Many people, including many of my students
at the Naval Postgraduate School, worry that economic growth in China will make
China a formidable competitor to the United States. My students typically raise
this concern when we talk about free trade, and they worry about people in China
"taking our jobs." I manage to assuage this fear by going through
the economic analysis of "comparative advantage." I show them, with
simple numerical examples, that when countries with lower productivity per unit
of labor, such as China, trade with countries that have more-productive labor,
such as the United States, both sides gain from trade. People in the United
States gain by specializing in producing the goods in which they have a comparative
advantage and then trading them for goods from China in which the Chinese have
a comparative advantage. This analysis, dating back to the famous early 19th-century
economist, David Ricardo, still stands up almost 200 years since its discovery.
Economists across the political spectrum still accept it. Left-wing New York
Times columnist Paul Krugman, for example, wrote an excellent
piece defending the idea of comparative advantage. And conservative-libertarian
economist Arnold Kling gives a simple
numerical illustration here.
Once their fears are addressed, many of my students still worry that China
will become a formidable economic power and will use this power to threaten
people in the United States. It is true that China is likely to become an even
more formidable economic power than it is now. But is it likely to use this
power to threaten the United States? The answer is no. And the basis for that
answer is a burgeoning academic literature, written mainly by political scientists,
that finds that the more free-market countries become, the more peaceable they
become. It's not a sure thing, which is why I said only that China is not likely
to threaten the United States, not that it won't. But all other things
being equal, the more capitalist China becomes, the less of a threat it will
The most recent evidence for this conclusion comes from an article by Eric
Gartzke, a political-science professor at Columbia University. In "The
Capitalist Peace," published in the American Journal of Political
Science (January 2007), Gartzke starts with the fact, well established by
other political scientists, that democracies tend not to make war on each other.
He digs beneath this result to ask whether it is being democratic per se that
matters for peace or whether what matters is the economic institutions that
often go with democracy. He finds the latter. Gartzke writes, "Peace can
result from at least three aspects of mature capitalist economies." What
are the three? First is the "rising importance of intellectual and financial
capital, factors that are more expediently enticed than conquered." One
hundred years ago, when raw natural resources were more important factors in
a nation's wealth, it was common for one country's government to attack another
country in order to grab those resources. But it's hard to grab financial capital
and even harder to grab intellectual capital. The second factor Gartzke cites
is the "substantial overlap in the foreign policy goals of developed nations
since World War II." He notes that it is an open question whether this
"affinity among liberal states will persist." Certainly, the U.S.
government under George W. Bush and the UK government under Tony Blair, with
their unprovoked attack on, and occupation of, Iraq, have done much to fray
this consensus. But, more to the point, the Chinese government hasn't. The third
factor behind peace that Gartzke cites is "the rise of global capital markets,"
which "creates a new mechanism for competition and communication for states
that might otherwise be forced to fight."
The idea that countries can do better by cooperating rather than fighting is
not new. Gartzke points out that Montesquieu,
Thomas Paine, Frederic
Stuart Mill, Richard Cobden,
and Norman Angell had
all argued this decades or centuries before. They didn't argue that economic
freedom and prosperity made war impossible: rather, they argued that it made
war unprofitable for both sides. Gartzke takes the next step and argues that
it will make war less likely.
Gartzke makes his case with a huge data set on conflicts between various countries'
governments between 1950 and 1992. He finds the standard result that the degree
of democracy affects the probability of war in the now-accepted way: democracies
go to war with each other rarely. But as he adds variables for degree of economic
freedom, he finds that democracy has little independent effect. Instead, as
economic freedom increases, the amount of conflict decreases. In short, the
apparent effect of democracy on peace is really the effect of economic freedom
on peace: capitalism leads to peace.
How does this relate to China? China is becoming more capitalist. The Chinese
government recently recognized
the right to private property. It also now allows foreign investment in
China. So, to the extent that Gartzke's empirical relationship holds, China
should be less threatening than it has been in the past.
Copyright © 2007 by David R. Henderson. Requests for permission to
reprint should be directed to the author or Antiwar.com.