P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 142 The Reconfiguration of National Wealth and Power constructive forces more often managed to gain the upper hand than else- where. Much indisputably has been accomplished, but it is important to understand that it has been a pale shadow of the potential both in terms of affluence and social equity. Many nations of the less developed world by contrast have chosen vari- ously to preserve traditional cultures, modify, or revolutionarily transform them in ways that discourage entrepreneurship, competitive profit-seeking, open market access, technological emulation, globalism and liberal state governance, leaving large segments of their populations unempowered. This has in a few instances produced remarkably good results especially in the Chinese cultural bloc. Taiwan, Hong Kong, Singapore, South Korea, Malaysia, Thailand, and, more recently, post-Maoist China have managed to reconcile elements of authoritarian economic regulation with aggres- sive, export-oriented entrepreneurship to propel rapid economic growth, in much the same manner as the Japanese in an earlier epoch. But these countries are the exceptions. The performance of the vast majority of states outside the West has ranged from lackluster to abject, reflecting the par- ticularities of their specific, culturally fashioned systems. This failure has not gone unnoticed, nor have leaders been inert. Many have campaigned for modernization and partially liberalized, but the changes have not been sufficient to significantly overcome resistance, negative adaptations, and too frequently the disorienting effects of foreign economic penetration. Conti- nuity in most instances has triumphed over change. THE ECONOMIC CULTURES OF THE GREAT POWERS China The Growing Economic Power of China Chinese economic growth has been spectacular for two decades. Not only has its GDP risen briskly, but also unlike Russia China has integrated itself into the global trade system. This achievement is attributable to the Chinese Communist Party’s improbable success in combining authoritarian disci- pline of labor, state ownership of enterprise, and wage fixing – all elements of the old command economy – with massive foreign direct investment and significant elements of profit-driven markets. The ability of the Chinese to attract foreign investment is particularly remarkable since private property is not legally protected in China, though an amendment to the Chinese constitution that would protect private property is making its way toward enactment. P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 The Economic Roots of American Power 143 China’s economic system today precariously balances the incentives for business development provided by low wages and lucrative profit poten- tial against the inefficiencies of state ownership, leasing and control. The Chinese economy has a pronounced bias toward inequitable but rapid development; but this advantage will gradually diminish as export mar- kets mature, labor transfers become more difficult, and accumulated inef- ficiencies take their toll. The current Chinese system may allow China to overtake America in the next twenty years in terms of the dollar value of its gross domestic product, but inefficiencies will place a low ceiling on living standards. Foreign businessmen in China, and other Chinese insiders urge that outsiders not be deceived by the glitter of Chinese economic develop- ment. Chinese government, businesses and workers are inefficient left to their own devices tend to be corrupt. What appears to be rapid economic advance in China’s big cities is only partly real. For example, many high-rise buildings in Shanghai are vacant. They are essentially seasonal homes or speculations by the overseas Chinese. Like the former Soviet Union – and this is a great tragedy – China is better positioned to be a great military power than an affluent nation. To global insecurity created by differen- tial growth rates among the great powers, China adds the distinct risk of internal instability caused by corruption – a struggle to control produc- tive assets for private purposes (as has occurred in Russia) – and popular discontent. China is America’s only economic rival in terms of growth now, and only because China is at a particular stage of its development which gives it very great advantages (extremely low labor costs, reasonable political stability, an educated population with strong commercial instincts). The Advantages of Chinese Economic Culture China and Japan have shared a strong cultural heritage in religion, governance, literature and architecture from the mid-seventh through the twentieth centuries. Both at various times were profoundly influenced by Confucianism, Buddhism, Tao, and aspirations to regional power, yet in at least one respect they have always been fundamentally different. Chinese social behavior is based on the guilt principle, whereas the Japanese rely on shame. China is a community of individuals acting according to their consciences – with individual guilt as the price paid for failing to abide by conscience; Japan is communally governed with shame–asocial stigma – as the price of failure to abide by group norms. The autonomy associated with guilt culture gives China a significant edge in emulatingWesternmarketmechanismsandthereforeineconomicgrowth P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 144 The Reconfiguration of National Wealth and Power potential. Yet this has been so for a long time. China was better placed than Japan to emerge as the superpower of the East during the last quarter of the nineteenth century. But this neverhappened. Forahost of complex historical reasons, including an insufficiently developed rule of law stemming from aweak system of private property rights, China’s transition to a modern market economy foundered, her economic growth potential was unrealized, making her prey first to European and then Japanese imperialism. It was not until the mid-1980s that Deng Xiaoping’s liberalizing reforms made gradual integration into the global market system possible. Yet all those lost decades have a heavy cost for China. Per capita GDP in Japan today exceeds China’s byafactoroffive. Can China recover this lost ground? Can the Chinese cultural style of individualism be as or more effective than Japanese communalism in gen- erating economic growth? The spectacular postwar successes of the “Asian Tigers,” Singapore, Hong Kong, Taiwan, and South Korea suggest that it can, if China rids itself of state ownership of the means of production and jettisons the Communist Party in favor of the rule of law. There are no rea- sons for supposing that the managed market strategies adopted by ethnic Chinese in Singapore, Hong Kong, and Taiwan couldn’t work on the main- land, allowing China to quickly become the world’s largest economy, and narrow the living standard gap with the first world. The contemporary Chinese authoritarian market systemisanexotic blend of inconsistent elements, administered by a development minded commu- nist bureaucracy. The state owns the nation’s natural resources including land, and most industrial, transportation, and communication assets. This gives the state both the legal and administrative right to directly determine production levels, financial arrangements, monetary policy, and distribu- tion of goods and services. But in accordance with Deng’s liberalization strategy, the state has chosen to delegate considerable autonomy to enter- prise managers and communes, and to permit the gradual emergence of leasing and private entrepreneurship. All this however creates two significant internal conflicts. On the one hand, many economic agents are encouraged to maximize profits for the state, although they cannot act on their own behalf because they have no personal ownership. This limits incentives. Why should state agents exert themselves for the state, without adequate compensation? In fact, they are not likely to. On the other hand, the rise of private entrepreneurship creates a chan- nel through which managers of state-owned enterprises and leaseholds can P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 The Economic Roots of American Power 145 divert state resources to their own private accumulation, thereby providing an incentive for economic growth. Yet this process jeopardizes the Commu- nist Party’s implicit political contract by which it promises to protect workers and peasants against private exploitation. When private entrepreneurs press workers and peasants into activities for the private benefit of entrepreneurs, the party’s legitimacy and right to rule is undermined. Deng’s strategy paradoxically strengthens Chinese economic power by leasing state property, decriminalizing business and accelerating entre- preneurship, but subverts the Communist Party’s control by undermining state owned enterprises in ways that foster adverse selection including unem- ployment, misinvestment and inferior technological choice. The Chinese leadership appears to believe that rapid economic growth and the people’s deference to state authority will allow it to harness these opposing forces for its benefit whether or not the economy ultimately transitions to a Western market model. It is counting on the deference to authority so deeply rooted in Chinese culture to hold labor in check (as it has done successfully in the smaller economies of southeast Asia), without buying off labor with Con- tinental European style social benefits. Nor does the Chinese Communist Partyseem to be prepared to wholly commit to private enterprise under the rule of law. Hence, the Chinese formula is unique and distinguishes the Chinese authoritarian leasing market concept from all rivals upholding the sanctity of private property and the rule of law. As in America and Japan, but not in Europe, income creation is China’s principle success criterion, not social welfare, even though the Communist Partypays lip service to Marxist precepts of social justice. State managers, private entrepreneurs and the party elite assigned to supervise private busi- ness initiatives are revered for their productive acumen as long as they don’t fall into conflict with state guidelines. The good society from this perspective is one that rapidly creates wealth, empowering the state and the Party elite. China’s economic performance reflects these cultural characteristics. Its productivity and GDP are low due to the deficiencies of state ownership, adverse selection, economic mismanagement, leasing and corruption. But growth is high as a result of increased private initiative, low wages, state- financed modernization, massive foreign capital investment andglobal mar- keting of Chinese products. The efficiency of the Chinese economy is low because it flouts the rules of competitive free enterprise, but its growth can exceed that of developed countries because the Chinese regime ignores worker rights and consumer’s desires for rising living standards, preferring instead to direct resources to further its own goals. P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 146 The Reconfiguration of National Wealth and Power China’s Potential Thoughtful Western economists don’t accept Chinese economic growth figures. “I don’t believe China’s official eight percent growth figure. It’s a politically mandated number, first conjured up in 1988 by Chinese officials. Independent surveys of industrial capacity, energy use, employment, con- sumer income and spending and farm output imply much slower growth.” 7 Amore probable figure is about 5 percent. Ye tvisiting Shanghai and the cities of Jiangsu (Nanjing, Suzhou, Yangzhou) it’s easy to believe higher numbers. The construction boom there puts Russia to shame. There is obviously a new middle class that lives reasonably well because labor costs remain low. The family income of one of our students with two full-time workers is $2,200 per year. Nonetheless, thebulkofthepopulationremains agrarian, and livespoorly, or in abject poverty. The peasant subsidizes the urban living standard. What this means, of course, is that China has an almost inexhaustible supply of labor to fuel industrial development. Some Americans expect that there will be a time in the near future when China has siphoned off all the manufacturing jobs it needs, and the transfer of manufacturing to the Far East will slow of its own accord. This is undoubtedly true, but it will not happen in the lifetimes of the authors or most readers of this book. By little more than bringing a few tractors to the agricultural sector in China, government planners say, authorities could release more than a hundred million workers to work in industry – a labor force as large as that of the entire United States in all industries. In the next decade, the Chinese impact on world economy will grow. It is now beginning to run trade surpluses generally – previously it had imported more than it exported and though it had a positive balance of trade with the United States, it hada negative balance of trade with thenations (particularly in Asia) that supplied it with raw materials. Furthermore, its exports to the United States are going to come increasingly to include not just consumer goods (its WalMart connection) but industrial products, produced in China by U.S. multinationals and exported to America. U.S. multinationals have spent a decade investing in China to build export facilities to the United States and now will begin to use them large scale. This is not to say that there may not be significant problems in China’s eco- nomic future caused by the inconsistencies in the Chinese economic culture that we have identified. Financial crises originating in internal weaknesses of the national economies are forecast for both China and India by 2010, and both are expected to lead to political crises in turn. 8 Inflexibility in the P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 The Economic Roots of American Power 147 Chinese political system is expected to cause the crisis to be very serious with significant implications for world politics. Whether a short-term crisis in the Chinese economy will set off a military conflict is something about which we must be concerned. Russia The Economy of the Soviet Union Many Americans have yet, even today, to face the reality of what the Soviet Union was, blurring their understanding of what Russia has become today. The USSR was the embodiment of what all democratically oriented westerners abhorred. It was a authoritarian state, committed to burying the freedom of the west, run by a self-anointed vanguard of an initially largely nonexistent proletariat. It criminalized private property, business, and entrepreneurship. It outlawed rival political parties, and used its secret police to repress dissent, terrorize and kill tens of millions, consigning sim- ilar numbers to gulag (concentration camps). It maintained a huge army equipped and spread its control across much of the world. The Soviet econ- omy was a physical management system, not a value added maximizing economy, where government bureaus determined the amounts of goods and services to be produced and allocated by assigning the resources nec- essary to produce them. Resources were mobilized, engineered and fabri- cated into goods without a market mechanism or consumer guidance. Man- agers, administrators, and workers were motivated with traditional western incentives: bonuses, perks, career rewards, wages, piecework incentives, and also a host of punitive sanctions for failure to meet established targets. Work- ers and managers were closely monitored and supervised, but carrots, sticks, and supervision were not enough to assure that factors were rationally allo- cated and technology wisely chosen. Optimal planning wasa myth. Gosplan, as new archival research shows, only planned 150 composite goods, leav- ing the supply of twenty-five million goods to a haphazard assortment of decision makers, a phenomenon Friedrich von Hayek aptly called “planned chaos.” This was all very different from the propaganda, accepted by many in the west, that the Soviet Union was an optimally planned, nano-administrated, command economy designed to maximize the welfare of the Soviet popu- lation according to socialist conceptions. Instead, in a Soviet variant of the Muscovite tsarist model, the Kremlin granted economic rights to ministerial overlords and enterprises, guided by ruler-approved bureaucrats who tried P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 148 The Reconfiguration of National Wealth and Power to control the overall economy. Physical management, uninformed by com- petitive supply and demand processes, misgoverned the actions of Gosplan (the State Planning agency), ministries and enterprises alike. The system didn’t work well for consumers. Direct state-mandated allocation of production targets and resources was the principal cause of Soviet blight. As market theorists tirelessly insisted the separation of demand from supply prevents consumers from receiving goods and ser- viceswith the characteristics they desire, in the preferred assortments. It also prevents optimal investment, and warps scientific and techno- logical progress, transfer, and diffusion. Yet in an authoritarian political environment in which the public has insignificant power, it makes little difference that the system doesn’t work well for consumers. Americans, who are used to both consumer sovereignty and of voter sovereignty (albeit both imperfect) always overestimate the importance of public opinion in Russia. During the Soviet period, most American scholars and intelligence experts insisted that the Soviet Union was providing improving living stan- dards for its people. During the 1960s and 1970s the CIA contended that Soviet living standards were growing more rapidly than our own. Yet how could a country that criminalized business, entrepreneurship and private property, fixed prices and shouldered a double-digit defense burden have increased per capita consumption more rapidly than the United States and Europe for most of the postwar period as the CIA’s series indicated? The answer is, of course, that it couldn’t, and American intelligence personnel should have seen that clearly and early. They didn’t. Their data were corrupt; it was wrong. 9 However inept at improving living standards for the population, the Soviet’s system of direct state-mandated allocation of production and resources permitted the Kremlin to mobilize resources for defense without competition from consumer needs. The system involved great waste, but the Soviets limited themselves to a relatively small number of mass-produced military products benefiting from economies of scale so that the General Staff of the Red Army was able to emulate foreign weapons, and by borrow- ing or stealing military technologies, obtained the necessary weapons. Both aspects of the Soviet system – direct allocation of resources and a limited line of weapons – worked fairly well for military purposes. During both world wars, for example, America had to resort to direct allocation of resources to the military in order to prosecute the wars successfully. That is, we did not use a market system exclusively to run our wartime economy. 10 And during World War II, for example, while the Germans had some 175 sorts of vehicles P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 The Economic Roots of American Power 149 in use in the war against the Soviets, with enormous maintenance and repair problems, the Soviets used only a small fraction of that number of different vehicles, mass-produced, and with minimal maintenance and repair issues. The result was thatSoviet equipmentwasin greater supply thantheGermans and a greater proportion of it was working at any given time. As a result, the Soviets had as good a system of wartime production as we did, and a better system of keeping weapons and equipment operating effectively thandid the Germans. The Soviet economy was mobilized for war, all the time. It was very effective in that capacity. It was not mobilized for consumer welfare, and it was a disaster in that regard. The Russian Economy Today The contemporary Russian economy is a pre-Soviet type, “Muscovite” authoritarian rent-granting, mixed market system with roots traceable to lvan the Terrible, displaying weakly developed competitive institutions unregulated by the rule of law, and destabilized by politically connected individuals who seek privileges on a large scale. As such it cannot narrow the gap with the West, even though a partial, oil windfall driven recovery from hyperdepression is being trumpeted as sustainable rapid growth. Important segments of Russia’seconomy remain under the thrall of some- thing very like the Soviet system. Structural militarization persists, renation- alization is on the rise especially in the natural resource and military indus- trial sectors, and most of the population continues to be impoverished by Western standards. For a time, some hoped that Russia’s oligarchs would rid Russia of this poisoned legacy, but Putin’s destruction of Mikhail Khodor- kovsky and the ascendence of the siloviki (power sources) suggests that this won’t happen. There is now a market economy in luxury consumer goods, generally imported, and some revival in domestic production for ordinary people, but it is overregulated, undercapitalized, and corrupt. Industrial modernization is tepid, foreign investment discouraged and markets are anticompetitive. To day’s Russian economy is somewhat like China’s, reflecting their com- mon evolution. Both started at the beginning of the twentieth century as imperial/semifeudal market regimes, flirting with democracy, only to suc- cumb to authoritarian communism that replaced markets with adminis- trative command planning, until the nineties when much of their directive control apparatuses were dismantled and replaced by more market-oriented forms of state regulation. Nonetheless, the Russian economy during the nineties sank into hyperdepression, whereas the Chinese economy grew P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 150 The Reconfiguration of National Wealth and Power spectacularly. What explains this divergence? Is it China’s communism, pri- vate ownership, foreign investments, a willingness to accept qualitatively inferior growth, or some conjunctural factor? The answer is all of the above. Russia’s scuttling of the Communist Party-state control apparatus in 1991 combined with a predilection for rev- enue misappropriation and asset-grabbing prevented the emergence of full employment preserving competitive markets, and Boris Yeltsin refused to devise new state institutions to foster growth. Deng Xiaoping stood ready to support the state industrial sector until it became competitively viable, provided strong incentives for private investment and severely punished those who misappropriated or misused state assets. Russian leaders, in con- trast, instead of transferring ownership equitably to the most competent managerial hands, and creating an environment in which investors could be reasonably certain of their claims on future incomes, crafted a hodge-podge Muscovite regime that misdistributed property rights, pitted co-owners against each other, encouraged fraud, and repressed production, encour- aged capital flight and discouraged export-led development. These destructive policies were compounded by hyperinflation, capital flight, and endless schemes to swindle investors that precluded any possi- bility of mimicking China’s strategy of using foreign capital to lead devel- opment and global integration. After fifteen years of this style of Muscovite authoritarian mixed economy, Russia is not only materially worse off than before, but has made little headway in constructing a better market system. Although, most of the population has suffered, the elites have flourished beyond their wildest dreams, and are more interested in consolidating their gains than making improvements that jeopardize their wealth and privilege. The authoritarian martial police state they have crafted, which is reminis- cent of tsarism during its epochs of weak leadership, is the one they prefer. They want a state which allows them to pilfer public revenues and assets, institutionalize their privileges, legalize their property claims, and suppress incipient competition. Russia’s contemporary Muscovite system, both the Yeltsin and post- Khodorkovsky variants, is best perceived as a set of rules, attitudes, con- tingent property rights, and agency mechanisms that permits members of a small elite to vie among themselves for power, privilege, and wealth, living off the nation’smineral riches, andcheaplabor. The Yeltsin version made few concessions to defense; the post-Khodorkovsky world will be more deferen- tial to the governmental services that possess real power –police, intelligence and defense. P1: FCW 0521857449c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85744 9 November 3, 2006 13:9 The Economic Roots of American Power 151 Russia’s economic performance reflects thesecultural proclivities. Its pro- ductivity and total output are low, on some measures lower than China’s. Itsgrowth was sharply negative for the decade 1989–1998. It has rebounded back to ninety percent of the Soviet level since then if official statistics are true, but Gregory Khanin cautions that they are substantially inflated. The system’s potential after the achieved level of the eighties is regained isn’t likely to be any better than the long term, inferior Muscovite norm. Pres- ident Putin in his State of the Federation speech July 8, 2000, warned that Russia was in danger of becoming a third world nation (which it already is), with a population shrinking at the rate of 990,000 per year. 11 Nothing prevents President Putin from abandoning indulgent Muscovite patrimonialism except his addiction to it. The Kremlin can act responsibly, but seems disinclined to do so. These problems can be various remedied including by rewriting corpo- rate governance statutes to protect workers and outside shareholder prop- erty rights. But the issue isn’t being seriously discussed. President Putin has proposed guaranteeing that managers won’t be prosecuted for past embez- zlement, misappropriations, fraudulent borrowing, divestitures, and asset acquisition, and hasn’t taken any concrete steps to deter future abuses. There is no prospect of progressive change. It’s just the old Soviet “treadmill of reforms.” Putin speaks effusively about creating a level playing field under the rule of law, but isn’t doing anything about it. There is no substantive dis- cussion about transforming Russian business ethics, or creating statutes and institutions that stringently punish business misconduct and con- spiracies in restraint of trade, clearly signaling businessmen to anticipate no fundamental change. 12 Unlike China, the Putin administration shows no desire to subordinate rent-seeking to the higher goals of growth and development. Russia’s economic system doesn’t function as market theory implies, not because markets don’t exist, but because political control of Muscovite busi- ness administrators – operating in lieu of property rights as in Western systems – ensures that politics is more important than rule of law abiding markets or free enterprise. In effect, Russia’s economy was during the tsarist period, during the communist period, and is now one of Kremlin political intrigue – not free enterprise market forces in command. This is the most important feature of Russia’s economic culture, one that discourages the kind of direct foreign investment propelling Chinese growth, and the key determinant of the potential and lack thereof of its economy . [...]... exporting, domestic price and market share-fixing, and insider obligation and burden sharing As in Europe, their version of managed competition performed better than advocates of free enterprise imagined likely, but the stresses are beginning to take their toll, partly due to intrinsic communalist inefficiency, and partly to the disorienting onslaught of American inspired liberalization The waning of the. .. mobility, degrading the responsiveness of supply to consumer demand through the rationing of public services, and tilting the distribution of privilege toward the governing elites; all infringements of the competitive ideal incurred in the pursuit of social justice and egalitarianism The economic growth of the European welfare state system has been gradually deteriorating, raising the possibility that... agendas, rather than in the hands of specific individuals 13:9 P1: FCW 052185 744 9c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85 744 9 November 3, 2006 The Economic Roots of American Power 159 The mechanisms employed to realize group objectives have a strong communalist character The organization of markets, the rules of entry and participation, and the rituals of merchandising are all group-determined... subcontracting.”16 Similarly, there are fewer layoffs, 13:9 P1: FCW 052185 744 9c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85 744 9 November 3, 2006 The Economic Roots of American Power 163 and little outsourcing to cut headcount – to avoid hiring yes, but to cut staff, no European companies rely less on the flexibility of the labor market, and thereby relinquish certain efficiencies in the interest of social... Chad in 2001.1 There was little change for the next thirteen-hundred years either in parities or levels But the West began to gradually advance, while China languished during the next half millennium By 1820, living standards in West Europe were double those in China, reflecting the gains reaped during the first phase of the industrial revolution Thereafter, the disparity accelerated, peaking in 1950 at... well-functioning mechanism for the legal enforcement of contracts The partially marketized authoritarian-managed systems of China and Russia by contrast subordinate the rule of contract law to the goals of the ruling elite The European economic system is similar to ours, differing primarily in the attitude of communities and the state toward individual economic freedom and egalitarianism Elites in the aristocratic... under-productive, compels them to overwork, and imposes group obligations that diminish the quality of their existence It perpetuates anticompetitive inefficiencies and saps the economy’s long-term vigor 13:9 P1: FCW 052185 744 9c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85 744 9 November 3, 2006 The Economic Roots of American Power 161 The Future The costs of Japan’s communally managed markets in terms of the nation’s... a spate of asset grabbing and asset stripping behavior of the kind which later destabilized Russia in the nineties Continental Europe’s initial postwar successes relieved these anxieties, but despite favorable developments like the emergence of the European Union and the burgeoning of global free trade, things began to deteriorate with growth decelerating, converging toward stagnation According to one... 3,583 45 0 40 0 593 676 771 1,2 04 3 ,45 8 4, 579 19,256 Source: Angus Maddison, The World Economy: Historical Statistics, OECD, Paris, 2003, p 249 Maddison’s bimillennial estimates of Chinese and West European living standards illustrates the principle Table 9.1 reveals that per capita income was identical in both areas at the dawn of the Christian era The figure in 1 a.d was $45 0, slightly higher than Chad in. .. seek profits for their firms than their Western counterparts, and will be more tempted by corruption in a country that rejects a rule of law They will underperform and be enticed into a myriad of schemes that enrich them at the expense of the nation The danger is widely recognized in China, but no solution is in sight 13:56 P1: FCW 052185 744 9c09 Printer: cupusbw CUNY475B/Rosefielde 0 521 85 744 9 Economic . discourages the kind of direct foreign investment propelling Chinese growth, and the key determinant of the potential and lack thereof of its economy . P1: FCW 052185 744 9c08 Printer: cupusbw CUNY475B/Rosefielde. political crises in turn. 8 In exibility in the P1: FCW 052185 744 9c08 Printer: cupusbw CUNY475B/Rosefielde 0 521 85 744 9 November 3, 2006 13:9 The Economic Roots of American Power 147 Chinese political. by the inconsistencies in the Chinese economic culture that we have identified. Financial crises originating in internal weaknesses of the national economies are forecast for both China and India