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Recent news of the Japanese government directing its public universities to stop offering social sciences and humanities courses raises some pretty important questions over the future of higher education in the age of fiscal deficits, automation, and e-learning ahead.

An entirely predictable debate followed, with skeptical conservatives (and I daresay most Unz readers) saying good riddance, and liberals screeching about how humanities are just as important as STEM for maintaining functional, civilized societies. Both make some good points but the largest issues, as always, seem to be systemically sidelined: Psychometrics, and to a lesser extent, the new possibilities opened up by technology.

(1) Here is the famous graphic produced by Linda Gottfredson. Probably only about 25% of the population can truly benefit from a university education, STEM or otherwise. All conversations must start from here.

education-and-iq

(2) For the lower IQ segments who like sciency stuff, “hands on” or apprenticeships are best. Germany has a very well developed system in this respect, with the result that a very large percentage of its workforce (relative to other First World countries) continues to find gainful employment in its manufacturing industries.

(3) I do think that Humanities and Social Sciences subjects can be quite useful, not least to inform and deepen work in STEM subjects themselves (e.g. gene-culture evolution)! And specialists in Economics, Linguistics, and various foreign cultures, etc. are very important for any state. But to achieve true competence in any of these areas you really need first rate human capital. There are greatly diminishing returns to funding proper university study of any of these subjects on as far as <115 IQ people are concerned.

But the benefits of studying any of these subjects extend beyond the merely functional, economic sense. A society in which even a plumber could venture some cogent thoughts on the collapse of the Roman Empire or the relative merits of Hobbes vs. Locke is a better and more cultured society and that has value of its own. Today there are plenty of online learning resources (e.g. Coursera, Udemy, etc) that they could be encouraged to take advantage of and even subsidized to do because ultimately they are only a tiny fraction of the cost of conventional university educations and will have little effect on the budget.

(4) Then there are the “fluff” subjects, like Anthropology, Sociology, African-American Studies, Women’s Studies, etc. Generally speaking, they are hopelessly politicized and produce negative value added, an unholy mixture of Marxist and postmodernist dreck. Some can and must be salvaged, while only the most overtly unscientific and grievance-based should be abolished entirely (e.g. African-American Studies, Women’s Studies). This “purging” process could be organized in the elite universities, and then once cleaned up should be left free to roll back into the middling universities alongside the H&SS group.

(5) Here is a summary:

Current Situation STEM H&SS Fluff
Elite Universities (IQ >120) Y Y Y
Middling Universities (IQ 105-120) Y Y X
Polytechs/Community Colleges (IQ 90-105) Apprenticeships Online X
No tertiary education (IQ <90) “Hands On” Online X

(6) There is a lot of specifically American angst over subsidized or free university funding, which is standard in Europe.

But it actually makes a lot of sense from both progressive and “reactionary” perspectives.

From the progressive perspective, having more human capital and more culture is good. There will be more of it if higher education is subsidized.

From the “reactionary” perspective, you want higher IQ people starting families at earlier ages and having more children. This is difficult to do if you’re saddled with student debts. Subsidizing university education will remove that problem.

Of course, subsidized education can be quite expensive. (Though nowhere near as expensive as modern healthcare or even pointless wars in the Middle East). But remember that I am suggesting limiting university educations to the top 25% of the population or so. The “STEM-orientated” people who are below that threshold will generally be better served by getting apprenticeships or hands on training (cheaper), while “H&SS-orientated” people now have the option of satiating their curiosity through online learning (MUCH cheaper). Ultimately I am not a ruthless conservative, I believe society should fund people to achieve their full potential. It’s just that this funding isn’t very well distributed now.

It is my impression that universities are becoming fossils in general, being made obsolete by technological advances and only clinging on because getting a paper degree still remains social convention. To be very frank, I am not even sure that the sort of things being taught in most undergraduate courses still needs to be done at brick and mortar establishments. Most humanities and social science courses consist of lectures for crying out loud. Just get some charismatic professor – he doesn’t even have to be the best in his field – to produce lectures with the requisite materials and post is on the Internet (for some people who prefer textual to in-person learning this reliance on lectures is actually harmful). The only thing that actually needs to be funded fully is exam-taking for certification purposes.

But barring truly radical changes, I think the previous suggestions would still be of general social benefit.

 
• Category: Economics • Tags: Education, Japan, Universities 
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As readers of this blog know, I have long regarded the return of economic crisis as an inevitability (because the core energy and no-growth predicament facing the Western world wasn’t solved in 2008-9 but merely kicked further down the road by increasing debt and printing money). It looks like 2012 will be the crunch year, as a series of inter-related crises are rapidly converging: (1) The European sovereign debt crisis; (2) The continuation of the chronic US inability to balance its books, and of instability in the Middle East; (3) The probable onset of serious declines in global oil production, as new oil megaprojects are no longer able to compensate for accelerating decline from existing fields; (4) heightened risks of a war with Iran, as the narrow window opens between the start of US delivery of the next-generation bunker buster MOP (from November 2011) and the culmination of the Iranian nuclear weapons program and its hardening against air strikes (next year or two).

The European debt crisis dominates headlines, with the Anglo-Saxon media crowing about the lazy, shiftless Meds (as opposed to the diligent and careful Germans) and blaming socialism for their problems. This of course has a number of flaws within it. Greeks work the most hours in the EU – 2000 per year, relative to 1300 in Germany. And the only major EU nations without huge debt and fiscal problems are the Scandinavians, who are about as “socialist” as one gets nowadays.

But this is all sidestepping the fact that debt and fiscal crisis afflict the entire Western world, and it is just that – due to the special political weaknesses of the Eurozone – have manifested first and foremost in Greece, Italy, and Spain. However, a look at the actual statistics reveals that even the “serious” countries are in a great deal of trouble. For instance, in 2010 both the US and Britain had bigger primary deficits (cyclically adjusted) than “basketcase” Greece, whereas Italy’s was actually positive! The Meds’ total net government debt is larger, but on the other hand, if even France is beginning to experience perturbations – a country whose fiscal balances are better in every way than Britain’s or America’s – then it surely cannot be long before the crows come home to roost in the Anglo-Saxon world.

The fiscal crisis

Below are two tables that would be very informative for discussions about the crisis, as they overturn many of the lazy myths and tropes populating the discourse.

debt-sustainability

Though the US position looks salvageable because of the positive GDP growth less cost of finance indicator (suggesting that its ability to pay back its debts are growing faster than the debts themselves), I am not convinced of the reliability of that indicator. First, it assumes fast growth – growth that has yet to materialize despite massive fiscal and monetary stimulus since 2008. Second, it assumes that interest rates on Treasuries will remain low – but that assumes a US that is becoming rapidly indebted and making signals it is going to inflate it away remains an investor safe heaven. It shows zero ability to make a credible commitment to eliminating the budget deficit, which is only going to be compounded as the baby boomers start retiring.

pollaro-budgets-debt

This chart from Michael Pollaro shows that in some respects the US position is actually worse than those of the PIGS in aggregate. For every $60 it received in revenue, it spends $100, and it would take almost 6 years for the US to repay its debt if the entire budget was devoted to it. In contrast, the average PIGS figure is $78 in revenue for every $100 in spending, and it would take them only 2 years of their combined budgets to repay their debts.

The position of Britain is very weak. It’s economy, and especially its budget, is highly reliant on the City of London. The tanking of the financial system has resulted in zero growth (GDP is still about 5% below peak 2007 levels) and chronically high budget deficits at around 10% of GDP, and the prospect of a second recession with pull the figures even further into the red. Nor has a weaker pound stimulated an export based recovery. Britain’s big trump card is that its bonds have very high average numbers of years to maturity, so refinancing will be easier even if its rates were to suddenly lurch upwards. Now its still over-extended and will probably go bankrupt within this decade, but probably later than the Meds or even the US.

Germany has a strong position, with only a modest budget deficit and reasonable levels of debt. Overall, it is net global creditor, with a net international investment position of 37% of GDP. But this presents another problem. Quite a lot of that is in the forms of loans to and assets held by its banks in the stricken Med region. A meltdown there would send the value of these assets plummeting, necessitating massive bailouts that could in turn threaten even Germany’s solvency. Hence, a possible reason for the recent poor sales of German government bonds.

Despite chronic budget deficits and an astronomic public debt of 220% of GDP, I actually think that Japan may be the country in the least danger in the medium-term future. 95% of its government debt is domestic, largely to Japanese corporations, which lend to the government for social spending in exchange for the understanding that tax rates will be held low. But those same banks and corporations are flush with cash: Japan’s net international investment position is an impressive 56% of GDP. In a way, it’s just a different method of financing a welfare state. It’s still probably unsustainable – domestic investors too may dry up, especially as the Japanese population continues to age and begins to spend rather than save – but I’d wager less so than the US or most of Europe.

Fiscally secure nations include China, Latin America, Scandinavia, and Russia. China has problems with various non-performing loans and municipal over-indebtedness, granted, but these weaknesses are largely mitigated by its phenomenal growth rate and a net international investment position of 36% of GDP. Latin America and Scandinavia tend to have responsible fiscal management and adequate growth rates.

Russia has globally low levels of government debt, its citizens likewise have low debt levels (a feature more of its underdeveloped credit system, granted), and an international net investment position of 17% of GDP. Though the budget deficit is currently balanced thanks to high oil prices, a significant drop can take them into the red very quickly and deeply; however, this is NOT a problem because it is a near certainty that on average oil prices in the next decade will remain high and rise further. What IS a problem is that Russia is a “high-beta” economy, highly affected by developments elsewhere – in 2008, its recession was deeper than in any major Western economy (though compared to them it also had the strongest recovery). The primary reason was the sharp cut-off in Western credit to Russian banks and corporations, resulting in multiple refinancing crises. Today, this problem is less acute, with the Russian banks and corporations having learnt that such dependence may be a problem – nonetheless, a huge sovereign debt crisis in the West can still give Russia a very sharp knock in the short-term.

The exergy crisis

This brings us to another side of the issue: peak oil. Oil reserves are depleting, and global production – after being on a plateau from 2005 to today – will probably begin to consistently fall from 2012 as oil megaprojects sharply fall off. Furthermore, a war with Iran, and its possible capability to blockade the Strait of Hormuz for some time, may cause an extremely disruptive spike in world oil prices, as 25% of world oil supplies transit through the Persian Gulf. On the other hand, China is right now entering the mass automobile age, with the numbers of cars sold per year overtaking the US in 2010. So we will see a rise in demand from China and other emerging markets.

But this is not all. As discussed on other posts in the blog, e.g. here, here, economic growth in general is crucially dependent on net energy availability and the efficiency with which it is converted into useful work. Both indicators have slowed to a crawl, and quite soon the former may well go into reverse. Furthermore, the reality of open global markets with limited global energy supplies means that countries will be more and more competitively bidding for the high-EROEI energy sources that remain (primarily, oil). The US in particular is highly dependent on oil to power its service-based economy, but it simply cannot afford oil to the same degree as can China (see this excellent Oil Drum post A Brief Economic Explanation of Peak Oil for an explanation). This means that the economic pie is now limited, and growth in one place (above all, China) is now to the detriment of growth in other already high-income places (the US, and the less efficient parts of Europe). For a limited time, this issue can be bypassed by the accumulation of debt in the high-income countries – much of which, it should be noted, is loaned out from China and the oil exporters. But poor countries lending to maintain rich country living standards is bizarre at face value, and it is unsustainable in the long-run.

How to survive the coming storm?

From the investment perspective: Keep assets in US dollars, but only those that can be sold off at relatively short notice.

Though dangerous in the short-term, China, Russia, and some countries in Eastern Europe are very good long-term plays. In particular, buying in at the depths of crisis can pay huge dividends in the future. A good bet right now: property in Bulgaria and Minsk.

Natural resources are another excellent long-term play (including gold – a good bet in a time of instability). However, it is probably not a good time to buy in right now, as there is the risk of a sharp (but short) fall once the economic deterioration gathers critical pace.

If you have the means to be an independent financial speculator, try out US CDS. The US will probably never formally default – controlling its own currency, at the most, it will do so via inflation – however, the perceived risk of default WILL be reflected in those instruments. Don’t bet the farm on it, as they’re high risk, but do consider setting aside 10% of your investment poll into this or similar instruments, as the returns have the potential to be mindbogglingly high.

The other two BRIC’s, India and Brazil, I am not so certain of because their low human capital precludes very fast growth.

In terms of specific sectors in the long-term, probably the best bets are IT and medicine because the entire world is aging, and when people are unemployed, they will spend their time on Facebook and playing video games.

Perhaps I’ll have another post on the other aspects of how to keep afloat in the coming era of turbulence. Keep an eye out for it.

Reread S/O posts about the return of geopolitics to Europe and my decade forecast and piece on future superpowers, and continue reading this blog as it is ahead of so many issues well before they started becoming conventional wisdom.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Pomeranz, Kenneth – The Great Divergence: China, Europe, and the Making of the Modern World Economy (2001)
Category: economy, history, world systems; Rating: 5*/5
Summary: Brad DeLong’s review; The Bactra Review; Are Coal and Colonies Really Crucial?

great-divergence-pomeranz It’s a rare book that not only vastly informs you on a particular issue, but in so doing overturns many prior conceptions you had on the general subjects. Now, Pomeranz is not a good writer. The text is slow and turgid, and readable only by dint of my interest in the subject. Many potential counter-arguments go unanswered (which is not to say that they sink the overall theory, as I will try to prove in this review). All that said, I have little choice but to give it a 5*/5, as this a truly counter-intuitive and deeply contextualizing work that overturns many of the triumphalist post hoc narratives of Western chauvinism.

This book attempts to answer the big question of world economic history: Why Europe? It does this by systematically comparing Europe with other leading world regions in the pre-industrial age such as Qing China, Tokugawa Japan, and India. The first big finding is that – contrary to the conventional wisdom – there were far more similarities than differences, at least between Britain and the most advanced Chinese region, the Yangtze Delta.

Essential Similarities Between Old World Cores

It is sometimes argued that special European demographic patterns, such as marrying late and a celibate clergy, had the effect of lowering its fertility and mitigating the Malthusian impoverishment held to be prevalent elsewhere. Another, often complementary, view is that European consumption markets were already far more developed than in China, which allowed it to hit the ground running (so to speak) once the preconditions for industrial revolution were fulfilled. However, China also saw fertility postponement, and there is ample evidence that at least until the mid-19th century the average quality of life in China as measured by life expectancy, median incomes, availability of consumer goods, etc. was at least as good as in Europe, probably higher, and as good as Britain in its most advanced region, the Yangtze Delta.

Although Europe was technologically ahead in some spheres – most visibly, guns, clock making, optics – China had a clear lead in irrigation, soil preservation and land management, and medicine (yields per acre in Europe only approached Chinese levels by the late 19th century). This is of no small consequence in pre-industrial societies hewing to the laws of Malthus. As in China, per capita food and fuel availability declined in Europe up until the mid-19th century century; only in Britain was this in significant part mitigated from 1800 by the windfall of “coal and colonies” (much more on this later).

Finally, there’s the argument that European capitalist institutions and markets were better developed and thus kick-started its growth. But again, the evidence Pomeranz marshals convinces that, if anything, China was substantially more “capitalist” (in the laissez-faire sense) than Europe. There were far fewer monopolies, and no internal trade barriers – contrast this, for example, with ancient regime France – and as a consequence, the volume of trade flows (in grains, sugar, timber, etc) were far higher within China than in continental Europe. The civil service was professional and meritocratic, whereas in Europe this only came to be in the 19th century. Markets for labor and products were freer in China; guilds had much less political influence than in Europe. Bound labor and feudal obligations remained prevalent far longer in Europe (and India) than in China, where it had long ago become marginal; for instance, the settlement of Taiwan for the cultivation of sugar – China’s equivalent of the Caribbean islands – was done by free labor. Though credit was cheaper in Europe – or, at least, in Holland and Britain – but to cut a long story short, there is (1) no evidence that this made crucial industrial activities unprofitable or impeded further pro-industrial mechanization, and (2) the credit system was more developed in India relative to China and Japan, although it was far more backward in general.

One major factor that Pomeranz glosses over is the impact of the Scientific Revolution. Though Chinese scientific achievements are under-appreciated – for instance, it matched Western mathematical achievements up to and including those of 16th century Italy – it is undeniable that Europe took a commanding lead from about the mid-16th century. There was to be no Chinese Kepler or Newton. But impressive as it was, you do not need calculus or laws of planetary motion to produce coal and iron (“as late as 1827 and 1842, two separate British observers claimed that Indian bar iron was as good or betterthan English iron”), and you certainly don’t need them to more efficiently produce textiles. As first textiles, and then coal and iron, constituted the first stages of the Industrial Revolution – up to the 1860′s or so – the European scientific base was almost entirely incidental to the initial industrial takeoff. Now obviously this scientific base did become vastly more important by the late 19th century, which saw the flowering of the electric, chemical, and international combustion engine industries; and those countries with particularly powerful research establishments, such as the US and Germany, did very well, catching up to Britain. However, by then China was already hugely behind.

Addendum 7/31: I almost forgot to mention this. This is probably obvious, but Pomeranz says nary a word about the contribution of cultural differences to the Great Divergence (in contrast to people like Landes who make it a centerpiece of their analysis, waxing poetic on the influence of the Renaissance, the Reformation, distinctive Western values of separation of church and state, etc). And rightly so. Culture is an intangible, and has very little explanatory power; furthermore, such explanations are frequently contradictory in time and place (for instance, whereas “Confucian values” may be cited as holding Chinese society back, they are now frequently invoked to explain the meteoric rise of the Asian tigers; you can’t have it both ways, folks).

The European “Miracle”: Coal and Colonies

Why then did Europe, and more specifically Britain, industrialize while China fell into an ecological impasse in which food production barely kept up with population growth? Pomeranz argues (convincingly, IMO) that the crux of the matter was a fortunate conjunctures and contingencies that overwhelmingly favored Europe.

First, colonies. Many recent scholars have dismissed their contribution; according to one article, overseas coercion could not have been responsible for more than 7% of gross investment in late 18th century Britain (and far less in Europe). But this neglects the vital role of the New World colonies – with their near endless land and natural resources – at relieving ecological bottlenecks in Europe, and in particular Britain. These included sugar (which acted as an additional source of calories as well as a hunger suppressant) and cotton (for clothing, and indirectly relieving pressure on pastures and timber for heating), and later in the 19th century, massive grain exports. All this “ghost acreage” allowed the British isles to support a far larger population than its existing carrying capacity could have, a highly urbanized one and relatively comfortable too (hence no Malthusian stress as in late Qing China, with its debilitating effects on political and social cohesion).

(Furthermore, even the aforementioned 7% figure could have been significant in a pre-industrial world. Due to high rates of capital depreciation, the net accumulation in capital stock then was only a small fraction of the overall savings rate. For instance, according to one calculation, that hypothetical 7% in “super-profits” – an increment to gross savings not purchased at the expense of consumption – could have significantly increased an otherwise minimal rate of net capital accumulation.)

And these goods – cotton, sugar, etc. – could be imported at very favorable terms of trade, because of another set of favorable conjunctures. The decimation of Native Americans due to European epidemiological superiority cleared the way for settlers, who supplied the Caribbean colonies with food and Britain with timber (thus relieving its Malthusian stress). Furthermore, the slave labor on the Caribbean islands – apart from the implicit coercion (and “super-profits” it enabled) – prevented them from developing their own proto-industrial sectors that could undercut British exports.

This is in contrast to what happened naturally in China, largely by dint of its free labor markets (as opposed to New World slavery or East European serfdom). The inner provinces began to expand their handicrafts and textiles industries, thus undercutting the (more advanced) proto-industrialization of the Yangtze Delta. This was a form of “import substitution,” and economically natural in those times because of far higher transport costs than is the case today. This was accompanied by a growing population in the inner regions. Unable to increase its industrial exports, and facing declining imports of rice, timber, etc., the most advanced Chinese regions, the Yangtze Delta and Lingnan, had to increase the labor intensity of their agriculture so as to keep food production abreast of their own population.

Obviously, the conditions did not exist for a Caribbean turn towards import substitution. The slaves themselves had no choice, and neither did the owners; they needed to produce commodities for export in order to pay for replacing slaves. And this all provided a growing (as opposed to declining) demand stimulus for British industry.

One additional New World advantage covered in some length by Pomeranz is the windfall of New World silver – which was, in large part, a free gift to Europe on account of the slave labor and monopolies used in its extraction. This allowed it to easily balance the books with trade in China for silk, porcelain, etc., which in turn could be used to pay for African slaves and New World resources. And Chinese demand for silver was huge, since it was remonetizing its economy to run on silver during the early modern period. Indirectly, it contributed to the formation of the Atlantic economy.

The second great British advantage was coal – that is, as an alternative to wood, located close to its main industrial centers (China too had coal, but it was far away from its main industrial centers, and transport costs were prohibitive). Coal relieved pressure on woodlands, which were in rapid decline, and – due to its virtually limitless nature – unbound the production possibilities of iron. Steam power was crucial to this expansion, not only by powering other processes but by permitting a huge expansion of coal-mining itself. “The Chinese had long understood the basic scientific principle involved – the existence of atmospheric pressure – and had long since mastered (as part of their “box bellows”) a double-acting piston/cylinder system much like Watt’s, as well as a system for transforming rotary motion to linear motion that was as good as any known anywhere before the twentieth century. ll that remained was to use the piston to turn the wheel rather than vice versa.” So the relevant technical skills were not unique to Europe. In fact, northern China had a huge coke and iron complex as early as the 11th century under the Song dynasty, though it was brought low by the multiple perturbations of the 12th-15th centuries (Jurchen and Mongol invasions, etc). The rest is worth quoting in extenso:

However, a number of factors militated against widespread Chinese (re)adoption of coal as a major fuel source. First, the reorientation of the center of Chinese development to the east and south meant by the Qing dynasty meant that its industrial cores were now located far from the big coal deposits in the north-west; the advantages of linking these regions by transport are only evident ex ante. Second, the best artisans were concentrated in the (low coal) Yangtze Delta or along the south-east coast, and serving a huge public demand for clocks and other mechanical toys. Third, “even if mine operators had seen how to improve their mining techniques, they had no reason to think that extracting more coal would allow them to capture a vastly expanded market.” Finally, and most importantly, the technical nature of extracting Chinese coal was profoundly different from that of extracting British coal; in fact, it made the deep extraction that enabled Britain to boost its output all but impossible.

English mines tended to fill with water, so a strong pump was needed to remove that water. Chinese coal mines had much less of a water problem; instead they were so arid that spontaneous combustion was a constant threat. It was this problem – one that required ventilation rather than powerful pumps – that preoccupied the compiler of the most important Chinese technical manual of the period… Even if still better ventilation had ameliorated this problem—or if people wanted coal badly enough to pay for this high level of danger – ventilation techniques would not have also helped solve the problem of transporting coal (and things in general) as the steam engines that pumped out Britain’s mines did. Thus, while overall skill, resource, and economic conditions in “China,” taken as an abstract whole, may not have been much less conducive to a coal/steam revolution than those in “Europe” as a whole, the distribution of those endowments made the chances of such a revolution much dimmer.

In contrast, some of Europe’s largest coal deposits were located in a much more promising area: in Britain. This placed them near excellent water transport, Europe’s most commercially dynamic economy, lots of skilled craftspeople in other areas, and – to give the problems of getting and using coal some additional urgency – a society that had faced a major shortage of firewood by 1600 if not before. And although timber and timber-based products were imported by sea, this was far more expensive than receiving logs floated down a river, as the Yangzi Delta did; the incentives to use (and learn more about) comparatively accessible coal were correspondingly greater.

Much of the knowledge about how to extract and use coal had been accumulated by craftsmen and was not written down even in the nineteenth century… Harris shows that French attempts to copy various coal-using processes foundered, even when they reproduced the equipment, because the production of, say, a heat-resistant crucible required very detailed knowledge and split-second timing acquired through experience – and the financial losses from making a mistake could be very large… Only when whole teams of English workers were brought over (mostly after 1830) was the necessary knowledge effectively transferred.

Thus we see that technological expertise was essential to Europe’s coalbreakthrough, but the development of that expertise depended on long experience (and many failures along the way) with abundant, cheap supplies. This experience was possible because artisan skill, consumer demand, and coal itselfwere all concentrated near each other. Without such geographic good luck, one could easily develop lots of expertise in an area with a limited future (e.g.,in using and improving wood furnaces) and not proceed along the track that eventually led to tapping vast new supplies of energy.

Furthermore, the adoption of the steam engine – whose synthesis with coal was what really generated the Industrial Revolution – was also highly contingent. It was the result of 200 years of use on British coal fields, which was both economical (free coal due to zero transport costs) and proximate to mechanics-minded artisans which could offer improvements. Nonetheless, it took until 1830 for the costs of energy per unit of power for steam-run textile machinery to decline precipitously; until then, water remained competitive with steam engines!

Take away some of the incremental advantage conferred by skill transfers from nearby artisans in other fields, the learning by doing made possible by the application to nearby coal fields, and the low cost of coal itself, and – as incredible as it seems to us today – the steam engine could have seemed not worth promoting.

So, in conclusion, Britain enjoyed two major advantages that the Yangtze Delta, the Lingnan region, and Japan did not: (1) a colonial system that allowed it to massively increase its effective carrying capacity while simultaneously stimulating its industrial production, and (2) conveniently located coal reserves in damp places.

Apart from Britain, Europe as a whole was nowhere close to an industrial takeoff at the dawn of the 19th century; and though the relative inefficiency of its land usage – and the gains from ameliorating that – allowed it to avoid a crisis for a few decades after 1800 (what Pomeranz calls the ecological “advantages of backwardness”), it was nonetheless approaching an an ecological bottleneck as in China (the 1840′s in particular are known as a time of dearth). This was at a time when the Industrial Revolution had scarcely began on the mainland, and if it had continued it would have required the diversion of more and more labor to working the land intensively, instead of industry. Could industrialization then have been sustained without coal, New World surpluses, and the already existing industrialization of Great Britain?

The general impression one gets is that not only was the “European miracle” in fact just a matter of fortunate conjunctures and contingencies, but that there was nothing especially preordained about the Industrial Revolution. No colonial surpluses; no easily-reachable coal or mechanical culture; perhaps, even no slavery (to enhance the efficiency with which colonial surpluses were extracted) – no industrial revolution. At least, not a few more centuries.

Additional Thoughts for Consideration

(1) Needless to say, I now largely reject my previous theory Walled Off By Complexity: Did China Stagnate Because Of Its Writing System? I don’t think the hieroglyphics system did China any good, but they certainly can’t explain The Great Divergence.

(2) One important factor that I didn’t see Pomeranz mention – the Atlantic is much narrower than the Pacific! China was building ships as advanced as that of the European Golden Age of Navigation as early as the 15th century, and in huge numbers far exceeding the capacity of any single European state. Navigation itself wasn’t a problem either (note that it was China that invented the compass, topographic maps, etc). But it didn’t practice overseas slave-trading, and those Chinese that settled new lands – be they in Taiwan, or the inner provinces – tended to develop their own proto-industrial economies, which in the presence of conditions of free trade and free markets for labor and products eventually undermined the volume of trade.

(3) The “rise of the West” was in large part built on systems – mercantilism, military-fiscal competition, etc. – that universal Western ideology now condemns. Ironically, the BRIC’s (including most prominently China) are the ones using mercantile strategies to catch up to the West.

(4) What’s even more curious is that it wasn’t only Britain, and then the rest of Western Europe that overtook China; so did Russia. Now Russia was undoubtedly far, far behind both China and the West practically since its inception until (relative to China) about the late 19th century. It had serfdom, very small urban class, a very de-commercialized economy, with luxury consumption being indulged in by a tiny elite, etc. Nonetheless, despite this backwardness – an inevitable one, due to ecological reasons I have written a lot on this blog about – the state did nonetheless successfully leverage what meager surpluses it had to maintain a rough military parity with the West and play the role of a Great Power. So, yet more evidence that strict adherence to neoclassical economic development isn’t all that it’s hyped up to be.

(5) An interesting counter-factual to consider – what if there had been no easily accessible coal in Britain or the Rhineland, and if Columbus had found no New World and instead sunk somewhere in the middle of a globe-spanning World Ocean? Could there have been an industrial revolution? Is industrial revolution contingent on “coal and colonies”?

Or would Europe instead have become something like Qing China in the 19th century, increasingly politically debilitated, and economically stagnant – any improvements in land management and increasing labor intensity swallowed up by an inexorably growing population? Could it, indeed, have collapsed, perhaps after it grew critically weak and was invaded by the Russian Army much like China was by the Jurchens, the Mongols, the Manchus, etc., and pillaged by British pirates much like Japanese pirates preyed on a weak China in the 17th century Ming twilight? Indeed, could it eventually have collapsed into yet another Dark Age as followed the Roman Empire, in which much of the vaunted knowledge of the Scientific Revolution would be lost to memory, with the 18th century to early 19th century coming to be seen as a bygone “Golden Age”?

PS. H/t to Doug M. for bringing this book to my attention in the first place.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Over at his Foreign Policy Russia blog, and (provocatively?) a few days before Russia’s Unity Day, Vadim Nikitin penned the post Khodorkovsky = Kurils in which he argued for their mutual liberation from the Russian state. Whereas in their time both the conquest of the Kurils and the destruction of robber oligarch Khodorkovsky had been “effective metaphors for Russia’s resurgence”, they now constitute “an impediment for Russia’s modernization”. That’s because “you’re not supposed to know the outcome of a trial in advance” in a modern state, while internationally “what matters today is the volume of trade, not landmass; economic, not territorial, growth.”

Let’s start with the Kurils. Nikitin has an implausibly liberal conception of international relations, relying on the extremely fuzzy logic that unilateral Russian concessions to Japan will promote goodwill and more trade between them. There are immediate problems that any realist could identify. The most important factor is that this is a profoundly unequal exchange: Russia offers a sure and immediate concession, denying itself fishing grounds and barring its Pacific Navy from free strategic access to the ocean, in exchange for… well, nothing. Not even promises of reciprocal concessions from Japan. This strategy paid great dividends in the 1990′s, didn’t it?

Second, nobody sees Russia as a “nice” international player. To the contrary, the prevailing opinion (be it justified or not) is that hard balance of power calculus plays a much bigger role in its conduct than amongst Western countries. Let’s also not forget that in the 1951 Treaty of San Francisco, Japan had officially forsworn any future claims to the Kurils (and even when repeatedly offered two of the four islands from the 1990′s to 2005 as part of a final settlement, Japan refused to play ball). Consider these two points together, and it emerges that the far likelier outcome of Nikitin’s proposal is that a unilateral Russia giveaway will be interpreted as a sign of weakness (or at best stupidity – which it really would be), and since weakness is contemptible, it will only breed demands for more.

And there surely won’t be any shortage of those. One of the pillars of international stability is that the territorial changes enacted by the victors of World War Two have remained largely permanent and unchallenged by the Great Powers. As Randy McDonald writes in his perceptive post On the foolishness of Japan’s claim to the Kuril Islands: “Italy hasn’t tried to reclaim western Slovenia and the Istrian peninsula, say, or Germany Silesia, or even–pardon the pairing–Finland the Karelian isthmus. Whatever the maritime boundaries between Russia and Japan on the shores of the Sea of Okhotsk were before 1945, after 1945 they changed. Japan might almost as well demand the Karafuto–the southern half of Sakhalin island, an entire prefecture in itself–also lost to the Soviet invasion.”

Potentially, it’s not just Japan with territorial pretensions towards Russia. Though I’ve argued before that Russia And China Won’t Fight, the latter’s calculations may shift radically if it observes Russian concessions and interprets them as a loss of will to retain the nation’s territorial integrity on the part of its ruling elites. Even in Germany – a country that has been orders of magnitude more introspective about its dark wartime past than Japan, where many textbooks skim over or deny The Rape of Nanking or the bio-warriors of Unit 731 – the Bavarian party newspaper of the ruling CSU recently offered tourist holidays to “[Russian] occupied East Prussia.” In short, Nikitin’s proposal threatens to open a can of worms that, far from increasing “growth” and “the volume of trade”, will instead undermine both Russian and global security.

Fourth, the vast majority of Russians prefer keeping their country whole. According to the latest poll in 2009, some 82% of Russians were opposed to giving back the Kurils to Japan, while only 8% were in favor (views are even more unambiguous in the Russian Far East where only 4% supported the giveaway in 2005). Vadim Nikitin respects democracy, right? But it gets even better. It turns out that he isn’t the majority even amongst the Russian liberals he presumably identifies with. Some 57% of (liberal) SPS/Yabloko voters said that their attitudes to Medvedev would change for the worse if he gives away the Kurils, barely distinguishable from the all Russian average of 63%.

On November 3rd, I went to a presentation by Denis Alexeev on Russian foreign policy in Berkeley. It was a rather boring and derivative affair, with him simply recycling many of the Western tropes on the subject: that Medvedev is a closet liberal in thrall to Putin’s policy of “confrontation” with the West; that the pro-Kremlin media’s “anti-American rhetoric” was a major cause of poor American-Russia relations from the mid-2000′s to the “Reset”, with no mention whatsoever of the US portrayal of Russia (that is until I pressed him on it during the questions period and he conceded that it was a two-way affair). So rest assured that Alexeev is no “putinoid”, “putztriot”, or “kremlyad” (as per “liberast” terminology). Nonetheless, when during question time one of the participants, an all-out Russophobe who claimed Russia was “just like Saudi Arabia”, condemned Medvedev for visiting the Kuril Islands and called for their return to Japan, even Alexeev tersely responded that the islands are consecrated with the spilled blood of Russian soldiers. That even someone in the deeply liberal minority of the Russian political spectrum would come out with such rhetoric just confirms the suicidal nature of any such endevour for domestic politics. Though Nikitin is free to deconstruct the issue as “symbolic expropriations-as-restitution”, most Russians feel it’s rather more than that.

Fifth (quite a list isn’t it?), frankly speaking – and Japanese assertions to the contrary – Japan needs Russia much more than Russia needs Japan. Japan is disliked in its neighborhood for historical reasons and also has disputes with South Korea and China, whereas few such issues plague Russia’s relations in the Far East. Though Japanese claims on the Kurils are supported by the US, this does not go beyond mere rhetoric, and in any case American influence in East Asia is waning fast. Almost 100% reliant on foreign imports of oil, much of it passing through the Strait of Malacca, Japan is becoming increasingly vulnerable to the rapidly modernizing People’s Liberation Army Navy and China’s burgeoning network of naval bases (“string of pearls”) around the Middle East to East Asia route. Acquiring a secure alternative supply of energy, i.e. building good relations with Russia, should be one of Japan’s biggest foreign policy priorities. Cajoling from a position of weakness is downright idiotic, for the things Japan can offer Russia – capital and high technologies – can be gotten just as easily from countries like Germany, Italy, even the US.

All this indicates that the Japanese elites are either abjectly short-sighted or just engaged in meaningless political grandstanding. I wouldn’t reject the former. Though they’re in fast decline (economic, demographic, etc), they maintain fractious relations with all their neighbors and have by far the highest debt-to-GDP ratio in the industrialized world. On the other hand, Japan’s abstention from any serious measures in response to Medvedev’s Kurils visit – as well as their hurried release of a detained Chinese fishing boat captain in response to China’s threats of cutting off its exports of Rare Earth Metals to Japan – indicates that they know their cards are weak and will fold whenever the other players raise. Whatever the case might be, it’s Japan’s problem, not Russia’s.

Now on to the Khodorkovsky Affair. Now make no mistake. Back in the days before he reinvented himself as a liberal dissident, Mikhail Khodorkovsky was a gangster capitalist – and quite possibly worse than “just” a billionaire swindler (e.g. see the list of people from the “White Book of YUKOS” who crossed him and ended up dying untimely deaths). He was hardly exceptional, though – certainly less flamboyant about his wealth than Roman Abramovich, and probably less overly odious than rapist-murderer Alisher Usmanov who continues to prosper to this day. Damning with faint praise! But unfortunately, arguing that you shouldn’t go to jail for thievery just because the guy down the street is an acquitted murderer doesn’t wash in most places.

It is a common view, and one with which I entirely agree, that Khodorkovsky’s main sin was in breaking the deal the oligarchs reached with Putin, in which they got to keep the fortunes they misappropriated in the 1990′s in return for their tribute and political loyalty. Misha thought he was too good for that, bribing Duma deputies to build his own power base and trying to run his own foreign policy through YUKOS (e.g. see Mark Ames’ The Real Reason Why Putin Arrested Yukos Oligarch Mikhail Khodorkovsky). So the hyena tried to take on the wolf pack that is the Russian state and got his ass handed to him. Smallest violin in the world playing just for him… (BTW, question for Nikitin: if Khodorkovsky “has lost all his money”, as you claim, how come he’s still so prominent? Do his lawyers and PR men work for free?).

Look, I’m not a vindictive person. I don’t support keeping Khodorkovsky locked up just for shits and giggles. But humanitarian arguments don’t hold water. If Khodorkovsky had truly changed, he’d have condemned his own resume and come clean about the whole sordid story. I’m afraid no quantity of self-serving, martyrological op-eds published by his PR men in big Western newspapers qualify. If anything, they just damn him further, because it demonstrates that not only does he produce at least as much bullshit as he attributes to his prosecutors, but that his main goal remains challenging the Russian state – and in particular, sniping at those forces that had rolled back open oligarch domination.

So let’s look at this from a purely pragmatic viewpoint. Vadim Nikitin says that “in a modern, functional state, you’re not supposed to know the outcome of a trial in advance.” Not really. I think we all know the outcome if Osama bin Laden were to be openly captured by the Americans, right? That was too easy.

What about the fact that many businessmen want Khodorkovsky freed, as argued by Timothy Post at Julia Ioffe’s blog? Well, I would certainly hope that isn’t a reason for actually going through with it. Of course people with big private fortunes – especially if they’re made in shadowy and quasi-legal ways, as is still often the case in Russia – don’t approve of the Khodorkovsky precedent. But this is just one of many examples in which business interests don’t coincide with national interests. After all, in August 2008, many Russian financiers were aghast at Russia’s forceful response to the Georgian invasion of South Ossetia, valuing their own business and financial interests higher than their country’s murdered peace-keepers and international commitments. They are not to be blamed for that – it is, after all, their job and their nature. But it doesn’t mean the state needs to indulge them.

That is because the dynamics at work here are similar to those in international relations. Remember what I said about unilateral concessions just spurring more demands from predatory Powers? Capitalists are the same. What started out as economic deregulation under Reagan has now mushroomed to a point in which corporations acquire the rights of free citizens (but none of the responsibilities), oil companies can requisition US police forces to detain journalists seeking to report on their own oil spills, the dominant party flat out denies anthropogenic global warming during the hottest year on record, and the state outsources tax collection to private banks and corporations just like the Ancien Régime in France. Again, this is not to argue that the innovation potential of capitalists can’t be utilized for the common good. But letting them off the hook entirely only brings ruin, as seen in 1990′s Russia and increasingly in the United States today.

The final leg of the “Free Khodorkovsky!” argument was made by the commentator mab, against at Julia Ioffe’s blog: “Without making any claims about Russia being better or worse, or three rating points above or below various African countries, Russia DOES have a problem with selective prosecution, rigged courts, and political use of the judicial system. Remember “legal nihilism?” We talk about that over here, and at the highest levels, we condemn it. But then nothing seems to change. So that’s why this trial — where the prosecution’s case is so transparently, so obviously, so clearly we-know-it’s-bogus-and-we-dare-you-to-object — is so important. Everyone is waiting to find out: is it business as usual (ie, legal nihilism prevails) or not?” But the only problem is that mab, actually answers his own question: “It’s not that Mr M and Mr P are feuding, but that the clans backing them are maneuvering and dancing around. Since the dance is going on behind a curtain with only a few shadows visible or the occasional shoe slipping out, it’s hard to say how far the dance has gone. But it might have gone far enough for an acquittal.”

Let me explain. Even if the judge were to acquit Khodorkovsky, IT WOULD NOT BE SEEN AS AN INDEPENDENT JUDICIAL DECISION. Mab himself says as much with his remarks about clan maneuvering influencing the process. In other words, REGARDLESS of the verdict, Russia will remain as “legally nihilist” as before. As established above, the main purpose of Khodorkovsky’s imprisonment is pour encourager les autres, the only result freeing him would have is to nullify that effect – and give a signal to the other oligarchs that perhaps trying to capture the state ain’t so bad no more.

Then there could be one of two scenarios. First, with (the perception of) weakened extra-constitutional checks on oligarch depredation – regrettably, a vital element in a country with institutions as underdeveloped as Russia’s – the hyenas begin running wild again, threatening the climate of political stability that has enabled Russia’s economic (re)growth during the 2000′s. Then, either Russia may begin to go the way of Ukraine, with its permanent oligarchic feuding and much lower long-term growth rates, or the powers that be will be forced to crack down and make examples of over-reaching oligarchs yet again – and more severely than last time, because reestablishing credibility is harder the second time round. Foreign perceptions of Russia, the perceived risk of doing business in the country, and FDI inflows will all be much more negatively impacted than if Khodorkovsky continues to rot in jail.

Now I’m not saying that this will certainly happen. Who knows, perhaps the oligarchs will remain fully cowed and pliant. Perhaps Russia’s institutions have developed to a point where they can independently check oligarch takeover (though obviously none of Khodorkovsky’s defenders have a high opinion of Russian institutions!). But is it worth taking such a big political risk for one scumbag? I very much doubt it, and furthermore, I’m almost certain that “the powers that be” think the same way. My prediction is that Khodorkovsky will remain in jail for a long time to come…

Didn’t really mean to write so much on this, I suppose I was feeling prolific with my keyboard today. So in short – it appears to me that Vadim Nikitin is basically arguing that it is rootless financial elites and the international community (read: Western countries) that should define Russia’s parameters of “modernity and functionality”, regardless of Russian popular opinion and political realities. Yay for democracy! But otherwise, just glad he’s not in charge.

Karlin a la Nikitin.

Karlin a la Nikitin.

UPDATE: Nikitin responded to me in his post The Kurilous Case of Khodorkovsky, for which I thank him, but I remain to be convinced on most issues. A reply to some of the most germane critiques:

Re-Kurils not strategically important: “The strategic aspect is handled by Kamchatka and the fishing volumes can’t possibly be so earth-shattering either.” Though the east coast of Kamchatka does have important secondary bases, the Pacific Fleet’s heart remains Vladivostok. If Japan owned the Kurils it would make Russia’s naval status there nearly analogous to that in the Black Sea.

Re-”So why not use the useless Kurils as a cheap trade for a better image?” But will it create a better image? Magnanimous gestures mean little – who knows or even cares about Russia’s huge debt cancellations in the 2000′s, or it’s amicable resolution of borders with China, Estonia and Norway? In the real world, a good PR machine is the nuts. Ask Saakashvili.

Re-”Anatoly seems to want Russia to play by the same rules as the US: bullying its way around the world, trying people just as the US would hypothetically try bin Laden.” I like to think of it more as fighting fire with fire. ;)

Re-”That means, first of all, dispensing with Russian opinion polls regarding ‘territorial integrity’. Why don’t we also ask ‘the Russian people’ what they think of immigrants, Jews, Georgians and all matter of other gut issues. Or Chechnya.” This is a strawman. While about half of Russians do hold (backward) views that Russia is for Russians, in practice immigrants and minorities have certain legal protections which, though imperfect, do work if the immigration figures are anything to go by (e.g. something like 20% of all Georgians live in Russia). Dismissing Russian popular opinion on territorial integrity in such cavalier fashion is, IMO, unseemly and elitist. Even from a purely practical perspective, I would point out that political capital is a limited resource, and giving away the Kurils will drain much of it for no apparent gain to Russia either social or national. Instead, it may well provide fuel for a nationalist reaction, and make upholding truly fundamental things such as minority rights that much more difficult.

Re-”I mean: what are states nowadays, in the age of neoliberalism? They have offloaded most of their responsibilities towards their citizens, they are increasingly powerless (if, more than anything else, also unwilling) to control financial flows.” Ideologies and international regimes come and pass, but geography remains static. I also think Nikitin overestimates the decline of the state in the age of neoliberal globalism, but that’s another discussion.

Re-”As for Khodorkovksy, I was tempted to pick a fight over language but decided that, as a gifted writer living in 2010 and not 1950, Anatoly was surely only using such Stalin-vintage rhetoric as “conquest of the Kurils”, “destruction of robber-oligarch” and “hyenas trying to take on the wolf pack” ironically to get a rise. I’m equally sure that in identifying me with Russian liberals of the SPS/Yabloko variety, he was just trying to provoke me into writing a response, and does not actually seriously think that I might hold some affinity with the odious Nemtsov-Khakamada brigade.” I plead guilty on both counts.” What’s so Stalinist about “conquest of the Kurils”? It was undoubtedly a conquest and occupation, highly opportunist, but not unjustified (as Nikitin himself agrees). I might have gone beyond respectability on the rhetoric, but I’ve never intended for S/O to be respectable. ;) As for Nikitin’s political views, though I was aware he wasn’t Westernocentric or rightist as are most Russian liberals, I can’t say I’m familiar enough with his political positions to properly classify him on the Russian political spectrum. Question for Nikitin: Who if anyone do you identify with?

Re-”But at least the bad PR will stop, and the investment climate would maybe improve.” Not really. While Khodorkovsky’s people certainly work overtime creating bad PR, it’s not as if they’re the only ones at it. And as Nikitin would surely agree – much of it is actually deserved. But I would argue that this just proves that the main task of the government is to clean up its game, reduce bureaucratic hurdles to doing business (where Russia is currently 123rd in the world), strengthening institutions, informatizing government services. Some of it is already happening but most of it remains unfinished or even unstarted. If Russia succeeds here, then frankly, no-one will care one way or the other about Khodorkovsky. If it fails, no amount of freed Khodorkovsky’s and liberated Kurils will create a positive image.

Re-”But in Russia today, ‘national interests’ are little more than the interests of a small group of people connected to the government, gas/oil wells and strategic enterprises; who use the state mantle as a way of protecting their assets… Anatoly seems to be defending just another clique of hyenas and robber oligarchs, only ones who happen to call themselves the Russian state rather than the ‘liberal opposition’. What’s the point?” Though it’s certainly true that many of the guys who run Russia also benefit from it – as in most other countries – the main question is in terms of degree. Let me explain. Like many others of the leftist persuasion, Obama has been a disillusionment to me (though not an unexpected one). That said, the GOP under Tea Party and corporate influence has become so utterly deranged, ideologically blinkered, and mendacious in their anti-Obama rhetoric that I felt compelled to strongly support Obama in the recent elections nonetheless.

My relation to the “wolf pack” Russian state is roughly analogous. By and large, they are not my ideological soulmates. But… (1) I find the rhetoric and actions of the liberals and “dissident oligarchs” to be so blatantly self-serving and repugnantly worshipful of foreign ways just because they’re foreign that I can’t possibly see how they can be as good as the current regime for both Russia and (ordinary) Russians let alone better, (2) that’s too bad because to be serious contenders even “just as good as” isn’t anywhere near good enough; they have to be “far better than” in order to justify the risks of transition instability and of exchanging the devil you know for the devil you don’t know, and (3) let’s face it – Putin is about 10x cooler than the coolest liberal, whoever he or she is. Hence my qualified defense of it.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Every so often there appear claims, not only in the Western press but the Russian one, that (rising but overpopulated) China is destined to fight an (ailing and creaking) Russia for possession of its resources in the Far East*. For reasons that should be obvious, this is almost completely implausible for the next few decades. But let’s spell them out nonetheless.

1. China regards India, Japan, and above all the USA as its prime potential enemies. This is tied in to its three geopolitical goals: (1) keep the country together and under CCP hegemony – an enterprise most threatened by its adversaries stirring up ethnic nationalism (India – Tibetans, Turkey – Uyghurs) or buying the loyalties of the seaboard commercial elites (Japan, USA), (2) returning Taiwan into the fold and (3) acquiring hegemony over the South China Sea and ensuring the security of the sea routes supplying it with natural resources. The major obstacles to the latter two are the “dangerous democracies” of Japan and India, with the US hovering in the background. In contrast, the northern border is considered secure, and more generally, Russia and Central Asia are seen as sources of natural resource supplies that are more secure than the oceanic routes.

2. But let’s ignore all that. It’s true that in a purely conventional war, it is now very likely that Russia will not be able to defend its Far East possessions thanks to China’s (mostly complete) qualitative equalization, (very substantial) quantitative superiority, and (huge) positional advantage. Short of the US and Japan interfering – which is unlikely, if not impossible if Russia were to make big concessions (e.g. on Kuriles ownership, rights to the Siberian resource base) – defeat and occupation are assured. BUT…

This ignores the all-important nuclear dimension. In the wake of post-Soviet demilitarization, it has become clear that any war with either NATO or China would likely end up going nuclear. The official military doctrine allows for the use of nuclear weapons against other nuclear powers in defense against conventional attack; post-Soviet military exercises explicitly model usage of tactical nukes to blunt enemy spearheads as Russian military formations beat a scorched-earth retreat. Though the quantity of Russia’s tactical nukes is now substantially smaller than their 16,000 peak, there are still probably thousands of them remaining (unlike strategic platforms these are not subject to inspection and verification procedures), and it’s difficult to see how a Chinese invasion could effectively counter them.

(But why would the Russians use nukes on their own territory, one might ask? The Russian Far East is very lightly populated, and in any case air bursts – which is presumably what they’ll be using against the enemy divisions – produce little radioactive fallout).

3. Aleksandr Khramchikhin goes on to argue that:

… Unfortunately, nuclear weapons don’t guarantee salvation either, since China also has them. Yes, at the time we have superiority in strategic forces, but it’s rapidly diminishing. Furthermore we don’t have medium range missiles, but China has them, which almost makes null their inferiority in ICBM’s… What concerns a strategic nuclear exchange, then the Chinese potential is more than enough to destroy the main cities of European Russia, which they don’t need anyway (it has a lot of people and few resources). There’s a strong argument to be made that, understanding this, the Kremlin will not use nuclear weapons. Therefore nuclear deterrenece with respect to China is a complete myth.

This is wrong on most points:

(A) As far as is known, China maintains a position of limited deterrence, its nuclear forces being constantly modernized but remaining small in comparison with those of the US and Russia (this may or may not change in the future). The big post-Soviet decline in Russia’s arsenal has largely run itself out and on recent trends is unlikely to resume. This shouldn’t be surprising, since Russia no doubt realizes that it is precisely its nuclear forces that do most to guarantee its current day security.

(B) Apart from the fact that China’s medium-range rocket forces still can’t reach deep into European Russia, even accounting for them it is still very much inferior to Russia: “In July 2010 the Russian strategic forces were estimated to have 605 strategic delivery platforms, which can carry up to 2667 nuclear warheads.” As of 2010, China is estimated to have (non-MIRVed) 90 intercontinental ballistic missiles (i.e. can reach European Russian cities) and a few hundreds of medium and short range ballistic missiles. The latter will comprehensively devastate the populated regions of the Russian Far East, and to a lesser extent east of the Urals, but these aren’t core Russian territories and have relatively small concentrations of population and industry. In any case, if anything these are likely to be used not against Siberian cities, but against Russian military and strategic objects.

(C) One must also include ballistic missile defense, civil defense and geography into the equation. Though China has more S-300 type missile systems and has recently demonstrated an ability to shoot down ballistic missiles in controlled tests, there is little doubt that Russia is still ahead in this sphere. The S-400 now replacing the S-300 has intrinsic anti-ICBM capabilities, and the A-135 system around Moscow – with its nuclear-tipped interceptor missiles – makes it better than even odds that the capital would survive intact.

Both China and Russia have substantial civil defense measures. The USSR in 1986 had shelter space for around 11.2% of its urban population, according to CIA estimates. As of 2001, it was estimated to be 50% in Moscow, and construction of bunkers continues. China too has a large-scale civil defense plan of building bunkers in its larger cities.

At first glance, it would appear that geography-wise, China has an advantage in its huge population, large size, and greater rural population as a percentage of the whole. In contrast, Russia’s population is largely urban, and seemingly more vulnerable. This however is misleading. Most of China’s population, fertile land and industry is concentrated on its eastern seaboard and along its great river valleys. Agricultural productivity will plummet in the years following a large-scale exchange, resulting in famine, and as so often in Chinese history, perhaps anarchy and the end of political dynasties – in this case the CCP. Even if the Russian Far East is “won” in time, it is unlikely that it could alleviate the suddenly critical population pressures, for building up the infrastructure for mass human accommodation in that cold, barren and mountainous will take decades. Since Russian agriculture happens over a greater area, is less intensive / reliant on machinery and fertilizer inputs, and generates a substantial export surplus in most year, it isn’t as likely as China to dip into all out famine.

(D) As things stand, the real result of a nuclear war between Russia and China would be (1) a crippled Russia with 20-30mn fewer people, with many tens of millions more at the edge of subsistence, shorn of its Far East territories, but with an intact state still endowed with a nuclear deterrent, and (2) a collapsed and c.90% deindustrialized China rapidly descending into mass famine and anarchy and knocked out of the Great Power game for the foreseeable future. Two tragic, but nonetheless distinguishable, postwar environments, as Herman Kahn would have said.

4. Obviously Chinese strategists comprehend these arguments, and as such cannot have any serious medium-term designs on Russian territory. This is not the case for Taiwan and the South China Sea, where Chinese interests are greater, and don’t fundamentally infringe on US security to the extent that it will contemplate using its far superior nuclear arsenal against China, as that would risk Los Angeles and San Francisco and a dozen other cities on the West Coast getting annihilated. This fulfills the main purpose of China’s long-range “minimal deterrence” strategy.

5. The strategic balance isn’t fixed in stone, and future developments may make the situation more precarious by 2030-50: (1) The development of truly effective ABM systems, (2) growing sustanance pressures in China due to climate change and the depletion of coal reserves, and (3) the opening of the Russian Far East and Siberian interiors to intensive settlement thanks to global warming. But this remains speculation, and the facts are that since both Chinese and Russians are more or less rational actors, the chances of large-scale war between them in the next few decades is very close to zero – no matter what the sensationalists claim.

* Their other major claim is that Russia is already facing a “demographic invasion” and that Siberia is rapidly becoming Chinese. This is completely wrong, as I’ve pointed out in my old post on The Myth of the Yellow Peril.

EDIT: This article has been translated into Russian at Inosmi.Ru (Почему Россия и Китай не будут воевать друг с другом).

(Republished from Sublime Oblivion by permission of author or representative)
 
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There’s been lots of fanfare over China’s GDP overtaking Japan’s in Q2 2010 (coming hard on the heels of a big ruckus over its DF-21 “carrier killing” ballistic missile and rising tensions with the US over North Korea and the South China Sea). The big debate is now whether China will overtake the US as the world’s biggest economy by the 2030′s (as originally argued by Goldman Sachs in their classic Dreaming with BRICs paper), or whether its nomenklatura authoritarianism, centrifugal tendencies and demographic problems will preclude it from ever challenging Pax Americana. My view is that China is underestimated even by many of its proponents: underlying tendencies in world economics and energetics indicate that China’s GDP will overtake America’s before 2020, enabling it to emerge as the last superpower by the 2020′s.

First, there is a major delusion that affects a disturbing amount of the commentary surrounding the size of the American and Chinese economies. Newsflash: nominal GDP and real GDP are different things! China overtook Japan in nominal GDP this quarter, but its real level of output has been the world’s second largest for almost a decade*. The reason China’s nominal, or market exchange rate, GDP is twice lower than its real GDP is because its currency is undervalued relative to the US dollar – simply put, living in China is a lot cheaper than in America. But it’s not an accurate proxy for the actual output of the Chinese economy, which is now at around 2/3 of the US level (IMF)**. The “purchasing power parity” GDP is better suited for gauging a country’s real living standards and economic strength.

Furthermore, many analysts are making the stunningly incompetent, sub-Econ 101 mistake of projecting Chinese’s 10% real growth rates to its nominal GDP. (Needless to say, this is totally absurd; China’s nominal GDP is growing much faster than its real GDP, because as it gets richer its price levels begin to approach those of the developed world). The convenient result of such calculations is to delay China’s sorpasso of the US economy decades into the far future.

Applying linear projections of 10% growth for Chinese GDP and 3% growth for US GDP sees the Middle Kingdom overtaking its superpower rival by 2017. By 2025, China’s economy is 75% bigger than the US.

china-usa-gdp-1

Now one may make the entirely valid observation that linear extrapolation of current trends is bad futurism. I agree. China’s GDP growth will like moderate in the years ahead, as China develops and gets less bang for each investment yuan. On the other hand, there is still plenty of scope for rapid catch-up. China today is where South Korea was in late 1980′s and its trend rate of growth is slightly higher at 10% relative to Korea’s 8% from the 1960′s to the 1980′s. As China gets richer, this growth rate can be expected to ease to 7-8% (Korea in the 1990′s) and 4-5% (Korea in the 2000′s).

The US cannot expect to see anything approaching 3% growth in the next decade. The realistic scenario is 1) a private sector deleveraging as households begin to rein back the debt-income ratios to some semblance of normality and 2) massive yearly budget deficits supporting a permanently weak economy at a 0-1% growth level. Think an American version of Japan’s Lost Decade.

In the graph below, China grows at 10% until 2015, 7% until 2020, and 5% thereafter – roughly replicating South Korea’s trajectory from 1985/1990. The US slugs along at 1% until 2020, then improves to 2%. In this scenario, China sails past the US in 2015 and is 60% larger by 2025.

china-usa-gdp-2

In reality, the world is far more complex than macroeconomics alone can describe. As I argued in Shifting Winds, American hegemony is metastable: though outwardly imposing, an interlinked failure in critical nodes such as energy (e.g. oil shock), finance (e.g. currency flight) and geopolitics (e.g. Iran) can lead to a cascading collapse of the entire system. Few will risk sticking their neck out with such predictions beforehand, but once the collapse becomes visible in our rear-view mirror, it will acquire the tinge of historical inevitability.

The American service-based economy is reliant on cheap and reliable petroleum supplies to keep the office plankton fed and mobile, but is put at critical risk by the imminent peaking of global oil supplies. The financial / credit system relies on trust and belief (“credo”) in future growth to keep functioning as an economic fertilizer, but it is threatened by awning US economic disbalances and the possibility of disruptions in energy supplies. Finally, both the energy and the financial crisis can be triggered by a single geopolitical event, such as a successful Iranian blockade of the Straits of Hormuz (e.g. in retaliation for an Israeli strike against its nuclear facilities).

The risk of cascaded collapse would not exist if Pax Americana faced fewer challenges, or if its foundations were still strong and wholesome. They are most definitely not in our era of permanent deficits, tight oil supplies and imperial overstretch. In the worst case scenario, this collapse could manifest itself in a fall in GDP of up to 30% to a new “steady state” output level.

But at least the US will recover quickly, right? Not likely. Though a US dollar collapse will restore competitivity to some of its older industries, global resource constraints will prevent it from ever fully recovering. Why should increasingly scarce energy sources continue feeding the office plankton of American suburbia, as opposed to Chinese factory cities whose products the entire world wants?

Contrary to popular commentary, China is unlikely to be hurt much by an economic collapse in its prime market. Net exports only account for 7% of China’s GDP, so though exports will decline, so will the imports used to assemble exports, and the overall effect will be modest. Though ebbing US demand for Chinese goods will hurt coastal regions, create unemployment and incite low-level protests, it is unlikely to reach a critical level since China can refocus development efforts on the interior and raising domestic consumption (there are numerous signs that this is already happening).

China’s biggest challenge will be the peaking of its coal production and AGW-induced declines in crop yields within ten to twenty years. Mitigating these developments will require a great deal of capital and ingenuity, things China is fortunate to have in abundance. Ultimately, with 20% of the world’s population but just 7% of its arable land, the Limits to Growth may cap China’s peak GDP at not much more than America’s current level.

On to our third scenario. From 2011, some combination of critical system shocks initiates a cascading collapse of Pax Americana, resulting in a cumulative US GDP decline of 30% from peak (this is similar to Latvia’s collapse in 2007-2009). After that, there is a permanent zastoi – unlike in previous emerging market crises, a significant recovery will be impossible in the new world of neo-mercantilism and energy constraints. China will be able to leap past the US sometime around 2013-15 and grow to more than double its size by 2025 – despite the slowing of China’s own growth due to peak exergy and the natural effects of economic catch-up.

china-usa-gdp-3

What is the probability of each of these scenarios happening? In my opinion, Scenario 1 is pure fantasy. Scenario 2 is what I’d vouch for in “respectable” conversation. Scenario 3 is what I really believe will happen (and what I tend to write about on this blog).

In any case, the general outline is clear: no matter which “prism” you see the world through – be it techno-cornucopian, “realist”, or peakist – it appears that China, by sheer virtue of combining 1.3bn souls with modern technics, is destined to soar past the US to become the leading pole, if not of the world system, then certainly of the Pacific region.

This breakout will be all the more dramatic under the American collapse scenario: wracked by internal decline and preoccupied with internecine politicking, it’s not impossible to imagine the US simply not noticing the ebbing of its influence in East Asia. Of course, there’s a perfect precedent for this: see how post-Maoist China managed to break past the seemingly impregnable Soviet empire that collapsed into anarchic stasis in the early 1990′s.

russia-china-gdp

[Angus Maddison's data adjusted to equalize with IMF 2008 data; note that "former USSR" is a very rough estimate].

* There’s a big debate on the reliability of official Chinese economic statistics. Are Chinese statistics manipulated? by Gao Xu is a recommended rebuttal h/t “in the loop”.

** That is also assuming that the 30% downwards revision to Chinese GDP by the World Bank and IMF a few years ago was well-founded and not undertaken out of political considerations to preserve America’s #1 status. If not, China’s real GDP may already be surging past America’s.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.