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Both Tom and John have weighed in on the important piece by James Fallows in The Atlantic Monthly, entitled “The $1.4 Trillion Dollar Question“:

Dr. Barnett:

“What Fallows doesn’t address in China’s vast surplus/savings is the huge and very real current sovereign debts and future mandates that are hidden in this development scheme: overseas resource dependencies demanding investment stakes, future aging costs, current and future enviro costs, future requirements to build out (and up) the poor interior, and so on.

Those are real sovereign liabilities because the people will expect some/much government help in these matters over time to ensure continued development and sustained movement up the product chain (gotta get as rich as possible before getting old).

Having said all that, Fallows’ analysis of the government’s logic is dead on. I suspect that, with all his time spent in China, we’ll see a book that does a big turn in explaining China to America. That will be a huge journalistic endeavor, and most welcome from someone with his considerable narrative talents.

As for the larger strategic question, we owe China a quiet international security order within which to develop, and sufficient partnership so as to obviate too much defense spending on their part. Eventually, Deng’s “grand compromise” of 1992 (PLA supports him on market acceleration in return for money and cover to modernize) must be tempered so that China doesn’t field a military for a war that should never happen and which it could never win. It needs to field a SysAdmin-heavy force that partners with us in mutual dependence: we can’t rule the peace with our Leviathan-heavy force, but they can’t rule war with their Leviathan-lite force either, so we must cooperate in extending and protecting globalization to our mutual advantage.”

John Robb:

“Fallows runs through the details of the “financial balance of terror” between the US and China and concludes that it won’t last long. However, of the reasons he listed for a collapse of the balance, he didn’t include the most likely: that China will need the money to shore up its domestic economy as the US heads into a lengthy and severe recession.

Remember, China hasn’t endured anything other than growth pain for over a decade. Further, the average Chinese citizens hasn’t reaped much from that boom. They don’t have the financial reserves to weather a crisis (and many of those that do will lose their shirts when China’s market bubble tanks). So where will this cash go over the next two years? Not into Blackstones or US Treasuries. Instead, it will be invested domestically. Into jobs and projects to shore up the little bit of legitimacy the Chinese government still has (we see a similar pattern with many of the globe’s marginally legitimate governments, from Saudi Arabia to Russia).

Frankly, I’m not sure that $1.4 trillion (the normative value of which is evaporating with each plunge in the dollar) will be enough to prevent China from disintegrating if this crisis becomes a panic.”

My two cents:

China holds enormous reserves in dollars because their financial strategy – parking surplus cash in Treasury securities – also represents an internal political strategy of deferring acrimonious, major, spending and investment choices that might precipitate division among the elite. China’s leaders are acutely aware of their nation’s deficiencies and historical tendency toward centrifugal, regional, disintegration and keeping the country intact and the state in charge is right up there in terms of priority with sustaining a fantastic rate of GDP growth. The dollar surplus represents an agreeable, strategic, “rainy day fund” consensus choice of the elite and significant changes here will only be in response to pressures or needs that the elite of the CCP can get behind as a whole. Likely, cautious changes but possibly also too little too late.

John Robb had an interesting post at his personal blog “Right On: For Nations, Small is Beautiful“, arguing that smaller nation-states have an advantage over larger rivals:

“Gideon Rachman writing for the Financial Times:

The World Economic Forum’s competitiveness index suggests that five of the seven most “competitive” countries have populations of less than 10m. The Human Development Index – which ranks countries by measures such as life expectancy and education – places only one large country in its top 10: Japan.

Look at almost any league table of national welfare and small countries dominate. The International Monetary Fund’s ranking of countries by gross domestic product per capita shows that four of the five richest countries in the world have populations of less than 5m. (The US – placed fourth in wealth-per-head – is the exception.) The Global Peace Index, produced by the Economist Intelligence Unit, ranks nations by criteria such as homicide rates and prison populations and it too makes pleasant reading for pocket-sized countries. The most peaceful place on earth is, apparently, Norway (quite cold, though) and eight of the 10 most peaceful countries have populations of less than 10m.

Roll out economic portability and collective security and why not get small? The political buffet awaits…”

Hmmm. I’m not sure that small size or size at all is the critical variable here.

Looking at the WEF Report list , the only “multicultural” nations in the top twenty are the U.S., Switzerland, France, Singapore, Canada and Belgium.

Of these, Singapore is an efficient autocracy that severely punishes ethnic agitation; France, the U.S. and Switzerland have political systems whose legitimacy goes back centuries that are respected by citizens of all ethnicities; while Canada and Belgium are merely bicultural. All of these states are strongly committed to the rule of law and all of them, save Singapore, are tolerant, liberal democracies.None of these states resembles the ethnosectarian crazy quilts that are Nigeria, Russia, Lebanon, Iraq, India and so on. Or suffers from a paralyzing level of systemic corruption that plague so many potentially viable states that languish on the edge of failure and civil war.

Perhaps relative homogeneity intersecting with legitimate rule-sets is the key?

ADDENDUM:

I agree with Shlok, take a look at “Becoming a Micropower“

Yes, I’ve previously linked to the slideshare version and Tom has done so with this video….but what the hey. It drives home some points and I like the soundtrack.

Hat tip to Historyguy99 for the reminder.

RARE RETREAD: BLACK GLOBALIZATION AND SMALL WARS

Very seldom do I ever lift something from the archives, but I came across a guest-post I did a number of years ago for blogfriend Josh Manchester at his now defunct The Adventures of Chester blog. The basic content of the post has held up fairly well, though some of the original links that supported the data have since vanished ( reminding me that links are really, really, transient but a footnote is forever); most of the economic data came from NIC/CIA.gov PDFs that have been moved or removed from the web, so take that for what it is worth (the dollar figures are more than stale now, regardless):

“BLACK GLOBALIZATION AND SMALL WARS

When Saddam Hussein emptied his prisons prior to the Iraq War it seemed at the time a sign of his regime’s impending doom. Either Saddam’s amnesty was an act of desperation to shore up support among the Iraqi people or his grip on power had so weakened that he had lost control even over elements of his own security apparatus. In actuality, the dictator had made a preemptive asymmetrical strike against American forces by releasing Iraq’s professional criminals whose well-organized networks badly undermined the CPA and today are connecting an otherwise heterogeneous insurgency. Although this move ultimately did Saddam Hussein little good it demonstrated the potential power that “Black Globalization” has to effect the outcome of military interventions, even those of the United States.

Today, the strategic situation is vastly different. The relative primacy of nation-state sovereigns has been eroded by globalization that opened their economies and borders to greater flows of “connectivity” and challenges to their political legitimacy mounted by international, transnational and subnational actors. Some of these, the WTO or the internet for example, at least have brought tremendous benefits. Not so the metastasis of transnational criminal networks that constitute black globalization and have an economic reach that in the aggregate, rivals the greatest of regional powers and are centered on a few geographic nexus points. A sampling of annual estimates:

Global Narcotics trafficking $ 400-500 billion (matching or exceeding U.S. Defense budget)

Conflict Diamond trafficking $ 24 billion/ 10 % world market

Clearly, the days when even a weak state ruler like Ngo Dinh Diem could scattter a criminal organization with a whiff of grapeshot are over. Expeditions into failed Gap states like Somalia or major military invasions of countries like Iraq must take Black Globalization networks into account during strategic planning as they would subnational or even full-fledged state actors. In terms of on the ground, policy, options for U.S. policy makers and commanders for engaging these networks would include:

The complexity of small wars is almost enough to make diplomats and generals long for the good, old days of the Warsaw Pact. Almost. “