May 6, 2020 –
This faculty seminar was held on Wednesday, May 6, 2020 and focused on the fundamentals of geo-economics and the drivers or dimensions of geo-economic competition.
Ms. Bartholomew explains the overlap between national security and economics. She argues state involvement in the economy, civilian-military fusion, and the Belt and Road Initiative, particularly the Digital Silk Road project, provides China with economic strength that has been channeled into rising political strength to export Chinese values. Mr. Overholt explains the broader context around the U.S.-China relationship, showing how the competition between great powers has become largely economic. To successfully compete, the U.S. must recognize the rules of the new game with China, Overholt says. Bartholomew and Overholt discuss 5G, the impact of COVID-19, and China’s state-owned enterprises.
Carolyn Bartholomew is chairman of the Congressional U.S.-China Economic and Security Review Commission. Bartholomew has served as counsel, legislative director and chief of staff to current House Speaker Nancy Pelosi and as a professional staff member on the House Permanent Select Committee on Intelligence. Bartholomew’s expertise is in U.S.-China relations, including trade, human rights and the proliferation of weapons of mass destruction. She has also worked on the establishment and funding of global AIDS programs and the promotion of human rights and democratization in countries around the world.
William Overholt is a Senior Research Fellow at the Harvard Kennedy School of Government’s Mossavar-Rahmani Center for Business and Government and Principal of AsiaStrat LLC, a consulting firm. Overholt’s research and consulting work focuses on Asian development, politics, economics, business strategy and investment strategy. He previously served as Director of the RAND Corp’s Center for Asia Pacific Policy, the Head of Strategy and Economics at Nomura International and as Director of Hudson Research Services at the Hudson Institute. He is the author and co-author of nine books.
Michael Miklaucic: To illustrate some of the aspects of the U.S.-China competition in the economic domain, I'd like to share with you a quiz borrowed from Professor Graham Allison of Harvard University, the author of The Thucydides Trap. Brett, can we put that quiz on the screen please?
When will China become the world's number one automaker, all the way down to economy? Now can we switch to the second slide?
China has already become the leader in these fields. The purpose of my showing you this slide is not to be fatalistic, but to be realistic about the magnitude of the challenge in the economic domain. Thank you Brett.
This session features two eminent experts on China and geoeconomics: Doctors William Overholt and Carolyn Bartholomew, whose bios have been sent to you previously. Just in a nutshell: Dr. Overholt is a senior research fellow at the John F. Kennedy School of Government at Harvard, with extensive experience in East Asia, including over 20 years of residence in the region. He's the author and co-author of nine books, including The Rise of China and Asia, America and the Transformation of Geopolitics .
Dr. Bartholomew is the former chairman and current vice chairman of the Congressional U.S.-China Security Review Commission and has held senior-level positions in the Congress, including Councilor, Legislative Director, and Chief of Staff to now Speaker of the House Congresswoman Nancy Pelosi, prior to which she was a professional staff member of the House Select Committee on Intelligence.
The session is representative of our alignment with the National Security Strategy in the National Defense Strategy, and responsive to Secretary Esper's guidance to expand our JPME efforts related to great power competition.
The way that the session will progress is: first we'll hear comments from Dr. Overholt, followed by Dr. Bartholomew's comments, then we'll open the floor to discussion and questions and answers. We'll conclude with a mini-section on the implications for professional military education. The seminar is being recorded and the INSS administrative team will make it available to any faculty who are unable to attend today. All microphones and videos, save for those with the speakers, have been disconnected and for the question-and-answer section, please submit your questions to Kira McFadden through Blackboard’s chat function, which is located in the pullout menu to the right of your screen. When submitting your questions, please include your name and affiliation for identification purposes. For those of you on an NDU device, we recommend that you disconnect from PM to minimize technical interference.
Okay, let's begin with Dr. Overholt. Over to you, sir. Dr. Overholt, mic on, please. Please bear with us while we figure out this technical glitch. While we're working this out with Dr. Overholt, let's go over to Dr. Bartholomew. Dr. Bartholomew, can you start for us please?
Dr. Bartholomew: Yes, can you all hear me? Great, excellent, and thank you very much for the opportunity to speak today. Thank you Michael in particular for the invitation, and it's an honor to appear with Dr. Overholt. Our views on China have differed significantly over the years, so I look forward to discussing today where they might be now aligning.
My remarks are informed by the work of the U.S.-China Commission but the views expressed are my own.
I have been trained as an anthropologist and a lawyer, not actually as a political scientist, but I have spent the past 35 years working in policy – primarily foreign policy – and have worked on U.S.-China policy for over 30 years, since June 4th, 1959, the Tiananmen Square massacre.
For those of you who aren't aware of the Commission, the U.S.-China Economic and Security Review Commission was established specifically to focus on the interconnectedness of the economy and national security. Congress created us in October 2000, as it was voting to grant China permanent normal trade relations, paving the way for China's accession to the WTO – the World Trade Organization. Our role, reflecting concern in the Congress about how the economic and security relationships were going to unfold, is to analyze and advise Congress on the national security implications of the U.S.-China economic relationship. There are 12 commissioners, six each of us, appointed by the House and Senate Democratic and Republican leadership, and I always say that we are one of the only functioning bipartisan institutions in Washington D.C. We do an annual report, the 2019 one is here, and our website is uscc.gov.
At the broadest level, economic strength is critical for military strength. Just yesterday, in fact, an essay in the People's Liberation Army the PLA Daily stated that, and I quote – it’s a loose translation – “financial strength is the strong backing of national defense strength.”
In the early years of the Commission, the commissioners broadly split into those with a traditional national security bent and those with a traditional economic security orientation. It has been interesting over the years to see the viewpoints melding – colleagues from the defense community who used to grimace when economic issues arose now recognize the interconnectedness, and those of us from the other perspective are now more steeped in the national security implications of China's vast economic growth.
The first place the overlap was identified was in the defense industrial base. China's growing manufacturing sector has been a major contributor to the hollowing out of U.S. manufacturing. In 2006, the Commission held a hearing in Dearborn, Michigan. One of our witnesses was from U.S. Army Materiel Command, in what was then [inaudible]. He expressed concern back then about the ability of the U.S. to manufacture needed materiel in the event of war. Since 2006, the situation has only gotten worse.
Economists differ on how to measure job loss from trade deficits, as they differ on just about everything else they measure, but according to the Economic Policy Institute, since 2001, the year that China acceded to the WTO, the U.S. trade deficit with China eliminated or displaced 3.7 million U.S. jobs. Over 75 percent of those have been in manufacturing. Included in those job losses are essential trade skills, as well as capacity in the critically important tool and die industry. The U.S. steel industry, also critical for manufacturing defense equipment, has been decimated by Chinese manufacturing over capacity as have other sectors, such as shipbuilding, rubber.
At this stage in the discussion, some people say, well we were losing those manufacturing jobs anyway and they were in low tech industries, but the reality is actually even more disturbing. Our trade deficit in high-end technology, including the computer and electronics industry, biotechnology, aerospace, and nuclear technology, has been growing. In 2018, the US had a 134.6 billion dollar trade deficit in advanced technology products with China, 32.1 percent of the total U.S.-China goods trade deficit that year. That same year, we had a 6.5 billion dollar trade surplus in advanced technology with the rest of the world. I won't talk about Thucydides, but I will mention Ricardo's theorem of comparative advantage, which some have used to justify the loss of our manufacturing base. We also hear that the U.S. has out-priced itself because of wages and regulation. China's just doing a better job than the U.S. – they work harder, they charge less, etc., etc., etc., but the reality is, China is playing by a different [inaudible] and most of the rest of the world economy.
China practices a form of what's now called authoritarian capitalism, which is, I find, an oxymoron, which violates the principles of the free market, the system on which we have built our economy and which we believe works. When China joined the WTO, the expectation was to move away from state participation in the economy. For the first few years, it looked as though they were doing so. Under the leadership of CCP General Secretary Xi Jinping, however, the trend has been reversed. Instead of liberalizing, when he took over in 2012, he has bolstered the role of state-owned enterprises, intensified suppression of dissent, and increased overseas influence operation. The CCP runs a state-managed economy with an industrial policy. It is transparent in its plans and goals: it has a series of five-year plans, with strategic sectors identified and national champions indicated and supported. It also, of course, has programs, like Made in China 2025, which is a plan to focus on indigenous innovations and self-sufficiency, the goal of which is that 70 percent of basic core components and important basic materials would be made in China. There are 10 sectors in Made in China 2025, almost all of which have defense, as well as civilian, implications: energy saving and new energy vehicles, next-generation IT, biotechnology, new materials, aerospace, ocean engineering, and hijacked ships, railway, robotics, power equipment, and agricultural machinery.
Another relatively new concept in China is the military-civilian fusion strategy. This is aimed at the integration of civilian and military resources through research and development, talent development, logistics, commerce, finance, and software. The goal is to deepen fusion across the military and civilian spheres, leapfrog development and key technologies, and become a driver for robust and efficient science and technology development. These advances are necessary for China to reach its military modernization goals, and what military-civil fusion does, is it deepens involvement in the PLA procurement and research and development.
China is channeling its economic strength into rising political influence and military power around the world at a time when other countries perceive that the U.S. is in retreat. This sentiment is particularly strong in Asia, and has expanded to some countries in Europe, Africa, and Latin America. Xi Jinping’s signature foreign policy initiative, the Belt and Road Initiative, was inaugurated in 2013. It is so important that Chinese leaders call it the project of the century and have written it into China's Constitution. The Belt and Road Initiative marks the end of Dong Xiao Qing's era of “hide your capabilities and bide your time,” and facilitates China's move on to the global stage with economic, diplomatic, geopolitical, and national security implications. Designed to expand Chinese influence through financing and building infrastructure focused on Asia, especially Southeast and Central Asia, the Middle East, Africa, and Europe, it's now moving to some Latin American countries in the Caribbean and even the Arctic. Official Chinese communiques about the Belt and Road Initiative focus on its economic objectives, but Chinese leaders want to use BRI to revise the global, political, and economic order to align with Chinese interests. The strategic benefits for China and BRI include securing energy supplies, broadening the reach of the PLA, and increasing China's influence over global politics and governance. I wanted to mention specifically an infrastructure at China's port investments, which are so-called civilian port investments, but you know a few of them if we just look at them include Djibouti, Gwadar in Pakistan, Hambantota in Sri Lanka, Genoa in Italy, and they allow Chinese presence and influence in at those ports, and in some cases, control of those ports as strategic implications for us
But I want to really focus here on China's Digital Silk Road, which is a part of the BRI. It's China's plan for integrating digital sectors like telecommunications, the Internet of things, and e-commerce to create regional connectivity. According to China's Vice Minister of Industry and Information Technology, the Digital Silk Road will help “construct a community of common destiny in cyberspace,” a freight mirroring language China uses to describe its preferred vision for a global order aligned to Beijing's liking. Digital Silk Road projects give the Chinese government more of a foothold to export its authoritarian values, control information, and surveillance, right alongside the digital infrastructure. The Chinese government's plans and activities undermine the expansion of free markets, democratic governance, and raise serious concerns about both information security and the expansion of the surveillance state, all with implications for our national security. The Chinese government is actively engaged in strategic support for 5G, for example the Internet of things, artificial intelligence, and they do it through a whole-of-government approach. Global leadership in 5G is so important for China as it moves up the value added manufacturing chain, asserts and expands its presence on the global stage, and seeks to control the flow of information.
Why should we be concerned? This area is an example of where economics and national security merge. The Chinese government has a long history of exploiting cyber and other vulnerabilities to steal U.S. technology, target critical infrastructure, and collect intelligence.
Technology and communication companies are part of the CCP’s political agenda. Private companies as we understand them do not really exist in China, where the government mandates the presence of party cells, can control board members, HR, and uses the subsidies and advantages it provides to these companies, including barriers to Chinese markets, for foreign companies as leverage. We don't have the concerns about other countries, telecommunication companies, like Nokia or Ericsson, that we do have about China's telecoms and there is a reason for that. 5G enabled China to collect and retain massive amounts of data. Concerns of the U.S. at the use of data collected are not limited to Chinese use of the data: there are very real concerns that even in liberal democracies, some of the data would and will be used to silence dissent and undermine opposition.
Smart city technologies are becoming critical in China's export basket, and more broadly in a commercial diploma. This also poses a national security risk to the United States and a strategic and ethical threat to liberal democratic governance everywhere. Huawei for example is actually exporting smart city and public services cloud platforms, such as the Rhine Cloud it is implementing in Weisberg, Germany. Huawei press release announcing the Rhind Cloud reported that Huawei smart city solutions are serving over 120 cities in more than 40 countries around the globe. The implications of China exporting the Internet of things (IOT) sensors and critical infrastructure are significant, both economically and strategically. From a security standpoint, Chinese firms may be able to exploit vulnerabilities in Internet of things technology incorporated in other countries’ smart cities, as it could indeed here with the United States. The CCP documentation has been quite clear on its ultimate vision: a hyper-connected society where individual behavior is guided by extreme surveillance and a series of sticks and carrots.
Two major trends in Chinese advanced technology are censorship and the linking of capability in facial recognition and other forms of recognition with high performing surveillance hardware. Much of this technology is already being deployed by China's extensive public security apparatus.
What are the concerns about the surveillance state? Smart cities rely on networked platforms, sensors, cameras, telecommunication, and wireless equipment in analytics and cloud computing and electronics and software. This equipment can be used to access devices that are part of the Internet of things: our smartphones, our computers, virtual assistants like Alexa and Siri, and yes, some people even worry, possibly our refrigerators and microwaves – with AI and facial recognition, they track who is talking, who is walking where, identify car’s license plates and passengers, people in airports, bike stations and railway terminals.
What the Chinese government is doing to the Ugyhurs in Xinjiang Province is a chilling example of China's Orwellian application of advanced technology and use of information collected by that technology to repress an entire population. More than a million Ugyhurs have reportedly been detained, and are being held in camps, an unknown number has disappeared, and some, and sometimes many, are suspected of having been killed. The surveillance equipment being employed to control the Ugyhurs includes CCTV cameras with facial recognition, and infrared for-night vision, and wolf-eye sniffers, which ID [inaudible] computers, smartphones, etc. to help track the contacts between and the movement of people.
Which to another national security concern: retention of massive amounts of data. What happens to that data, and how will and can it be used? Smart cities will coordination information from multiple arenas and across multiple locations. Chinese 5G equipment and connected products could gain access to the private data of billions of people, such as medical services, gaming, social media, location, banking information, and more. Access to such information could be used in any number of ways, including targeting. A report released in 2019 by the Australian Strategic Policy Institute (ASPI) documents that a Chinese state-owned company specializing in Big Data and artificial intelligence could mine the equivalent of five trillion words in 65 languages everyday, from sources such as social and traditional media, for use by China's national security apparatus.
In a statement released in April of 2019, six retired U.S. senior military leaders noted a number of concerns about a Chinese developed-5G network, including the ability of Chinese designed-5G networks to provide near persistent data transfer back to China. They note that China's 2017 national intelligence law legally requires that any organization or citizen shall support and assist and cooperate with the Chinese security services. Their statement notes the possible risks to future military operations as DoD considers how to harness the immense bandwidth and potential inherent in commercial 5G systems. A Chinese developed-network to transfer military data is inherently risky and could endanger military operations in locations around the world.
Then there's the global strategic risk, including the Chinese government exporting its model of authoritarianism right along the digital infrastructure and [inaudible] it is selling. The Belt and Road Initiative provides a conduit for China to export smart city technology and an authoritarian governance model.
One additional national security risk guideline I’d like to mention specifically in relation to smart city development here in the United States, is possible use of the network's to sow confusion, seed misinformation, or disrupt normal activity in the event of a conflict, or merely to cause inconvenience and frustration. Having access to information about transportation flows could allow some to create traffic jams around military installations or on major throughways. Information about railways could allow disruption of the movement of troops and equipment in the event of a deployment. Information about the movement of hazardous waste through our cities could be used to our detriment. We know already that mapping of our utility grids has taken, matching that up with knowledge of peak usage times could cause massive disruption and chaos – so too with water.
There are national security risks inherent in the Internet of things supply chain vulnerability.
The Commission's 2018 annual report to Congress and our contracted research paper on the Internet of things noted that the rapid proliferation of IOT devices is outstripping industry standards. A 2017 survey of 590 mobile and IOT application developers and users found that vendors test only 20 percent of IOT applications for vulnerability. Of the ones that are tested, an average of 38 percent contains significant vulnerabilities. Few firms provide lifecycle management for IOT devices and consumers are often unaware of the need to install upgrades containing security patches when new vulnerabilities are identified. Universal connectivity of unsecured IOT devices put in to enable from remote exploitation to gather and track location, to deny service, eavesdrop or access information without authorization, to become part of a botnet for a cyber attack, or to modify firmware, hardware, or software without permission. Security vulnerabilities in the 5G supply chain, as the Huawei Cyber Security Evaluation Center’s 2019 annual report noted, that serious security vulnerabilities exist in Huawei’s products.
Since China joined the WTO in 2001, the U.S. trade deficit with China grew from 83 billion dollars in 2001 to 375 billion in 2017. Again, it went from 83 billion dollars in 2001 to 375 billion dollars in 2017. This imbalanced trade relationship has provided the Chinese government with essential funding to build its military. China's leaders have made clear their desire to build up military power to be able to support their global ambitions. In a 2019 white paper, China reiterated its call to build a world-class military. China intends for this force to match the U.S. Armed Forces in strength, prestige, and technological sophistication. We must take these activities seriously. While Chinese leadership, including Xi Jinping himself, remain deeply concerned about the PLA’s ability to fight and win against a modern opponent, at least in the near term, Beijing is clearly aware of the PLA’s shortcomings and is investing substantial resources to overcome them. The same PLA Daily essay I quoted earlier also says, and again I quote, “the contemporary game of great powers has not only been limited to direct military conflicts, but also manifested in the smokeless war in the financial markets.”
The Chinese government clearly sees a link between economics and national security. It has weaponized its economic power to bully other countries, sometimes successfully, sometimes not, into adopting its point of view. There are a number of notable examples: when imprisoned Chinese dissident Liu Xiabo was given the Nobel Prize in 2010, the Chinese government cut off the importation of Norwegian salmon. When South Korea deployed the THAAD missile battery, the Chinese government imposed an unofficial boycott on South Korean products. Most recently, as an attempt to manage fallout relating to COVID-19, it has to [inaudible] to halt importation of Australian products, such as beef and wine, and to halt Chinese students and tourists from going to Australia. Today, it's being reported that China could cut its U.S. debt holdings in response to White House threats of seeking compensation for coded COVID-19.
We ignore the connections between economics and national security at our own peril. We are not alone, however, in needing to incorporate geo-economics into our national defense strategy. In September, which these days feels so long ago, I participated in a Track 1.5 dialogue in Australia, as its national security establishment grapples with the interconnectedness of economics and security in its relationship with China. We must work with our allies, partners, friends, and other countries concerned about all of the implications of China's rise. Thank you.
Miklaucic: Thank you very much, Carolyn.
Bartholomew: Over to Dr. Overholt?
Overholt: I'm delighted to join you. I share virtually all of the concerns that Dr. Bartholomew raised, but I want to put them in a broader perspective.
China and the United States are in a different game from the traditional game of rising power and established power. From ancient Greece through World War II, the game was played by one country using its military to grab part of the territory of a neighbor. Since World War II, the game has been quite different.
Two things have changed: after World War II, we learned how to grow economies much more effectively, and military power has become so destructive, that if you play the game the old way, both sides will usually lose. As a result, the path to becoming a great power, or to staying a great power, has become largely economic. This is as fundamental a change as the Industrial Revolution in economics, but virtually all of our strategists and commentators have missed that. In the Cold War, the U.S. of course needed a superior military: we had to win the Berlin airlift, and we had to win the Cuban Missile Crisis. But the Cold War was won as an economic rivalry: we used the institutions of the World Bank, the IMF, the WTO, U.S. dollar hegemony, aid and institution building programs, to create a network of allies and friends who were prospering and drawn to a system with us as its core. The Soviet Union put almost all of its resources into the military and went bankrupt. We played the game the new way and won; they played the game the old way and lost.
What about other countries? Well, Japan became a big power without much of a military. Germany became the leader in Europe by focusing on the economics, but this time France won too. In Korea, South Korea was initially inferior militarily, economically, and politically – political stability to the north – but General Park Chung-Hee shifted to an economic emphasis, and now the South Korean economy is 50 times the size of the North Korean economy. Indonesia after independence claimed most of Southeast Asia, but its hapless economy nurtured more violent Islamic jihadists than the entire rest of the world combined. General Suharto refocused on the economy, gave up his extensive territorial claims. The resulting economic success stabilized Indonesia and made it the acknowledged leader of Southeast Asia.
In China, Dong Xiao Qing cut back the Chinese military from 16 percent of GDP to 3 percent, about where it remains today, and settled most of its land border disputes in order to focus on economic development. The resulting economic takeoff made China a major power long before the current military buildup started. The military buildup is quite impressive, but China's future role in the world hinges mainly on its domestic economic success and its international economic policies.
So, the path to becoming a big power or remaining one has become primarily economic, protected by a strong military or by an ally with a strong military. However, China's 8,000 miles away – the direct territorial issues are pretty trivial.
We have a very complicated relationship with China, and this was where I'm going to try to change some of the balance and discussions. We have issues on which we must confront China very vigorously: massive intellectual property theft, denial of access to the Chinese market, and predatory relationships in the South China Sea. Here, confrontation is absolutely necessary. At the same time, we have huge mutual economic and security interests. For instance, China is much more open to U.S. trade and investment than our ally in South Korea and Japan – you go to South Korea, Japan, you almost never see an American car. Drive on any Chinese major street and you'll see Buicks everywhere. That enabled us to save the General Motors, and with its subsidiaries, that meant millions of jobs. A lot of our rhetoric today tends to forget that the center of gravity of the world consumer market has shifted from the Western baby boomer to the young Asian.
Those who call for decoupling from China focus mainly on the supply side, but decoupling can only lead to a radical decline in the U.S. world role. Effective Sino-American collaboration has led to the greatest decline of poverty in world history. For the first time in 300,015 years of human existence, the world has more basic goods, more clothes, more shoes, more toys, more food than we actually need – still very badly distributed. The resultant reduction of human suffering and strife has enormous national security benefit to us and everybody else. Sino-American collaboration gives the world its only hope of addressing the most important issues facing our children and grandchildren, namely climate change and environmental degradation. If China were still mired in poverty like India, the world would have no hope.
So, we live in a world of geo-economics. In the Cold War, we won with a geo-economic strategy: the Bretton Woods system, whose core was the World Bank funding infrastructure, the IMF, and GATT, WTO, setting common standards. Economic success stabilized and unified our alliance system. Having won the Cold War, we allowed the Bretton Woods institutions and our other institutions behind the success to atrophy. A stingy Congress refused to increase the capitalization of the World Bank and the IMF, and they refused to reform the governance of those institutions to reflect the modern world, because we didn't want China gaining influence. Over three decades, we gutted the State Department budget, eliminated U.S. information service, reduced away our most important aid in institution building programs, and we allowed the excessive weaponization of the U.S. dollar to lead even our closest allies now to seek alternatives.
The U.S. also failed to adapt to the central social trend of the modern era. In a previous century, agricultural jobs disappeared. Since 1947, manufacturing jobs have been undergoing a steady decline. In the graph of manufacturing jobs since 1947, you can't even see the effect of China's rise. Our Congresspeople wouldn't like to attribute all that to WTO in 2001. That's not the case. In China, modernisation led to loss of 45 million state-owned enterprise jobs, almost all manufacturing jobs in a decade. China moved its workers into the service sector, and as a result, didn't have a great social problem. We lost only three million jobs in a decade, but we failed to adapt. For different reasons, both the right and left in Congress find it politically expedient to abdicate helping our workers who are left behind by modernization. Instead, they find it convenient to blame it on China.
This had weakened our economy, polarized our society, endangered our democracy, and engendered unnecessarily great hostility with China. The effort to constrain China to a disproportionately small role in world institutions created a vacuum; into that vacuum China has moved. For instance, there was a 12 trillion dollar deficit and available needed funding for our future infrastructure.
More recently, we've created a vacuum of leadership on environmental degradation and climate change. China is moving with great alacrity into that vacuum. The Belt and Road Initiative is now the big game. It emulates our Bretton Woods’ system: its Development Bank's, funding infrastructure, and a series of institutions designed to create common standards in customs procedures, and digital economy, and all sorts of things, and to promote international trade and investment liberalization. BRI is a constructive theft of intellectual property, intellectual property that we left lying on the floor. China is now the leader in every form of green energy and is now the the leader in environmental and climate change, while we abandon these areas and subsidize a declining coal industry.
BRI is for many in the world an inspiring vision, as it was when it was our vision. In Africa, China convenes four dozen heads of state to talk about development, and then they deliver roads and railroads and funding. We provide a Special Forces units in each country to fight terrorists, and then offshore naval and air presence. If that's the structure or the kind of competition, China wins every time. Our big win in Africa was George W. Bush's HIV initiative.
The U.S. has three potential responses to BRI. First, we can compete. This is our game. We're good at it, but we largely left the field. Japan does compete, and it's very successful. Second, we can compete and co-opt. The problems we have with China aren't exactly the problems we used to have with Japan: tight contracts, bribes, unfair subsidies. Negotiating with Japan, they found it was in their interest to negotiate some common standards: we won, they won, everybody won. China's Asian Infrastructure Investment Bank is an attempt to do the same kind of thing. That's the direction that they want to go, but it will only happen if they move forward more than they have been and if we decide to engage. Our third option is to sit on the sidelines and whine. So far, that's the option our leaders have chosen.
Not only can we win in this game, but we win even when BRI succeeds. Again, go back to Indonesia. The Bretton Woods system helps stabilize Indonesia. They had more jihadists than the rest of the world combined. Success led those jihadists just to evaporate. If we had handled that problem with the military, we'd still be fighting and losing.
Now look at Bangladesh. When Bangladesh was created, everybody knew this was going to be a giant failed state. Kissinger was very eloquent about that – Bangladesh was destined to become a giant jungle Somalia, spewing Islamic terrorists all over the world. What happened? Textile garment factories started moving from China, making Bangladesh the largest producer in that area. The country stabilized. Now, the largest owners of those factories that moved from China were Americans. The stabilization of Bangladesh was an enormous joint Sino-American national security success. You never hear about that.
Now look at Ethiopia. When I was working with Ethiopia, they had six violently confrontational Leninist parties killing each other. They had one of the world's worst famines. Development heavily spurred by Belt and Road related projects has helped Ethiopia become in many years the world's fastest growing economy.
Now, each of these successes I would argue are worth – ballpark – a trillion dollars off the future U.S. national security budget.
Where BRI is going is unclear. How it works, what its stated goals are change quite frequently. The key point here is China is playing the right game. It's playing the new post-World War II game. We are not. Again, we’re the masters of the game, but we stop playing.
Why are we not playing the right game? Well, a small part of the problem is, our scholars have failed to articulate the new game. They keep looking back to Thucydides and World War II. The big part of the problem is that in peacetime, the U.S. Congress funds people based on lobbying efforts and contributions, but the military industry has the biggest lobby in world history. The State Department has no supportive lobby, so they've just been gradually gutted. Our problem is not a self-aggrandizing military, in fact, our top military officers are among the most outspoken and most conscious about the fact that Congress has left the military bereft of the complimentary resources that they need to win. Talk to General Mattis, talk to Bob Gates, talk to General McMaster.
Okay, stepping back, what are the overarching Sino-American issues? For us, if we want to live in a peaceful world, we Americans have to [inaudible] that we have a peer competitor. We can manage that or choose nuclear war. China wants to be number one, but it's not trying to destroy us, and unlike Russia, it's not trying to undermine democracies. We can no longer rule the seas to the beaches of Xiagen; we can no longer rule space by ourselves; we can no longer make all the IT and digital rules by ourselves. No strategy will get us to some dominant end state. China is not the Soviet Union. The future is likely competition forever. That's a really difficult adjustment for us Americans: every time that somebody else says “we want to play the game too,” we treat that as a threat. That's not going to work. Whenever we have tried to confine China to a disproportionately small role, we've harmed ourselves and we've added to China's prestige.
China's challenge is perhaps even bigger: it has to grow up. If it wants to be a big power leader, it can no longer aggrandize the South China Sea as if it were Malaysia. If it's a great power, then it can now no longer hark back to its century of weakness and say, “we're just a victim.” If it has the world's 10 largest banks, as it does, it cannot use infant industry arguments to protect its banks. If it wants Huawei to have the opportunity to dominate the world's 5G system, then that's going to have to let foreign countries have an opportunity for a similar role in China.
So while we can coexist with China, we still have to compete successfully. In the Cold War, we integrated all the elements of national power: diplomatic, information, military, economic, in War College terminology. Now, we have the world's finest military, but we've allowed all the complementary institutions to atrophy. We have a military budget as large as the next eight powers combined. We don't lose but we don't win. Despite all these resources, we are always feeling exhausted. If we recognize that since World War II, we're in a new game, we have to play the new game; we can restore a national security that makes us successful. Thank you
Miklaucic: Thank you Dr. Overholt. I have a couple of questions that I'd like to go back to Dr. Bartholomew with, and then a couple of questions for you, Dr. Overholt, before we open it up to the group. Dr. Bartholomew, can you describe the kinds of pressures in the U.S. Congress currently regarding U.S. policy and 5G?
Bartholomew: That's an interesting question, Michael. There is, I would say, a growing concern about China's presence in the world of 5G. I think though, we have to embed any discussion right now about Congress vis-a-vis China in the bigger dynamic of the presidential election coming up in November, and either getting along with, you know, either supporting what Trump is doing, or opposing what Trump is doing. So there is certainly interest in the Congress about, of course, banning Huawei from 5G and other Chinese from 5G networks in the United States. There is some interest in making sure that there's some sort of alternative. I mean, if we are saying, you know, governors, mayors, they have to go with low-cost bidders, and because China so heavily subsidizes its telecommunications companies, you know, it's very difficult. They under bid so consistently, so we really need – and I think there are people in Congress who are talking about needing to work with American telecom companies to figure out what it is they need to do to be able to move forward.
You know, losing ground to China on Huawei and other telecom issues and in 5G doesn't just endanger their profits today. They use their profits to underwrite a lot of their research and development, so it has long-term consequences on it, and I think that that's really what members of Congress are looking at and thinking about some. Some of course, they're just saying we just can't have Huawei or Chinese 5G in our networks, but again, there needs to be some sort of alternative that's being offered.
Miklaucic: Thank you, Dr. Bartholomew. Just to follow up on that, what would you say about the notion of Erickson or Nokia being adequate substitutes for Huawei, and how do you see that playing out in the Alliance relationships between the United States and our NATO allies particularly?
Bartholomew: Well, that's to me in some ways, that's two separate things. Again, you know I mentioned that I don't think that we have concerns about Ericsson and Nokia that we do about Chinese companies. They are companies that are in countries that are democracies that have been willing to work and continue to work within this existing global international order. I find discussion about allies, these days, a particularly difficult one to have. You know, when we have hearings in a commission, people come in with recommendations, and just like I said, you know, we need to be working with our allies, we need to be working with our partners. I absolutely believe that. I think that NATO needs to be thinking more about a China's presence in the NATO region, but of course it's a difficult dynamic we're dealing with now without getting to – well it's a difficult dynamic, when relationships are being, with our with our allies, relationships within NATO countries are being torn apart on any number of fronts.
Miklaucic: Thank you very much. Dr. Overholt, do you have any comment that you'd like to add on that question?
Overholt: Yes. I agree with what Dr. Bartholomew said: if we wanted to constrain Huawei, the right thing to do was first of all, understand the source of the problem. The main source is not subsidies. Western companies have access to the European market and the U.S. market, and they're kept out of the Chinese market. Huawei has access to all three markets, of which China is the largest and fastest-growing. Its R&D budgets are more than Nokia and Ericsson combined can afford; and therefore, if that situation continues, they are going to rule the world. Nokia and Ericsson are going to be driven out of that business.
If we went to the Europeans, as Dr. Bartholomew alluded to, and said look, we have a joint problem about Huawei, your companies are going to be destroyed, you have the opportunity to take over much of the world, we're being selfless here, let's get together and impose a rule. But then Huawei gets excluded. It doesn't if China doesn't allow equal access to our companies, then we'll be in it together. But as long as the Trump administration is alienating all our allies and not trying to mobilize their support, we have no chance.
And by the way, this is the same in other areas. UnionPay now has twice the market share of MasterCard globally. It has nothing to do with who's a good company; it has to do with the fact that the Chinese company has access to all three markets, and Visa and MasterCard don't have the access it has been promised multiple times to the Chinese market. This is a life-and-death issue for our biggest companies. It’s market access. And the decoupling is not a solution.
Bartholomew: Let me – Michael, I'm sorry, Michael, could I just add one thing though? Which is, it's interesting to see where we agree and where we don't necessarily agree, Dr. Overholt, but I don't want to dismiss then the idea of the subsidization and the impact that that's having, because it really is a whole-of-government approach that China takes to this. Oh, you can certainly see the impact of the barriers which, you know, we have been talking about as long as I've been doing this – the need to bring down China's market access barriers, but if you look at ecommerce, it's such a clear example, which is that China kept U.S. ecommerce companies out of the market while Alibaba grew, and so they didn't have to deal with any competition. But at the same time, China gave them, they gave Huawei, they give other companies tax benefits. They give them access to lower capital. They give them a whole basket of issues, including the market barriers, that allow them to undercut a cost. What's going on, you know, they don't have the kinds of environmental regulations we have. They don't have the labor force regulations that we have, and so I would say it's not just market barriers, but it's a basket of issues that we need to be dealing with frankly vis-a-vis China.
Overholt: I agree with everything you say: if we had the market access, the competition in so many areas would make their subsidies impossible to sustain. They would go bust trying to keep Huawei and UnionPay and every other second sector of their economy going on a subsidy basis, so I agree we should keep hammering them about the subsidies. It's a real issue. But we need to be clear about priorities of the issues.
Miklaucic: I'm going to just switch channels a little bit to the issue of how the COVID-19 pandemic might be impacting the Belt and Road Initiative and China's path over the next few years. Dr. Overholt, can you start on that?
Overholt: Well, China has gotten a lot of deserved approbation for being slow to get on top of COVID and slow to report it, but they have gotten on top of it. I don't think it's going to have a significant impact over time on the Belt and Road Initiative.
Our much slower response, our much more extensive denial, and our patchwork of ineffective policies has made us the biggest victim and the biggest spreader of COVID in the world, and that's going to deeply affect our economy and it's going to deeply affect the image other countries have of us. And so it pains me deeply as American to have to say this, but we have to stand back and take an objective view of the situation. COVID-19’s going to hurt us a heck of a lot more than it hurts China, because of our own ineffectual policies.
Miklaucic: Dr. Bartholomew, do you agree with that?
Bartholomew: Yeah, no, I agree with part of it. Obviously, I mean our own policies are disastrous, and that's having an impact. I think it's probably too early to talk about, to see clearly the impact of COVID-19 is going to be. Just put in a pitch, we're actually having a China Commission here on Friday, which will be livestreamed on China in Africa, and so this will be one of the issues that come up, but I think we're already seeing part of it and part of a potential change. One thing, of course, as countries in Africa are asking for debt relief, whether they end up getting it or not, I don't know. Countries in Africa have been very concerned and upset about the discrimination that has been happening [inaudible] with COVID-19, and I also think economics are gonna play a big issue.
You know, there are some scholars in the United side, particularly say Derrick Scissors, of people are interested, who believe already that China can't fund all of the BRI projects that it's been talking about doing, that it just does not have the economic capacity to do it. And if you look at the newest numbers on the economic impact of COVID-19 on China, I mean, I think it's gonna – they're going to have to think about things a little bit differently, in terms. It doesn't mean they won't say they're doing things, but I think the real test is whether they're going to be doing things. So, there's an economic crunch there. There's fallen consumer demand around the world for a product that's going to have an impact on China, and I just think that there may be more of an impact than we are necessarily thinking there.
Miklaucic: Thank you very much Dr. Bartholomew. Dr. Overholt, one more question to you and then I'll open it up to the questions that have been accumulating on the chat board. This question actually comes from Professor Steve Brent from the Eisenhower School. He notes that Professor Ming Shinpei has argued that slow growth from COVID will endanger President Xi’s role, or at least create growing divisions in the Communist Party of China. Do you agree with that?
Overholt: Halfway. Professor Pei has been predicting the collapse of China for decades. He tends to see all the weaknesses and and and no strength, so it's an overstated argument, but Xi Jinping presides over a country where the legitimacy of the government depends on delivering material benefits to the people. And second he was given, he came in with a mandate to reform the economy and take it to the next level of sophistication and development. He hasn't been doing that job: he has allowed desire for maximum political control to interfere with and disrupt every dimension of economic reform that China's economic planners expected and that the whole elite of China expected, so I expect that COVID-19 is not just a short-term bounce down. I think the Chinese economy was due for a downward plateauing, and so the party is going to have more problems going forward.
Xi Jinping has opposition from every angle in the Chinese elite. If you want to understand Xi Jinping's position, look at President Trump – they both have a very alienated elite and a less educated, very nationalistic angry mass base. Xi Jinping’s base is a little broader and stronger than President Trump's, but you have a real problem when most of your elite thinks you're taking the country backwards, not forwards. So they're going to have real problems going forward.
And by the way, that's very important, because a lot of the military planning in particular assumes a pretty rapid Chinese growth, and 6 percent would be pretty rapid, is going to continue indefinitely. I would argue it just isn't.
Miklaucic: Thank you very much, Dr. Overholt. Let's see, we have a list of questions that's accumulated on the chat board, so I'm going to turn it over to INSS staff Kira McFadden to read those questions to you. Kira, over to you.
McFadden: Okay, our first question comes from Dr. Frank Hoffman from INSS. It's a two-parter. So, first part: does the U.S. have to embrace more than industrial policy and tax incentives, and should we actively invest in key technologies via our own national champions, vice multinational companies that seek profits but not national advantages? And the second part of his question is that isn't the fear about China's fusion approach the equivalent of what we achieved with DARPA and the Internet/GPS?
Overholt: Absolutely, you put your finger right on it. Government has key roles in modern society. It must plan infrastructure: Abraham Lincoln built the railroad system; Eisenhower, over the objections of a Republican Congress, built the interstate highway system. Infrastructure doesn't build itself: it has to be planned, and that has to be based on a sophisticated understanding of what the economy needs.
Second, government has to anticipate the great social challenges and help our people adapt to it. When we were going from 98 percent of the people in agriculture to 2 percent of the people in agriculture, we built the railroads. We built the roads. We rezoned cities. We created all kinds of new industrial regulations. Somehow there's an ideology that says we don't need to do that. It's disastrous.
The third thing is that, as the question actually suggested, a huge percentage of our fundamental breakthroughs for the economy have come from from government research – the Internet, the whole space program, and all the economic value we're going to get out of space, modern aircraft, modern telecommunications, the chip industry, much of the advances in health through the National Institutes of Health. The role of government is absolutely crucial and unfortunately we've just been destroying that role, and we've got to stop and reverse that destruction.
Bartholomew: Can I just quickly try to answer that one too? Which is that I'm interested that the questioner raised the phrase ‘industrial policy,’ which you know, many people in this country have an allergic reaction, an automatic allergic reaction to an industrial policy. But I certainly agree with Dr. Overholt that, you know, things like our Eisenhower highway system – I mean, there are so many things that we need to be doing that we aren't doing, including investment in basic R&D. Yeah, I do think there's a difference between what China's military-civil fusion and what we do here. You know, DARPA does R&D, but generally these technologies are spun off into private companies, and the government gets out of the way. It's in China, though, that, you know, that the government is certainly targeting what it is that they want to be developed. As we say, we are at fault for not recognizing that they clearly say what it is they want to develop, so I think there is a difference between what they are doing with military-civil fusion, and what we do with our defense R&D and our civilian R&D.
I do think that we also need to be investing in things like trusted boundaries – I mean, we need to be making sure that we have the capability to manufacture what we need, or make sure that friendly countries have the capability to manufacture what we need. It's shown most recently in the pharmaceutical supply chain, where, you know, people are starting to see what happens when so much of our production is in China. So there are a number of ways we need to incentivize production here and to help make sure that the production of needed things, like penicillin, are being done by friendly countries.
Miklaucic: Thank you very much both Drs. Overholt and Bartholomew. Kira, can we go to the next question please?
McFadden: Yes, so the next question is from Walt Hudson at the Eisenhower School. Should the U.S. government consider working to establish a public-private enterprise in 5G similar to SEMATECH in the late 80s in order to compete on the global stage, and is this feasible?
Bartholomew: I think that that's actually one really good alternative, and a way to make sure that, you know, we have access to the kinds of technologies that we need going forward. You know, as we both mentioned, when there is concern, but there are no alternatives, what are people supposed to do? So I think that's a great example of how working together using what government does best and what the private sector does best is one way to really approach the 5G challenge.
Miklaucic: Okay, thank you very much. Kira, next question.
McFadden: Okay, this one comes from Dr. Bernard Fennell from the National War College. One key argument of markets is that they produce the most efficient allocation of capital, and that competition drives innovation. Government involvement, by that logic, reduces economic efficiency. This position is quite well-supported empirically, so how is it that China's state-led economic policies are successful, and if a centrally planned or at least directed economy is competitive, then why are we so committed to free-market capitalism?
Miklaucic: Dr. Overholt, can you take that one first?
Overholt: First, yes, the fundamental principle of economics is that the competition and each party in the world contributing their particular comparative advantage leads to efficiency. Having said that, in relatively simple economies, like South Korea in 1960 or China in 1980, basic things are lacking: capital, information, education, other skills, and government can play an absolutely useful and decisive role.
As economies become more complicated, trying to plan things in detail becomes impossible, and, you know, we saw this with Japan in the 1970s. We were terrified that the Japanese were taking over the world. It was exactly the same issue as China today, and Japan had this super sophisticated industrial policy. In 1979, my colleagues and I, mainly my colleagues, Tom Pepper and Mary Jane at Watson Institute, did an overall assessment of Japanese industrial policy and they found that they had some huge successes, very expensive, and they had some huge failures, and the failure is outweighed the successes. The biggest Japanese effort was what was called the fifth generation computer, an artificial intelligence program. A lot of resonance with China and artificial intelligence today. Well, it was a complete bust.
And I think we're going to say the same thing with China: they're overdoing it. They will have some big successes in them. What were those successes? Threatened to overwhelm us, we have to just block them unless there's fair market access, but they're going to have a lot of failures too. They're ruining their private sector, the price of speech, and things, emphasizing the state enterprises over the private sector, and putting the party committee in every Internet enterprise in charge of business strategy for them. So, industrial policy works up to a point.
I suggested the three areas in which it's essential. The other area in which it’s essential is market failure. Our country, the economy by itself will not produce strategic reserves of protective equipment for our pharmaceuticals or for our key resources for wartime. The government has plunge in and do those things, and so now there are four areas where government involvement absolutely essential. But it doesn't warrant going as far as the destructive things that China is doing. To take it a few steps further, the Soviet Union tried to program everything, that just creates a complete gridlock. So we just need to sort out the details. It’s not a black-white ideological difference, it's more very practical areas.
Miklaucic: Thank you, sir? Dr. Bartholomew, any comment on that?
Bartholomew: Yeah, it's interesting, of course. As you do you look at China's, it's the change in its economy and the way it's been trying to move up the value-added chain in manufacturing. I think of course they were first successful with the market access barriers that we're talking about. They were successful, as I've said several times, because they've used subsidization. So they are protectionist. You know, people always say we can't be protectionist., but the Chinese government is protectionist. They do with their economy, is they protect what they identify as critical sectors and allow companies to grow at our disadvantage.
But we also haven't mentioned IP theft, right? And so when we're talking about innovation, and there's always been questions of if you do not have a freedom of thought, how successful can you be at innovation, but a lot of what China has accomplished [inaudible] in terms of innovation has not actually been innovation. It has been stealing R&D from us and from companies in the United States, and in other companies, and then taking that and trying to build on that. And also in innovation, it's interesting to me that China continues to send students to the United States. Well, right now maybe that's on halt, but, you know, on hold, but to the United States to Australia to the UK, to countries where they are going in there, you know, they're learning about innovation, they're going into research labs, they're using all of these things, and often as we've seen, they're taking that knowledge back to China. So I do think though that as China tries to move up the value-added change, you know, there are significant stresses in the Chinese economy. The question is how long they're going to be able to keep up this inefficiency.
Again, I'm not advocating that there's going to be a coming collapse of China. I am extremely skeptical of the 6 percent growth number. I am extremely skeptical of all Chinese official numbers. I mean, even as they were sort of trying to ramp up from Wuhan being shut down, there were stories, you know, that there were empty factories that had no workers that were keeping their lights on in order to boost energy consumption so it looked like energy consumption was going up; and therefore production was taking place. So, you know, there's a lot of ways that they fiddle with information and what it is they're doing, but I do think I'll [inaudible] the inefficiency of the way they do things. The inefficiency in their state-owned enterprises is continuing to continue to be a drag on their economy.
I will add one more thing to which we also haven't mentioned, which is their demographics.
They are facing an older population, a smaller labor pool, and that's gonna have an impact also.
Miklaucic: Thank you. Kira, do we have another question from the audience?
McFadden: Yes, we do. So, the next question comes from Colonel Calisca Noir from Turkey. It seems that capitalism alone is not enough to compete against the Chinese hybrid authoritarian-capitalist model. Is a soft transition possible from the capitalist economy to a planned economy, which would be rewarding to only select areas such as AI, robotics, 5G, domestic commodity production, but would not apply to all economic sectors?
Overholt: Throughout our history, we've had such a transition. The role of government over the last century has changed the way the Federal Reserve operates, the way the National Institutes of Health operates, the way our economy is regulated, the role of Social Security and unemployment insurance, and stabilizing the economy. If you get into the detailed regulation and compare it with a century ago, this is what people right up through the 40s were denouncing as socialism. Some people on the right would denounce it as socialism today, but this is a mixed economy. It's not a less fair capitalist economy; it's not a socialist economy.
The extremes – there's a wonderful book by humorous PJ [inaudible] goes to Albania, which is kind of economic management that the extreme-right talks about. It's kind of catastrophic. On the other hand, the over management of Soviet Union is catastrophic. So the whole conversation about moving from a capitalist economy to a planned economy is just the wrong characterization. It's what components of a mixed economy work, that's what the conversation is about.
Unfortunately, in our country, and more in the U.S. Congress than anywhere else, the conversation has become very polarized and ideological. Anything the government does is bad for one side, and people on the other side are frustrated, are starting to talk about socialism. We need to have a nuanced conversation along the lines of the four roles of government that I talked about.
Miklaucic: Thank you very much. Dr. Bartholomew, any further comment there? Have we lost Dr. Bartholomew? It seems maybe we have. Kira, can you see if there are any further questions from our audience?
Kira: So, next question comes from Dr. Phil Saunders. Dr. Bartholomew? I'll check on her. So our next question comes from Dr. Phil Saunders of INSS. What do you make of Nick Lardy's argument that the CCP is increasingly directing capital towards low productivity, state-owned enterprises at the expense of higher productivity, private business and that this will further drive down China's growth rate private enterprise?
Overholt: I largely agree with it. Private investment growth rates used to be 18 percent, sometimes above and now they're below 6 percent. The private sector, as Nick Lardy has documented better than anyone in the West, is the source of almost all economic growth in China and almost all new jobs, and so they're making a huge mistake. On the other side, we need a little bit more nuanced conversation about the state sector than comes out of the statistics, which group the whole state sector together. There's a military-related state sector, there's a welfare-related state sector. Hospitals, for instance, you don't expect to be highly profitable, and if you segregate out the commercial enterprises like the telecom sector, they look a lot better than they do when you take these statistics and lump the three components of the state sector together.
But having said that, by focusing everything on building the state sector, Xi Jinping is making a major mistake. He thinks that you get credit to the private sector by telling the big four Chinese banks to lend more. The fact is, they cannot lend successfully. They don't have the information, that the local family companies will just rip them off, and so that doesn't work.
And the third mistake is, now the party committee in every state and private enterprise has final say on major business strategy decisions. They have a very different agenda from the enterprise management. Imagine what would happen if we put a politician in charge of ultimate decisions on the business strategy and Intel and Apple and Google. That would not be helpful to our economic growth. It's not going to be helpful to China's economic growth, so Xi Jinping is just making huge mistakes.
Miklaucic: Thank you sir. Dr. Bartholomew, can you comment?
Bartholomew: Yes, sorry, I think I need some broadband over here on my WiFi.
Miklaucic: Get Huawei!
Bartholomew [laughs]: They’re probably in my system already! First, I have an easy answer on this. Yeah, I agree with Nick Lardy, you know, the Chinese government is still betting the CCP’s control and power, as Dr. Overholt said then, the deal they made the Chinese people about: we’ll give you a better standard of living and you don't ask for political freedoms. They're still betting on that, but this whole issue of dealing with the disbanding of what private sector existed is going to be a significant problem for their economy going forward.
If I could just answer the previous question quickly, which is that I think that if we are honest, right, actually do pick winners and losers in some sectors, and in this country and in this economy, you know, through our tax code and the companies that we incentivize, through money. I mean, you know that the president has been throwing money at the farmers because of the impact of his tariff war and because they support him, and so, you know, we're picking winners and losers there. He's doing the same thing with coal. Those are not necessarily sensible decisions, but there are winners and losers that are being picked.
And one other thing I want to add though, is that we have had, up until I would say, relatively recently a pretty mercantilist policy towards China in the first place, certainly during the 1990s.
And Dr. Overholt might disagree with me, but policy that decisions that were being made, often, they were being driven by Boeing's interests in competing, in getting deals, in competing with Airbus in China. They were being driven by some companies that don't even exist in [inaudible] Motorola or Westinghouse that no longer American, but we certainly saw, starting in the Clinton administration and going forward, that it was a mercantilist U.S.-China policy that was advantaging certain companies and disadvantaging others.
Miklaucic: Thank you both. I'd like to take the remainder of the session to talk about the implications of these issues for joint professional military education and just ask you both to briefly comment before going back to the NDU faculty. I hope they'll have some comments or some suggestions, but how do you think that national security educators should address the issues of geoeconomics and great power competition with China in teaching the next generation of national security leaders?
Overholt: I think first of all, we need to refocus, without curtailing traditional education on military strategy, we need to refocus more broadly on national strategy, and that means that at least everybody should have to take a deep dive into economics or diplomacy or information and develop a broader understanding of how national strategy works. When we teach history, they need to understand more broadly why the Roman Empire worked, or why the British Empire worked. It wasn't just military, and if they get that historical understanding, the way they do get an understanding of the great military strategists, they need to reread our Cold War history. Most of them think much of what we read and teach is nonsense, without a broader context.
Let me just take one example, but it's a typical example. David Remnick’s book about the collapse of the Soviet Union. Wonderful history of all the demonstrations and so on, won a Pulitzer Prize. It catapulted him to the absolute top of his profession. He doesn't mention that it was a bankruptcy, but the Soviet Union collapsed because it went bankrupt. You can't understand anything about the Cold War without understanding that.
They should be studying the great American strategists: Dean Acheson, Henry Kissinger, Zbigniew Brzezinski, Jim Baker. Why were they so effective? Why was it that they did so much more good for the country than most of their successors? Why don't we have people like that anymore? I would have a particular focus on the contributions of the great military officers who were also great strategists: George Marshall, Dwight Eisenhower. What made them great? If they had stuck to their purely military roles, we as a country wouldn't be where we are today. I would ask them to take one of our recent national strategy documents and rewrite it, as an exercise, with a broader perspective.
And we need to have a debate about the role of the military, because our military quite properly takes civilian control very seriously. Our job as military is to fight, to deter, to win. That other stuff isn't our job. Well, nobody else is doing that job, and the war colleges are the place where people have the talent, the time, the resources to do it. So I would argue that we have to rethink and expand the role particularly of our war colleges.
Miklaucic: Thank you sir. Dr. Bartholomew?
Bartholomew: Yeah, I think I would take this in a slightly different direction. I was surprised, Michael, when you called and asked me to do this, to learn that there is not more of a focus over there on geoeconomics, because I don't understand how one could sort of understand the current state of the world without thinking about the economic aspect of all this and how it's connected. And certainly it's impossible to understand China's rise without throwing economics in it.
But for that reason, actually, I think it would be important not to stovepipe these issues when people are talking, right? I mean, you could put people into a series of economics classes, and you can put them into a series of strategy classes, but I think it would be really important to pull those things together in a class instead of having people just study military history or just study, you know, economics. I also think that it's important within that geoeconomics context to – sorry my cat has joined us – to think about the practical implications, to study the practical implications. I mean, as I mentioned, when we don't have a tool and die industry because we have lost that industry, what are the implications for that? And so, the economic issues are not just in that greater sphere of U.S.-China relations, they have an impact back here, at home, and I think that it's important to incorporate that, and you know, what does it mean, because we need to be thinking about solutions to these challenges.
Miklaucic: Thank you both very much. Kira, I understand there are a few more questions from the audience.
Kira: Yes, a couple more questions. Our next question is from another one from Walt Hudson from Eisenhower School. Is our national security strategy apparatus heavily weighted to the military sector, and if so, should we seek a more explicit focus on geoeconomic strategy in the U.S. government in order to capture the new post-World War II and post-Cold War framework that Dr. Overholt suggests is extant? For example, should the National Economic Council, the Committee on Foreign Investment in the United States, or some such governmental body be given the task to develop a separate or complementary national geoeconomic strategy?
Bartholomew: Good, so I think I'll start. Can I start on that one? I think, yeah, I think that the concern about any separation, right, any separate strategy, it takes us sort of right back to where we are. If you have people who talk and think about economics, and you have people who talk and think about military. I do think that our National Security Strategy needs to encompass the geoeconomic challenges. Again, as I said, I don't think that we can understand the world the way it is and figure out what we need to be doing to defend ourselves without doing it both economically and in the military.
You know, supply chains is a perfect example of that, right? I mean, if you are responsible for logistics in the military, and we go into a conflict, and you can't get what what you need, and you don't even know who the tier 2 suppliers are of the equipment that you're getting, so you don't even know if it's been tampered with, that's a real problem. And I think that that’s the kind of thing that we need to have our future thinkers thinking about and incorporating into what they do.
Miklaucic: Thank you ma'am. Dr. Overholt?
Overholt: I agree with that, and the answer is yes to the question. The issue is, how do you organize that? When we got such as, we've got a stove-piped economy, we've got a stove-piped academia, we've got a stove-piped government. The National Security Council was designed to bring together the considerations from Treasury and Commerce and State, as well as the Pentagon. But what happens is a strategy document is basically put together in the Pentagon, and even if you look at the War College things, I've got one thing on my shelf here. Starts off talking a big stage: it starts off talking about the need for a national strategy and a paragraph or two about all the non-military stuff, and then everything else is the military stuff. You have to use the National Security Council's structure to bring the leading people together, and you have to make them put together a strategy document that isn't written over in the Pentagon and sent directly to the Congress.
Again, the problem is not the military aggrandizing. The problem is that they're given all the resources and the Congress passes a law saying that every so often, they must produce a strategy, and every so often, they must produce a report about China. It's a structural problem, and the geniuses of government administrative structure need to go to work on that.
Miklaucic: Thank you very much.
I think there's also just an issue of the fact that the basic issues have become so complicated. We now have literally dozens of national strategies for cybersecurity, for industrial policy, for national security, for defense strategy, for counterterrorism, for countering transnational organized crime. There are so many strategies, that it in a way possibly increases the stovepipe nature of our of our overall approach, which leads back to one of the comments I made at the beginning, which is that in fact, there's really only one competition – that all of these are just different aspects of a single competition, and that gets to what Michael Mazar writes in PRISM, which is that the real competition is over the character of the future international order.
Could both of you just comment in closing on how you view or how you would articulate the Chinese vision of the future international order, and how it's different from our vision of the future international order? Can we start with you, Dr. Overholt?
Overholt: The Chinese vision is one they call in a community of common interest. They see it as primarily economic, organized around Belt and Road, but that economic community would very much support their military interest too. For instance, giving them our role in more than 100 ports around the world. It's a world with them very much at the center, making the rules, changing the rules as it's convenient to them. A world where there's no effort to, or there's a rejection of any efforts to impose a common political vision on the whole world. The idea that our idea, our concept of democracy, our concepts of human rights have any right to be pressure on other countries, they reject. They don't try to promulgate their own system. What they say is that it's wrong for anybody to promulgate, to push their own system.
What – the way their vision interacts with ours is about economic performance, and we have promoted the idea that not only our democracy and human rights and our kind of legal system are good in themselves, they're very good for economic growth. And as somebody who started out with an expertise on the Philippines, which was the absolute ideal third-world democracy and which was ahead of every country in the developing world, no exceptions, the question was whether the Philippines or Japan was going to be the leader of Asia. And it doesn't work very well. And if you compare China's performance with India’s performance – India’s hasn’t worked very well, and that creates a very fundamental threat to our ideology without any direct impact from China. And so, that sets up the competition.
And when I say that they want themselves at the center, they see a blockchain settlement system that's Chinese-designed and Chinese-managed, as handling all these economic transactions along the Belt and Road, that are handled by our system of dollar hegemony today. So it is a very distinct, very competitive vision, it has a lot more attraction out there in the developing world than we like to give credit to. And they have benefited greatly from the financial crisis of 2008, which disillusioned much of the world about the greatness of the system we've promoted, and they've benefited greatly from the emergence of Donald Trump and Boris Johnson. And in the leading democracies, we've got a real competition on our hands.
Bartholomew: So I think then perhaps this is one of the places that Dr. Overholt and I, some of our views differ a little bit, which is that I do think that the Chinese are interested in promulgating their own world view. You know, you can see it in the actions that they're taking: they are maneuvering to have Chinese leadership in international standard-setting bodies, you know, the Belt and Road and all these things, I think that it is, you know, they, obviously, for them an authoritarian system is one that works and one that they believe in. And I might – one of my concerns, of course, is that they do, well [inaudible].
Miklaucic: We might not get a chance to hear Dr. Bartholomew's concerns. I'm not sure if she's still on, if she's still there.
Bartholomew: Yeah, yeah, yeah, can you hear me now?
Miklaucic: Yep, yep, again.
Bartholomew: Yeah, so, I mean, I think that it's a [inaudible].
Miklaucic: Alright, well, the system is not perfect, let me say that, okay, it's now 13:56. We are coming to the end. Caroline, you're okay, you're still there, go ahead.
Bartholomew: Yeah, yeah, sorry, my epic – it keeps going in and out. Yeah, so what I was saying is that I do think that there is certainly interest in the Chinese leadership in seeing their view of the world expand, and the concept of democracy with individual rights go by the wayside. You know, I don't know that they're necessarily actively saying right now that that's what they're interested in doing, but it's one of the reasons that I'm concerned about the rise of China. And I think one of the fundamental differences is the concept of the common good, right? The global goods that the Chinese government certainly to date has made all of its decisions based on what is in China's interest. We at least try to see that the United States is making decisions, or in the past has made decisions, that are not only primarily in our interest but are in interest of a global commons, and I think that's one of the fundamental differences.
Miklaucic: Thank you both very much. I'm glad that there is some disagreement; if there's no disagreement, there's no there's no discourse, really.
We’re going to have to conclude this session, this NDU faculty symposium, because we're running out of time and I want to be respectful of everybody's time, so in conclusion, let me just acknowledge and thank Kira McFadden, Brett Sweeney, Kathy Wreathed for their management of the platform; Laura Junor, the Director of INSS for sponsorship; of course Drs. Overholt and Bartholomew, thank you very much for being with us; and all the participants as well. Let me just say that if there are any questions, comments, or suggestions on this, please email me at firstname.lastname@example.org.
Thank you all for your patience with our technical issues, and everybody please stay safe and stay healthy, and I look forward to seeing you all soon. Thank you very much. Miklaucic over and out.