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China's Economic Revolution and Its Implications for Sino-U.S. Relations

by Ramon H. Myersvia Analysis
Wednesday, November 1, 1995

In the next few decades Sino-U.S. relations will be strongly influenced by four issues: economic friction, international security interests, human rights, and conflicting claims by Taipei and Beijing over sovereignty to Taiwan. Economic friction and international security concerns will dominate as China's economic and military prowess grows.

The prospects seem bright for China's economy to become productive and sustain annual growth rates of around 8 percent because in 1992 the Chinese Communist Party decided that the majority of its 150,000 state-owned enterprises would be restructured by the year 2000. This means changing property rights to corporatize the state-owned enterprises and creating a market economy for them to operate in. If China's leaders successfully carry out this revolution, China will not only have a large, prospering middle class but become a major military power.

To anticipate these developments, the United States should now forge a close working relationship with the People's Republic of China by taking the following steps: establish annual summit meetings and a hot-line communication between Sino-U.S. leaders; create a high-level Sino-U.S. committee of officials and experts to manage potential economic friction; expand scholarly exchange programs; encourage local government exchanges. These overarching arrangements will facilitate communications, enhance mutual understanding, build confidence, and reduce tensions between the leaders and political elite of both countries.

Taiwan and the United Nations: Conflict between Domestic Policies and International Objectives

via Analysis
Wednesday, November 1, 1995

For reasons of nationalist sentiment and in hopes that it might help prevent People's Republic of China (PRC) military action, public opinion in Taiwan is strongly in favor of seeking U.N. membership. Responding to this sentiment, both major political parties, the ruling Kuomintang and the opposition Democratic Progressive Party (DPP), eagerly support the idea. But consensus ends there.

To promote its program of ultimate de jure separation from China, the DPP wants to apply as a new member called Taiwan even though it understands that new members can enter only with approval of the Security Council in which the PRC holds a veto. The government wants a General Assembly (GA) study committee formed in hopes that it will recommend amending GA resolution 2758, which expelled the Republic of China (ROC) in 1971.

The Taiwan government's approach is half right: any General Assembly can amend or revoke a resolution adopted by one of its predecessors. But even if a study committee were formed--and two previous assemblies have declined to create one--the PRC would have one of the seats and, because such committees operate on a consensus basis, would be able to block such a recommendation.

Given that there is no court that will decide the matter, the best, indeed only, way to amend resolution 2758 is by direct appeal to the assembly. This can be successful if the ROC can accumulate a working majority of its voting members. The author argues that this can be done by working through the specialized agencies within the U.N. constellation to demonstrate to Third World countries the valuable contributions Taiwan can make to their hopes for development and thus enlist their support.

Has China Lost Its Way?: Getting Stuck in Transition

via Analysis
Saturday, July 1, 1995

If China is to become an economic superpower in the next century, financial markets will be essential to arbitrage risk. Such markets may fail to develop because of uncertainty over the role of government. Efficient financial markets will require that the Chinese Communist Party reduce its political leverage over economic decisions and decision makers.

Not every newly industrializing country has well-functioning liquid financial markets in which investors can diversify their risks. Nor do all developing countries have efficient legal systems in which a broad range of property rights can be enforced. China, for example, has experienced considerable growth without either liquid financial markets or an efficient legal system by using intermediaries--officeholders who construct broad exchange networks that are based on relationships rather than on formal institutions. The reputation of individual power brokers and the strength of their connection to party power centers provide the system's coherence. The capital requirements for future growth, however, may surpass the capability of these intermediaries, putting the system under severe strain. To overcome this strain, alternative methods of contracting agency relations that will require considerable elaboration of the legal system are needed. A rule- compliant, constitutionally grounded society and economy must be established so that contracts can be maintained independent of the personal authority of power holders. The danger of not acting is a liquidity crisis, intensified by the absence of institutions to reduce risks.

Causes of Continuing Conflict in Nicaragua-A View from the Radical Middle

by Timothy Charles Brownvia Analysis
Saturday, April 1, 1995

World attention has wandered but neither the Contra war nor the Sandinista Revolution in Nicaragua has ended. Promises to former Nicaraguan Democratic Resistance combatants, better known as Contras, of protection and help with restarting their lives have been systematically broken. A second breath granted to the Sandinistas by President Violeta Chamorro has resulted in continuing threats to U.S. interests. Nicaragua, which has often generated political problems for this country, continues to do so because we failed to seize the moment in 1990. Since then $2.1 billion in foreign aid, including more than $1.5 billion in U.S. taxpayer dollars, has bankrolled Nicaraguan retrogression toward a patriarchal, nondemocratic political system. The primary aid beneficiaries, in an uneasy but symbiotic alliance, have been the pro-Chamorro elite and and the Sandinista senior cadre. The resultant political system fits an analytic model centered on identity and ethnicity. The core is dominated by a postcolonial Europeanate global tribe with political values that favor self, family, and private fortune over the nation and the poor. From this perspective recent Nicaraguan history, including the Sandinista Revolution, becomes simply a variant on traditional intraelite rivalries for power, with the peripheral masses, including the United States' erstwhile allies, the big losers. Current U.S. policies reinforce this nondemocratic process. New ones are needed. In addition to real, not minimal, democratization, these should include demilitarization, disarmament, and aggressive observation of the 1996 elections. Current political biases built into U.S. aid should also be reversed, and the Organization of American States' protection for our former allies should be reinforced. It is not too late to recover from the mistakes of 1990.

China's Transition to Markets-Market Preserving Federalism, Chinese Style

by Barry R. Weingastvia Analysis
Wednesday, February 1, 1995

This essay studies the relationship between decentralization and the success of economic reform in China. It begins with a theory about the relationship between the types of decentralization and economic performance. We argue that a particular form of decentralization, called market-preserving federlism, Chinese style, provides a critical component of the political foundations for market success in China.

After discussing the evolution of federalism, Chinese style, during the first fifteen years of reform (1979-1993), we turn to the political foundation of economic reform. We argue that economic success hinges in part on an important aspect of decentralization, notably, that it provides for the political security of the reforms. By creating alternative centers of power at local levels, decentralization established forces that could help resist attempts by the central government to compromise the reforms.

China's form of decentralization has served the critical purpose of creating markets at time when political resistance to economic reform remained strong and when the durability of the reforms was important. Nonetheless, federalism, Chinese style, remains incomplete, accounting for some of the anomalies surrounding China's success. It lacks some national public goods such as enforcement of a common market and a unified monetary system, and the system needs to be institutionalized via a set of rules underpinning the market. We also observed that aspects of the problems facing modern China are not unique but have historical precedents in the economic development of the West. To this end, we highlight some important parallels between the economic and political problems facing the early United States under the Articles of Confederation (1781-1787) and those of modern China.

COURAGE UNDER FIRE: Testing Epictetus's Doctrines in a Laboratory of Human Behavior

by James Bond Stockdalevia Analysis
Saturday, March 13, 1993

Vice-Admiral Stockdale was on active duty in the regular navy for thirty-seven years. As a fighter pilot aboard an aircraft carrier, Stockdale was shot down on his second combat tour over North Vietnam. As the senior naval prisoner of war officer in Hanoi for eight years, he was tortured fifteen times, put in leg irons for two years, and put in solitary confinement for four years.

During his naval career, his shore duty consisted of three years as a test pilot and test pilot instructor at Patuxent River, Maryland; two years as a graduate student at Stanford University; one year in the Pentagon; and, finally, two years as president of the Naval War College in Newport, Rhode Island.

When physical disability from combat wounds brought about Jim Stockdale’s early retirement from military life, he had the distinction of being the only three-star officer in the history of the navy to wear both aviator wings and the Congressional Medal of Honor (CMH). Besides the CMH, his twenty-six combat decorations include two Distinguished Flying Crosses, three Distinguished Service Medals, four Silver Star Medals, and two Purple Hearts.

As a civilian, Jim Stockdale was a college professor, a college president, and a senior research fellow at the Hoover Institution. His writings have been many and varied, but all converge on the central theme of how man can rise with dignity to prevail in the face of adversity.

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