Thursday, 11 March 2010

Farewell to arms

Sino-US antagonism may be eased, ironically, by a common need to cut defence budgets


Guanyu 道 said...

Farewell to arms

Sino-US antagonism may be eased, ironically, by a common need to cut defence budgets

Joergen Moeller
16 February 2010

Reading the mass media, it looks as if Washington and Beijing are on a collision course. The Google episode and the sale of US weapons to Taiwan convey the impression of two superpowers staring each other down. The two powers may, however, soon be forced into each other’s arms by the dismal outlook for US public finances and potential social unrest in China.

History offers a number of examples where a superpower sees its strategic options limited by financial constraints. Unless strategy is brought into line with financial strength, a superpower’s posture will not be taken seriously and decline accelerates. This happened to the British empire in the beginning of the 20th century. The US is fast moving towards such a policy dilemma. Equally, the door is opening for rising powers to move into the vacuum and gradually assume leadership.

This time, however, something else might happen because the option of an understanding between China and the US to cap military spending could be on the cards. The idea sounds far fetched, but the figures tell another story.

Both countries spend a bit more than 4 per cent of gross domestic product on their militaries, although some programmes are “hidden” under quasi-civilian items. Military budgets this size can probably be sustained if national security warrants it, but are highly unwelcome.

The US is facing a deficit on the federal budget for the foreseeable future. Essential domestic policies imply steeply rising expenditure. A forecast for the public debt reveals a significant increase, bringing it above total GDP from the current figure of about 70 per cent. Net interest payments accounted for 8 per cent (US$234 billion) of the federal budget last year. A prudent estimate points to 20 per cent - a sum of more than US$700 billion - in 2019.

To prevent this from happening, taxes must be raised or expenditure cut. Higher taxes to raise revenue can probably be ruled out, especially in an election year. That leaves the expenditure side. The snag is, however, that 60 per cent of the federal budget is mandatory, so expenditure flows from existing laws cannot be cut unless new laws are passed, almost impossible to do. Consequently, discretionary spending must be cut, but this part of the federal budget accounts for only US$1.33 trillion, of which almost half goes to the military. It seems inescapable that, sooner or later - probably sooner - the size of the military budget will be questioned. The money simply cannot be found elsewhere.

Over several decades, China may have the financial muscle to build a military comparable with that of the US, with growth locked into 10 per cent or so and generally healthy public finances. But, it faces structural problems in its economy.

The need for diverting an increasing share of growth towards social expenditure looms large every day. China’s future pension burden, plus its endeavours to develop the Western parts of the country, top its list of priorities. Inequality has passed the danger threshold defined by the Organisation for Economic Co-operation and Development, with China’s Gini coefficient at 0.47, above the 0.40 limit. If it is allowed to continue upwards, it moves into an alarm bracket, threatening the social and political stability that legitimises the monopoly of power arrogated to the Communist Party. Question marks over the purpose of large military spending may nullify the existing image of China as a nation not seeking influence through military power - an impression carefully created by the leadership over many years.

A nation’s ability to “defend” itself depends on its social cohesion; diverting funds allocated to serve this objective endangers its stability and the political system’s legitimacy, consequently undermining its security.

Guanyu 道 said...

The breakdown of the American style of capitalism may have cost the US much more in global leadership than a military posture can compensate for. Not only has the model lost its lure, but the financial resources to further American influence are simply not available any more. US investments abroad and/or financial assistance are much more effective than carrier groups in spreading and securing influence. China is actually doing exactly this through a buying spree, especially in Africa, accompanied by a policy message that it is “different” in the sense that it does not want to interfere in domestic matters.

Logically, such considerations might lead the two countries to limit or even reduce military expenditure. Mutual suspicion remains the main barrier. The US fears that China hides military expenditure under other headings in its budget. China might think the US is preventing its rise. Hard reality may break down such barriers. If not, the US may inadvertently be drawn into the same trap it set for the Soviet Union in the 1980s: arms expenditure as a drag anchor steering the Soviet economy towards the rocks. China will derive little benefit from a lame US making the global scene even more complicated and dangerous than it is now.

Joergen Oerstroem Moeller is a visiting senior research fellow at the Institute of Southeast Asian Studies, and an adjunct professor at the Copenhagen Business School. Copyright: OpinionAsia