Is David Cameron Kowtowing To China?
According to British Prime Minister David Cameron, ‘free markets’ are the “best imaginable force for improving human wealth and happiness“. They are not only a self-regulating mechanism, but an ethical system in its own right. In fact, free markets promote morality by creating “a direct link between contribution and reward; between effort and outcome“.
Mr Cameron’s thoughts are typical of mainstream neoliberal ideology. He believes in the existence of autonomous markets (the term free market is itself ideological). He shares the neoliberal mistrust of government, regarding it as a force that inhibits rather than promotes economic progress. And he praises business people as a class of their own: “We should support business leaders who earn great rewards for building great businesses. That will inevitably mean some people will earn great rewards.“
Paradoxically, Mr Cameron seems to attach great importance to Britain’s relationship with China, a country that appears to contradict everything Cameron stands for. The PRC is neither a free market economy nor a democracy. Nevertheless, this week Cameron travelled to the Middle Kingdom with the biggest UK trade delegation to ever have headed to the Asian nation. Apparently, Cameron believes Britain can profit from China’s growth and at the same time change China through co-operation.
According to The Guardian, Cameron said “he was best placed to champion China in the west“. In an article for Caixin, a Chinese Magazine, Cameron “swept aside recent EU concerns over Chinese rules that mean Europeans must work with a Chinese joint venture partner and hand over sensitive technology. The European commission highlighted concerns over China in May when it said it was prepared to launch an anti-dumping and anti-subsidy investigation into Huawei, the world’s second-largest telecoms equipment manufacturer.“
Interestingly enough, Cameron recognises that China is the fastest growing economy in the world and that it may soon become the largest economy, surpassing the US. Yet the question of how China has achieved this miracle, or how Asian countries such as South Korea and Singapore have achieved their miracle, is never asked. The myth of the positive force coming from supposedly “free” markets is uncritically propagated. There has hardly ever been a mediocre economic model that has been celebrated as much as British governments have celebrated and propagated their own.
Over the last 40 years, the British economy has experienced a dramatic de-industrialisation process, during which the UK manufacturing sector has shrunk by two-thirds. Last year, Britain ran a record trade deficit of £59.2 billion, despite the fact that according to neoliberal orthodoxy the weakened pound should have helped exports. With the exception of 1997, the British economy has never run a trade surplus since 1984 (note). As the BBC reported, Britain’s “deficit in goods trade grew since the late 1990s with further de-industrialisation of the economy. Manufacturing declined from contributing a quarter of GDP in 1980, to 20% during the 1990s and then fell sharply to 12% during the 2000s” (ibid.). Moreover, income inequality has grown and social mobility has declined. Despite all this, the same economic policy based on the principle of the autonomous market continues to be pursued stubbornly. Every alternative is delegitimised. It seems paradoxical that David Cameron wants to tie the British economy closer to China, i.e. a state that pursues a completely different economic policy.
Henry VII and the Birth of British Industrial Might
The official story of capitalism, written by neoliberal mainstream thinkers, says that democracy and economic freedom were the engines of industrialisation. But if you take a closer look at the actual history of capitalism, you will find out that the interdependence of market forces and state regulation / intervention is way more complex, and more fascinating, than people often assume. I have already given two examples (Singapore and Taiwan) of countries that achieved growth and industrialisation through a mixed economy rather than through the autonomous market. In another post, I will briefly examine the Chinese development model. Here I would like to show an example of what kind of economic policy England pursued during its ascendancy as a big world power.
[T]he Tudor monarchs, especially Henry VII and Elizabeth I, used protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to develop England’s woollen manufacturing industry, Europe’s high-tech industry at the time. Until Tudor times, Britain had been a relatively backward economy, relying on exports of raw wool to finance imports. The woollen manufacturing industry was centred in the Low Countries (today Belgium and the Netherlands) … (Chang 2008, pp. 40-41).
King Henry VII of England, who came to power in 1485, had spent his childhood and youth with an aunt in Burgundy [in France]. There he observed great affluence in an area with woollen textile production. Both the wool and the material used to clean it (Fuller’s Earth or aluminium silicate) were imported from England. When Henry later took over his destitute realm with several years’ future wool production mortgaged to Italian bankers, he remembered his adolescence on the Continent. In Burgundy not only the textile producers, but also the bakers and the other craftsmen were well off. England was in the wrong business, the king recognized and decided on a policy to make England into a ‘ textile-producing nation, not an exporter of raw materials. Henry VII created quite an extensive economic policy toolbox. His first and most important tool was export duties, which ensured that foreign textile producers had to process more expensive raw materials than their English counterparts. Newly established wool manufacturers were also guaranteed tax exemption for a period, and were given monopolies in certain geographical areas for certain periods. There was also a policy to attract craftsmen and entrepreneurs from abroad, especially from Holland and Italy (Reinert 2008, Chapter 3).
As we can see, Henry VII did not rely on “free market” and the entrepreneurial spirit of the English people. At that time, there was simply no market for English woollen products because other areas of Europe already had developed a powerful wool industry. Therefore, Henry VII actively promoted the English wool industry. He sent envoys to identify locations for the production of wool and he tried to lure skilled workers from abroad. He tried to discourage the export of unfinished wool by means of bans and taxes. In 1489 he banned the export of unfinished cloth in order to boost domestic processing (Chang 2008, pp. 41-42). Within a period of 100 years, the wool industry of the Low Countries was ruined and England had turned from an exporter of raw material to an exporter of finished products (ibid.).
Aggressive policies of imperial expansion, the seizure of strategic commercial outposts and raw-material rich countries, as well as target-oriented policies aimed at regulating the economy and boosting industrial production and commerce, characterize the British economy from the late Middle Ages to the 19th century. It was only in the middle of the 19th century that Britain seriously deregulated and liberalised the economy. Yet the rise of free market policies coincided with the industrial decline of Britain, which lost to protectionist economies like those of the United States and Germany.
Japan, the Asian Tigers and later China have learnt from this aggressive model of development that creates prospects of profit for private entrepreneurs through state regulation and intervention.
China even goes further. Given the political dominance of the Communist Party, politics and business are more tightly interconnected than they could ever be in most other countries. In his book about the career of disgraced politician Bo Xilai, The Rise and Fall of the House of Bo
, journalist John Garnaut has shown such close relationship:
As well as pulling capital and expertise from neighbouring South Korea and Japan, Bo [Xilai] targeted local businessmen to cultivate. He worked closely with Wang Jianlin, the founder of a local real estate company called Dalian Wanda Group, which now owns forty-nine shopping centres across the country and cinema chains as far away as the US. As soon as Bo became mayor of Dalian, his friend Wang stepped in to sponsor the local soccer team, turning it into political gold by purchasing the players it needed to dominate the national league. Bo also helped a well-spoken young entrepreneur, Xu Ming, to become one of the country’s most powerful businessmen, initially by assisting him gain key construction contracts to renovate the Dalian streetscape at the age of twenty-one.xl In 2000, when Wang tired of the match-fixing in Chinese football, Bo made sure Xu was standing by to take over the local team. Bo’s backing has helped both businessmen, Wang and Xu, recently climb into the top ten US dollar billionaires. Wang has managed to successfully diversify his patrons and is now listed as the richest man in China, while Xu Ming has entrenched himself more deeply in the family’s inner court…
Bo packaged his economic program as ‘red GDP’– alluding to an ideal of socialist equality – as mountains were bulldozed and valleys filled in order to build millions of units of affordable housing. Bo produced bold targets to dramatically reduce the rich– poor gap in his city, while in the rest of the country it was blowing out to be the most extreme in Asia.
He laid a latticework of new highways across the municipality and even connected it to Europe by rail. He personally did the deals that enticed global companies to set up and expand huge manufacturing operations – including Hewlett-Packard, Samsung, Ford, BASF, Foxconn – to the point that he could boast that the city produced a third of the world’s laptop computers. During Bo’s four years, Chongqing’s GDP growth was near to the highest in the country, averaging about sixteen per cent. And to complement the roaring and purportedly egalitarian economy, he launched a ‘green’ program with such gusto and ambitious targets that it reminded some of Mao’s Great Leap Forward.
In view of economic as well as geopolitical considerations, one may wonder what the rationale behind David Cameron’s visit to China really is. Instead of boosting industrial growth and supporting the middle class in Britain and Europe, the British government continues to stick to its ideological assumptions, and to make itself more and more dependent on a foreign country whose economic and foreign policy development in the future remains uncertain.