Have the economic/strategic lessons of WWI been learned? How the West is handling the emergence of China and India.

Economist Paul Frijters discusses whether the Western world will try to stop China and India’s rise as the next economic super powers.

One of the big mistakes responsible for the outbreak of WWI was that existing Western powers actively tried to contain the influence of emerging powers. England and France tried to hold on to all their colonies and keep Germany out of the colonial game. Conversely, Austria and Germany were wary about Russia’s growth and housed opinions that advocated war as a means of halting the growing threat. The notion of aggressively holding on to the current division of the spoils was a large factor in the outbreak of WWI. It seems a valid question to ask whether we are making the same mistake with China and India now, or whether ‘we’ have apparently learned our lesson.

Thinking about the openness of markets, the West has learned its lesson well. Export growth of China and India is hardly contained by new trade barriers at all, even surviving the recent financial crisis. Comparing this to the collapse of trade relations during the great Depression of the 1930s, one has to see this as a victory of reason. Slightly worrying is that this support for continued relatively ‘free’ international trade had to be carried by elites (governments and economists) rather than by whole populations. Lessons might have been learned, but apparently not by whole countries.

Thinking about access to resources, the question is whether the West is allowing China a growing share of overseas spheres of influence in order to secure its supply of raw materials, i.e. is China allowed to encroach upon the traditional overseas dependent territories? Here again, it has to be said that the West is not making great efforts to keep the Chinese from gaining footholds in the regions of great natural resources. The explicit Chinese program of investment in natural resource sectors of other countries has not been opposed, and the buying up of mineral deposits in Africa and Latin America of the Chinese is still proceeding relatively unopposed (for a discussion of China’s investment in Africa and Latin America see here). It is the case that the recent introduction of the resource tax effectively means we Australians have cheated the Chinese out of some of their expected profits from investing in Australian mining, but in the scheme of things this is small potatoes.

Thinking about ego-rents, it is also clear that the West is allowing both China and India their ‘place in the sun’. The Olympics were in Beijing; skilled Chinese and Indian migrants are welcomed in Australia and the US; China has a permanent veto at the UN security council; Taiwan and Tibet are not recognised as separate countries by most Western countries; thinking about the future, Taiwan will clearly be abandoned as an ally to appease the Chinese and no-one will seriously interfere in Tibet; Western governments are not talking up the threat of Chinese investments in their army; etc.

On balance, you would have to say that the West seems to be applying the main lessons of WWI when it comes to China and India. It recognises that China is the next world superpower and is letting it happen without too much fuss.