit to real
economic development away from speculation.
The New Deal asked Congress to appropriate large sums for direct relief and to
finance ambitious public works programs along with stimulating private
enterprise. The New Deal was less than fully effective because FDR failed to
fully support sufficient direct relief and allowed unemployment to stay
unconstructively high. Nevertheless, Social Security was enacted and the Wagner
Act was passed by Congress, guaranteeing the right of collective bargaining
with the creation of National Labor Relations Board. However, both the NIRA and
the AAA were struck down by the Supreme Court as unconstitutional in 1933 and
1936 respectively.
FDR's first 100 days were noticeably different than Obama's even at the start.
Congress gave FDR everything he asked, in stark contrast to the Congressional
reception to Obama's stimulus package even from members of his own party. The
Obama budget for 2010 is expected to face stiff challenges in Congress. With
most banks closed by state governors by the time FDR took office on March 4,
1933, FDR sent to Congress the Emergency Banking Act based largely along the
line laid down by the previous Hoover administration, which Congress passed on
the same day. Present-day Democrats on the House Committee on Financial
Services, including Barney Frank, issued a letter on February 25, 2009, a month
into the Obama presidency, to the CEO of Chicago-based Northern Trust Corp in
Obama's hometown, asking for a return of some of the $1.576 billion in Troubled
Assets Relief Program funds granted to the bank on November 14. "We are
dismayed and angered to learn that Northern Trust recently spent millions of
dollars on a PGA golf tournament sponsorship and associated parties at the same
time it has taken over $1.5 billion in federal stabilization funding under the
Troubled Assets Relief Program," the letter read, in part.
The Federal Deposit Insurance Corporation (FDIC) was created by FDR to
guarantee bank deposits. A new Security Exchange Commission (SEC) was created
by the Securities Act of 1933 and the Securities Exchange Act of 1934 to
regulate the securities industry to prevent any recurrence of the financial
abuses that caused the 1929 crash. Speculation was sharply curtailed by raising
the margin requirement to 55%. A Farm Credit Administration took over large
numbers of failing farm mortgages and a Home Owners' Loan Corporation took over
failing non-farm residential mortgages. In contrast, Obama's early moves have
been mainstream centrist and relatively timid for the serious problems at hand.
End of US unilateralism
State policies or actions are deemed "unilateral" if they have significant
impacts on people in other states but are undertaken by a single state without
the mandate of bilateral or multilateral treaties or in violation or defiance
or rejection of such treaties. US unilateralism did not start with the Bush
administration. Its moralistic root traces to Christian-right influence on US
foreign policy after World War II, especially over US policy on China.
It was the ideological basis for the Cold War in which a self-righteous
superpower led subservient allies that did not have the wherewithal to resist
ideology-driven US policies. It has continued after the end of the Cold War
even as allies attempt to assert increasing independence with the disappearance
of perceived Soviet threat. The huge power differential between the US, as the
sole remaining superpower, and its former subservient allies gave the US a
natural claim and de facto privilege to unilateralism. Under president Bill
Clinton, secretary of state Madeleine Albright described the US as the
"indispensable power". Under George W Bush, unilateralism became a foreign
policy aspiration rather than a foreign policy implementation tool.
Critics have cited US decision under the Bush administration to withdraw from
the ABM (Anti-Ballistic Missile) Treaty, to violate multilateral commitments to
the Nonproliferation Treaty, to reject the Kyoto Protocol on climate change, to
invade Iraq without UN approval and to make other hegemonic
military-geopolitical-economic moves as evidence of US unilateralism; that is,
a general disrespect for multilateral arms control and global warming
agreements, and a blatant disregard for the UN and other multilateral
institutions or international consensus.
The cool reception Bush received during his September 2004 address to the 59th
session of the United Nations (UN) General Assembly was a reflection of how
unpopular US unilateralism had become among the international community. US
military invasion of Iraq without UN authorization was viewed by many in the
international community as a defiance of international law, and the unilateral
action solicited strong opposition from many governments around the world,
including some traditional US allies.
The transformational diplomacy agenda of George W Bush and Condoleezza Rice,
his national security adviser and later Secretary of State, elevated
democracy-enlargement activities inside other sovereign countries. According to
then secretary of state Rice in her February 14, 2006 testimony before the
Senate Foreign Relations Committee, the objective of transformational diplomacy
is: "to work with our many partners around the world to build and sustain
democratic, well-governed states that will respond to the needs of their people
and conduct themselves responsibly in the international system."
The agenda targets "strategic" states, of which China is high on the list,
changing US foreign policy emphasis away from relations among governments to
one of supporting systemic changes within targeted countries. It sounded like a
sophistic declaration of a policy to interfere in the domestic affairs of other
nations.
The stakeholder fraud
The transformational theme was also developed by under secretary of state
Robert B Zoellick, now World Bank president, in response to Chinese political
analyst Zheng Bijian's lead article in the September/October 2005 issue of
Foreign Affairs: "China's 'Peaceful rise' to Great Power Status in connection
with President Hu Jintao's state visit to the US". "Peaceful development" has
since been the preferred term used by Chinese senior officials.
In an address before the National Committee on US-China Relations on September
21, 2005, in New York, Zoellick introduced the concept of making China into a
"responsible stakeholder", a major state with worldwide interests to preserve
through cooperation with other powers. "It is time to take our policy beyond
opening doors to China's membership into the international system: we need to
urge China to become a responsible stakeholder in that system," said Zoellick.
In other words, exceptionalism is a prerogative reserved only for the US, the
world's sole remaining superpower. For China to be granted admission to the US
dominated world system, China must behave according to rules prescribed by the
US, rules to which the US alone can claim the privilege of exception. The
invitation to China to be a responsible stakeholder is a demand for China to
restructure her revolutionary national purpose to support
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