The Challenge of Transforming Global Economic Governance

Q&A with R. Bin Wong on his new article, “Modern Capitalism’s Multiple Pasts and Its Possible Future: The Rise of China, Climate Change, and Economic Transformation,” which was just published in the new issue of Capitalism: A Journal of History and Economics. The article will be available for free online for the next two weeks.

Wong’s previous research has examined Chinese patterns of political, economic and social change, especially since the eighteenth century, both within Asian regional contexts and compared with more familiar European patterns, as part of the larger scholarly efforts under way to make world history speak to contemporary conditions of globalization. He is author and editor of several books including, China Transformed: Historical Change and the Limits of European Experience (1997) and Before and Beyond Divergence: The Politics of Economic Change in China and Europe (2011). Wong has also written or co-authored more than one hundred articles published in North America, East Asia and Europe, published in Chinese, English, French, German and Japanese in journals that reach diverse audiences within and beyond academia.

Johnny Fulfer: Could you explain what the central aim and arguments of your article are and what inspired you to write it?

R. Bin Wong: My central aim in this article was to consider how today’s economy, which most people, including certainly the audience for this journal, consider to be “capitalism,” has both more pasts than we conventionally consider, and arguably an uncertain future we have trouble shaping to our diverse aspirations. I suggest that understanding capitalism as a contemporary global system until very recently largely depended upon following dynamics of capitalist development that began in early modern Europe, affecting and connecting different world regions in often different ways to define the modern era global economy that emerged in the nineteenth century and evolved through the late twentieth century. But both before the modern era, and more visibly today in our contemporary era, other developmental paths of economic change can be found in different world regions. The paper chooses China as the non-European world region to consider, both because it is more than the size of Europe spatially and demographically and argues their distinct paths of change contribute to the current features of global capitalism. The article expresses a hope that we will learn to recognize the relevance of these different paths into the present for approaching our shared global future.

JF: What are some of the most important books and articles that shaped the way you think about the history of China and its role in the global economy?

BW: Well, I would start by saying my current way of understanding history’s relevance to economics broadly and historical analysis’s contributions to studying the global economy depends on the scholars in several disciplines I am privileged to have studied with, worked with, and written or edited research together. In addition, I’ve been fortunate to have entered into multiple kinds of conversations — whether in conference or workshop format, shared service on different kinds of committees, teaching short courses in different countries both for economics and for history students at undergrad and grad levels — that have given me the hope to reach diverse audiences. For this set of reasons, I’ve seized opportunities to have my work appear in languages beyond English and seeking to formulate an understanding of Chinese economic history that is apprehensible across different audiences has also influenced how I understand China’s history and its present role in the global economy. Finally, the University of California has been an unexpectedly positive intellectual home despite the presence of many rooms I would prefer to enter as little as possible; most important in this regard is the All-UC Group in Economic History where I was schooled in how economists and historians can try to talk with members of each other’s tribes. I really don’t think of any particular books or articles as standing out so much that I can list them without recognizing how greatly my silence regarding other work would be misleading.

JF: The end of the Cold War, as you write, led to two challenges that scholars and policymakers generally view as sperate issues: climate change and the rising economic and geopolitical power of China. Could you explain some of the historical context of these two challenges and how they’re related?

BW: Environmental studies have alerted us to the grim truths regarding economic development’s impacts on the environment. The necessary demands to recognize economic possibilities to be bound by the physically feasible have been interpreted in multiple ways, making the future of the global capitalist economy likely to diverge from its past in marked ways. At the same time, the economic connections forged across the world for the first time in global history are no longer featuring Europeans and their white settler offspring in other world regions as the leading actors shaping the global economy — China’s economic rise and expanding relations internationally has anxiety-provoking geopolitical implications for those who had previously led the pursuits of wealth and power. The relationship between these two sweeping changes raises, in my view, some very serious questions about the future viability of a global economy and geopolitical order premised upon the wealth and power as the prizes to be seized. No one can realistically anticipate any group of actors winning such a competition if it continues to lead us closer and closer to an increased number of unmanageable environmental crises. Thus, to simplify the issues, both climate change and China’s economic rise have to be accommodated in order for global capitalism to survive, let alone thrive.

JF: Could you explain what you mean by a “geopolitical order premised upon the wealth and power as the prizes to be seized” and how recognizing the value of certain aspects of non-Western development paths could help Americans redefine economic and environmental priorities?

BW: Until the end of the 20^th century, the presumed basis of the global geopolitical order rested upon a combination of political and economic motives initiated by early modern European rulers who exported their intra-European competition for wealth and power to other world regions. Ronald Findlay and Kevin O’Rourke provide a very cogent overview of how wealth, what they call “plenty,” and power have been intimately connected since the sixteenth century in Power and Plenty: Trade, War, and the World Economy in the Second Millennium (2007). While they stress the implications of the pursuit of ‘power and plenty’ for international trade, we can also observe that the evolution of European logics to explain their purposes and expectations of those they engaged in other world regions. Africa, the Americas, and Asia were approached in different ways from the sixteenth century through roughly the mid-twentieth century with the final phases of decolonization creating an international geopolitical order based upon an affirmation of diplomatic equality, an acknowledgment of differences in political and military power, and an awareness that order enabled competition within accepted boundaries of action determined to some degree cooperatively.

Over the same centuries, international trade changed from one of exchanges between world regions that did not alter the distinct economic dynamics present in each to a modern nineteenth-century economy in which much of international trade served centers of industrial capitalism without places in non-Western world regions able to begin processes of industrialization so important to modern economic growth. The reasons for this divergence of fortunes remain disputed, but the empirical reality is not in question. Modern era changes in international political and economic relations mutually supported the hierarchy of nations of the late modern era lasting through the twentieth century. At the top of this modern era hierarchy were different Western countries.  Their developmental dynamics politically and economically created the system of economic and political relations that defined how global geopolitical order and the international economy were enmeshed.  China entered this global order from a different path of political and economic development. Its entrance on the world stage presented the first non-Western power able to foster international economic and political relations according to principles and practices sharing similarities and differences with those preferred by Westerners in the early twenty-first century.

At present, we can observe diverse evaluations of how Chinese actors are either conforming to or altering currently accepted norms among Western countries and others accepting these norms. It is far too early, in my opinion, to anticipate how Chinese approaches will or will not provide possible insights into how Americans might better bring into focus the imperatives of aligning economic decision making within the possibilities deemed likely by scientists regarding what is environmentally prudent. If Chinese foreign relations can be effectively evaluated as largely driven by extensions of the pursuit of domestic priorities, then Chinese recognition of “ecological civilization” as a political aspiration should have implications for their foreign relations which could serve as a vantage point on what American political and economic leaders are not doing to promote environmental sustainability. While this outcome remains very uncertain, it can only happen if Americans become alert to such possibilities and avoid driving Chinese leadership toward more confrontational and competitive economic relations initiated during the Trump administration.

JF: You mention how historians and economists have primarily focused on obstacles that non-Western nations have had to overcome to become a more developed economy. What the West considers “developed” seems to involve predefined criteria about what path leads to growth and what specific obstacles exist and how they should be overcome. What school of economic thought has played the largest role in shaping the conceptual boundaries of economic development in the Western tradition? How do you think this conception of development shaped the “established norms” of the global economy?

BW: I wouldn’t stress the relative importance of any particular school of Western economic thought, which has certainly changed since the late nineteenth century more than once, but instead note that they are all part of the family of approaches anchored in an understanding of economic possibilities premised on European economic successes. This means non-Western actors cannot succeed to develop economically without emulating the practices deemed responsible for Western successes, whatever the particular choice of practices favored by a particular school of economic thought be. For a brief period in the late twentieth century, some social and cultural features of Japan were deemed by some scholars to be crucial to their economic successes, but the 1990s collapse of the Japanese bubble economy and the 1997 Asian financial crisis all confirmed the implausibility of development that didn’t lead to convergence.

For all the critiques of some singular path of development voiced loudly by many humanists, they typically did not offer some analysis of any other path or paths that could contribute to revising grand European social theory of the nineteenth century that is the ancestor to twentieth century ideas about economic development. At most, it seems to me, we get recognition of there being somewhat different choices being made in this or that part of the world at a particular moment in time, but we nevertheless anticipate convergence toward a shared set of principles and practices. I am proposing that if such is the case, it is not obvious that this set will any longer be the product of principles and practices first developed by Westerners. As importantly, it may well be that different sets of principles and practices can be formulated to address climate change and that addressing climate change globally means an expanded capacity for cooperation that requires some reconsideration of the rules of the game for competition.

JF: Do you think it’s reasonable to expect every nation to conform to these established norms—that were primarily set by Western nations—or is this just an exercise of power?

BW:  There have to be some agreed upon norms for any set of economic relations to be managed successfully. Norms do change over time — what is at stake is whose voices matter in influencing norms, in particular the behaviors deemed an acceptable expression of diverse approaches and what lies beyond this range. I wouldn’t say the norms will necessarily be set by Western countries as an exercise of power for two sets of reasons. First, norms are only sometimes imposed through the exercise of power; they can be accepted through acts of persuasion creating belief in the desirability of particular norms and they can be accepted because actors see their interests being achievable by following the norms. Second, it could well be an exercise of power by China to impose norms of economic engagement for its relations others who are politically and economically weaker than they are. In general, I expect norms for global economic relations will continue to change subject to some mix of beliefs, interests and power. Unclear is what kinds of competition without conflict will be possible and how acceptable forms of competition will allow for agreed upon commitments to address environmental consequences of economic activities.

JF: You write that as modern capitalism developed over the past 500 years, many people assumed that natural resources could be exploited indefinitely without any negative consequences. Because environmental sustainability wasn’t part of any framework for economic development in previous eras, do you think the challenge for the United States is to integrate environmental sustainability into the existing framework of Western development? Or is there a scholarly challenge to rethink what it means to be a “developed economy” in a world that requires environmental sustainability?

BW: I think integrating environmental sustainability into the governance frameworks, especially of the world’s largest economies, is crucial.  If we consider the E.U. to have an economy and compare it to the American and Chinese economies, the E.U. has made the most visible strides toward planning and implementing environmentally sustainable economic practices. To date, Chinese central authorities have expressed far stronger commitments to and formulated more policies to promote sustainable economic growth than we can hear and read from American federal authorities. For such efforts to move forward, far more effort needs to be invested in creating realistic goals for both developed and developing economies.

JF: You discuss how debates that try to demonstrate the relative value of market institutions and state policies — or which one contributed the most to economic growth — obscures the value to they had together. You warn that the “inability to integrate the principles and practices of economic governance with those of political governance in Western traditions exposes people to uncertainties about how best to address issues of climate change and sustainable development.” I was wondering if you could clarify what it means to integrate economic and political governance. What does this look like in practice?

BW: At least as far as issues of environmental sustainability go, I think it is quite clear that the E.U. has chosen to make environmental sustainability a priority in its political governance that in turn revise the frame within which economic governance must be pursued. In sharp contrast, the U.S. has done very little that can compare. China, in terms of aspiration and efforts is closer to European governance reforms than American, but it integrates economic and political governance in a very different way. We could go back to the ancient Chinese and Greeks and identify differences in political philosophy consequential for each over subsequent millennia. For China, I think the priority placed on political order and the particular commitment to supporting economic stability and security among the people is seen today in the principle of “people’s well-being” as the first principle cited for China’s water governance reform, and this is understood in the contemporary era to be a component of sustainable development. This integration of economic and political governance follows some distinct ideas and depends on distinct sets of institutions for connecting economic and political governance. Indeed, the very connections that enable China’s approaches to climate change are also those deemed least acceptable to Western norms for the global capitalist economy.

JF: Could you explain a bit more what you mean in that last sentence about the “connections that enable China’s approaches to climate change are also those deemed least acceptable to Western norms for the global capitalist economy”?

BW: Basically China’s responses to climate change are driven by decision making within the Chinese state. It is precisely this same state with its particular configuration of government bureaucratic administration ultimately guided by priorities articulated by the Communist Party that violate Western norms for state roles in the economy. China is hardly the first country to make the political and economic leaders of the world’s largest economy uneasy about a non-Western economic competitor.  One only has to recall the 1980s when of American criticisms of Japanese government policies offering unfair advantages in international trade and worries about Japanese capital investments in the U.S. posed security threats confirm the American ability to be critical of government policies in the first non-Western economy to rise into international prominence. Crucially, China poses the additional threat of being a military power whose soft power initiatives engage people and their leaders in world regions where Western influence has varied and often diminished in recent years. It is therefore not surprising that American criticisms of Chinese economic and political behavior internationally stress what American economic and political leaders consider deviations from norms. At stake, is how these norms will or will not continue to evolve and whose voices will count in how such changes occur.

JF: You write that any scholarly focus on whether China is or is not capitalist isn’t really useful because there isn’t any consensus on what exactly capitalism is. This is interesting, but I think there may some aspects of categorization worth pursuing. Because China is politically committed to its identity as a communist nation, they have a political commitment to the way their economic system is categorized. There seems to be a similar experience, at least to an extent, for the United States. Its history with anti-communism bolstered its political commitment to an identity as a capitalist nation — at least for many conservative Americans. How do you think these opposing political commitments to the way each country’s economy is categorized shape the way they approach global economic governance? Do you think these opposing categorical commitments are an obstacle to the type of cooperation that is necessary to create a more sustainable system of global economic governance?

BW: Actually, the claims to legitimacy by the Chinese and illegitimacy by Americans to the Chinese state’s roles in the economy stem from the same set of ways the Chinese state is part of the economy. At one extreme, Americans insist on monitoring the border between private economic decision making and public political decision making that tends to obscure the nature of cross-border relations that have been allowed at different moments of history; maintaining this border is basic to American understandings of capitalism and this limits public political decision making for economic purposes to a narrow range of goods deemed public goods. There is however a DMZ of sorts that is expressed to public-private partnerships as some sort of innovative bridge across public and private. The Chinese have never needed to build such a bridge because relations between public and private economic decision making have always been closer. In contemporary geopolitical contexts this makes the Chinese extreme for allowing state roles deemed unacceptable by American norms. The principled opposition by Americans to the Chinese regarding economic governance norms makes it harder for the two to recognize their shared need to create a sustainable global economy, even if it be one in which the relations between public and private differ between them if such differences enable each to implement governance changes or reforms to achieve environmental sustainability. The issue is less what counts as ‘capitalist’ or not than whether or not we can achieve environmental sustainability systemically, regardless of the paths taken to reach such a goal by different national actors.

JF: How does this American tendency to police the boundaries between economic and political decision-making narrow the scope of goods that are considered public goods? And how does this limit the range of options to realize a more sustainable economy?

BW: These are absolutely critical questions that deserve answers far more developed than I can offer, especially in the context of a conversation like this. I’ll answer the first of the two questions by saying the American tendency to set strict boundaries in principle though not practice between economic and political decision making has served to limit political decision making regarding economic choices. While conventional economics identifies a basic distinction between private and public goods, the general drift of economic reasoning regarding the two has taken market-based decision making as optimal and political choices as a second-best alternative limited to specific conditions. I find in the last chapter of Mariana Mazucatto’s The Value of Everything (2013) a valuable critique regarding the extremely limiting definition of public goods and in particular what it leaves out as possible applies persuasively to the American situation, though her empirical focus has been much more on European conditions. Her observations apply as well to the second question because environmental sustainability is basic a public good but it is one very difficult to assign a monetary value, let alone how to express this value preference through any market mechanism. We very much have to learn how to recognize the necessary importance of investment in public goods needed for environmental sustainability in order to pursue effectively private consumption practices. Some combination of new knowledge that extends the limits of what Herbert Simon famously called “bounded rationality” along with renewed belief in the connections to the natural environment that human beings need to affirm their recognition of being actors making economic decisions in a planetary ecosystem may foster a more sustainable economy.

JF: The European Union has the Water Framework Directive (WFD), a legal framework that began in 2003 to “restore the health of all freshwater bodies in the European Union,” as you write, while China takes a more bureaucratic approach to water governance with its 2011 “No.1 Central Document.” The United States, meanwhile, doesn’t have any national framework for water governance. What do you think the United States could learn from the EU’s WFD and China’s 2011 No. 1 Central Document?

BW: What the U.S. can learn from either the E.U.’s WFD or China’s 2011 No. 1 Central Document depends on how able Americans are to understand what is crucially different between American and E.U. democratic institutions as building blocks of their respective governance regimes and what is surprisingly shared between China and the U.S. regarding what makes them both successful at governance as well as what makes them fail in other ways. On the E.U.-U.S. contrast, it is easy to imagine that shared political ideologies translate into similar governance practices, but this ignores crucial differences in the institutional structures of their democracies. In some ways the E.U. is more varied in its institutional structures that allows its member states to exhibit their ‘democratic’ sensibilities differently. Taking seriously the possibilities that some European practices can be adapted in the U.S. to help overcome federal-level gridlock on formulating implementable plans to reform environmental governance nationally.  For China-E.U. comparisons, the natural identification of ideological differences makes it hard to discern that when either works well, success depends on achieving some fit between top-down and bottom-up efforts that together create desirable results that serve the public at large, even if there are distributional differences among benefits perceived by different groups. My hunch, or more formally hypothesis, is that successful economic and political governance only works when there is a fit between top-down and bottom-up actions. Only by achieving the cooperation needed to create basic public goods required for environmental sustainability, can competition among actors in pursuit of private good be other than collective suicide.

JF: Beyond the fact that Americans could use water more sustainability by adopting a national system for water governance, do you think the process of borrowing Chinese methods or practices for water governance could have political benefits for both countries? How would this demonstrate a shared commitment to cooperation and environmental sustainability and expand the capacity for cooperation between the two countries?

BW: I think political benefits to both China and the U.S. would obtain from the U.S. realizing that their governance reform principles and practices are not only a package that they have to offer the Chinese but that possibilities for knowledge sharing in both directions have to be considered. While some Americans, at least, can see how the E.U. has made considerably more progress toward fostering a sustainable economy, virtually all cannot recognize even the possibility that understanding Chinese efforts could produce knowledge useful to future American efforts at grappling with economic governance reforms needed for environmental sustainability. Such a recognition would at least alter the basis upon which different kinds of conversations about environmental sustainability would become possible and this would foster mutual benefits well beyond simply political ones.