The world today lives virtually under the undisputed rule of a market-dominated, ultra-competitive (yet not fairly competitive), globalized atmosphere with its manifold iniquities and legalized violence. Many public and private institutions all over the world unwittingly contribute to the violent triumph of neoliberalism under a false belief that they are working for a more equitable world.
Field evidence, however, shows that prosperity for majority of the people, let alone all, under market fundamentalism is merely an empty promise of neoliberalism. And the time seems ripe for China, as Asia�s largest economy, to break free of a global market economy that is in trouble.
The chairman of the US Federal Reserve Board, Allan Greenspan, now proudly uses the term �hegemony�, in congressional testimony to describe officially the US financial pre-eminence and structural advantage. Unlike ideology, politics deals not only with moral validity, but also with power. The ideology of neoliberalism appears empirically operative because it has the hegemonic power to construct a �real� world that appears internally consistent and theoretically rational, with the aid of �scientific� neoclassical economics theories.
Economic slavery, though unfortunate, is preferable to starvation, according to neoliberal doctrine, which falsely poses slavery or death by starvation as natural alternatives of human civilization. The World Bank has estimated that neoliberal globalization has created 200 million newly poor people around the world in the past decade. Yet the claims of globalization�s contribution to the global prosperity continue unabated.
The most fundamental flaw in the neoliberal logic is that the selective push for full and unregulated mobility for capital across national borders is not accompanied with the same mobility for labour. It is self-evident that capital cannot exist without labour. Without labour, capital is merely an idle asset, unable to contribute to productivity. Until labour can move freely in the gIobalized system, there is no real openness. The current system is not true globalization. It is merely a global expansion of the US financial hegemony through dollar hegemony: the domination of the global economy by the US national currency.
The dollar hegemony is a structural condition in the world of finance and trade in which the US produces dollars and the rest of the world produces things that dollars can buy. In 1971, the late US president Richard Nixon abandoned the Bretton Woods regime of a gold-backed dollar and fixed exchange rates to stop the gold drain from the US Treasury caused by chronic lapses of the US fiscal discipline. At that point, the dollar, as a fiat currency, theoretically abdicated its reserve-currency status for world trade. Yet for more than three decades since, the dollar has remained the reserve currency for world trade despite continued chronic US government and trade deficits and the transformation of the United States into the world�s most indebted nation.
Notwithstanding its role as the leading proponent of market fundamentalism, the United States maintains a strong dollar policy as a matter of national interest, in defiance of market forces. Reserve currency for world trade without the necessary disciplinary back-up is in reality a tax by the issuing sovereign on all other sovereigns participating in world trade via that currency.
China has the power to make the yuan an alternative reserve currency in world trade by simply denominating all Chinese export in yuan. This sovereign action can be taken unilaterally at any time of China�s choosing. All the State Council (the Chinese cabinet) has to do is to announce that all Chinese exports must be paid for in yuan, making it illegal for Chinese exporters to accept payment in other currencies. This will set off a frantic scramble by importers of Chinese goods around the world to buy yuan at the State Administration for Foreign Exchange (SAFE) making the yuan a preferred currency with ready market demand. Companies with yuan revenue no longer need to exchange yuan into dollars, as the yuan, backed by the value of Chinese exports, becomes universally accepted in trade. Members of the Organization of Petroleum Exporting Countries (Opec), who import sizable amount of Chinese goods, would accept yuan for payment for their oil.
China�s spectacular export growth has not reversed the shrinking of world trade volume since 1997. Its growth has come at the expense of the now wounded �tigers� of South East Asia. China is on the way to becoming a world economic giant but it has yet to assert its rightful financial power.
There is no stopping China from being a powerhouse in manufacturing. With the Asian economies trapped in protracted financial crisis from excessive foreign-currency debts and falling export revenue resulting from predatory currency devaluation, the International Monetary Fund (IMF), orchestrated by the US, has come to their �rescue� with a new agenda beyond the usual austerity conditionalities to protect the Group of Seven (G7) creditors.
This new agenda aims to open the Asian markets for US transnational corporations to acquire distressed Asian companies so that their newly acquired Asian subsidiaries can produce inside Asian national borders. The US, through the IMF, aims to break down the traditionally closed financial systems all over Asia that mobilize high national savings to serve giant national industrial conglomerates, for massive investment in targeted export sectors.
The IMF�controlled by the US� aims at dismantling traditional Asian financial systems and forcing Asians to replace them with a structurally alien global system, characterized by open markets in products and, crucially, in finance and financial services. The real target is of course China. For the US knows: as China goes, so goes the rest of Asia.
The Chinese economy has moved quickly up the trade-value chain, in advanced electronics, telecommunications, and aerospace, which are inherently �dual use� technologies with military implications. Strategic phobia has pushed the US to exert all its influence to keep the global market for �dual use� technologies closed to China. Thus �free trade� for the US is not the same as freedom to trade.
Still, China will inevitably be a major global player in the knowledge industries because of its abundant supply of raw human potential. Even in the US, a high percentage of its scientists are of Chinese ethnicity. With an updated educational system, China will be the top producer of brain-power within another decade. As China moves up the technology ladder, coupled with rising consumer demand in tandem with a growth economy, global trade flow will be affected, modifying the �race to the bottom�, predatory competitive game of a decade of globalization among Asian exporters.
Asian economies will find in China an alternative trading partner to the USA, and possibly with more symbiotic trading terms, providing more room to structure trade to enhance domestic development along the path of converging regional interest and solidarity. The rise in living standards in all of Asia will change the path of history, restoring Asia as a centre of advanced civilization, putting an end to two centuries of Western economic and cultural imperialism.
The foreign-trade strategies of all trading nations in the decade of neoliberal globalization have contributed to the destabilization of the global trading system. It is not possible or rational for all countries to export themselves out of domestic recessions or poverty. The contradictions between national strategic industrial policies and neoliberal open-market systems will generate friction between the United States and all its trading partners, as well as among regional trade blocs and inter-region competitors.
The US engages in global trade to enhance its superpower status, not to undermine it. Thus the USA does not seek equal partners. With economic sanctions as a tool of foreign policy, the US government is preventing, or trying to prevent, an increasing number of the US companies, and foreign companies trading with the US, from doing business in an increasing number of countries. Trade flows not where it is needed most, but to where it best serves the US national interests.
Yet, export to the USA under the dollar hegemony is merely an arrangement in which the exporting nations, in order to earn dollars to buy needed commodities denominated in dollars and to service dollar loans, are forced to finance the consumption of US consumers. The need to invest their trade surpluses in US assets (as foreign-exchange reserves), giving the US a capital account surplus to finance its current account deficit.
Furthermore, the trade surpluses are achieved not by an advantage in the terms of trade, but by sheer self-denial of basic domestic needs and critical imports. Not only are the exporting nations debasing the value of their labour, degrading their environment and depleting their natural resources for the privilege of running on the poverty treadmill, they are enriching the US economy and strengthening dollar hegemony in the process. Thus, the exporting nations allow themselves to be robbed of needed capital for critical domestic development in such vital areas as education, health and other social infrastructure. Assuming heavy foreign debt to finance export, while they beg for even more foreign investment in the export sector by offering still more exorbitant returns and tax exemptions. Yet many small economies around the world have no option but to continue to serve dollar hegemony like a drug addiction.
After thoroughly impoverishing the Asian economies with financial manipulation of crisis proportions, the US now works to penetrate the remaining Asian markets that have stayed relatively closed: notably Japan, China and South Korea. Control of access to its markets has been Asia�s principal instrument for its sub-optimized trade advantage and distorted industrial development. This strategy had been practised successfully first by Japan and copied with various degree of success by the Asian tigers. Protectionism will survive in Asian economies long after formal accession to the World Trade Organization (WTO).
China, with a giant integrated market composed of a 5th of the world population, can swap market access for technology transfer from the world�s transnational technology corporations. Once free from dollar hegemony, China can finance its domestic development without foreign loans and capital. The Chinese economy then will no longer be distorted by excessive reliance on export merely to earn dollars that by definition must be invested in dollar assets, not yuan assets. The aim of development is to raise wage levels, not to push wages down to achieve predatory competitiveness. Yet export under dollar hegemony requires keeping wages low, a prerequisite that condemns an economy to perpetual underdevelopment.
Terms such as �openness� need to be reconsidered away from the distorted meanings assigned to them by neoliberal cultural hegemony. The contradiction between globalizing and territorially based national and political forces is framed in the context of the past, present and future world orders. Finance capitalism may turn out to be the deadliest enemy of industrial capitalism, and it may well be the last transformation of capitalism. There are clear indications that insufficient demand is caused by the abandonment of the labour theory of value and the wholesale acceptance by neoliberalism of the theory of marginal utility. Lack of demand caused by insufficient wages is more deadly to finance capitalism than the fear of socialism. The rhetoric of the current political debate in the United States on corporate fraud is more populist than those of the New Deal, and the recession has yet to begin in earnest. Socialism, by other names (the Wall Street Journal calls it mass capitalism), is now about to be viewed as the vaccine against a catastrophic implosion of the capitalist system in its home garden.
The current impending collapse of neoliberal globalized market fundamentalism offers Asia a timely opportunity to forge a fairer deal in its economic relation with the West. The United States, as a bicoastal nation, must begin to treat Asian-Pacific nations as equal members of an Asian Pacific commonwealth in a New World economic order that makes economic nationalism unnecessary. China, as the largest economy in the Asia-Pacific region, has a key role to play in shaping this New World order. To do that, China must look beyond its current myopic effort to join a collapsing global market economy and provide a model of national domestic development in which foreign trade is reassigned to its proper place in the economy from its current all-consuming priority. The first step in that direction is for China to free itself from dollar hegemony.