16 June 2015

Why Democracies Dominate: America’s Edge over China

America’s political institutions will prove to be its enduring edge in its economic and military competition with Beijing.
CHINA’S ENORMOUS population and rapid rate of economic growth mean that Beijing could soon dislodge Washington from its standing as the most dominant power in Asia. The Economist, for example, predicts that China could overtake the United States as the world’s largest economy—an important measure of national power—in the year 2021. Moreover, we know that military might tends to follow economic heft. Beijing’s ongoing military buildup is already constraining America’s ability to project power in the Asia-Pacific region. If China follows Washington’s lead in investing in global power-projection capabilities, decades from now it could conceivably usurp global military supremacy from Washington.

Or will it? The place to look for an answer to whether China really will become the globe’s most dominant power is not primarily in the economic or military realm. The more pertinent area of interest is China’s domestic political institutions, and they suggest that a more equivocal answer is warranted to the question of whether China will emerge as number one. Many Western political theorists have held that states ruled by democratic institutions perform better in long-run political competitions, and contemporary social-science research concurs. It is no accident that the most dominant states for the past several centuries, the United Kingdom and the United States, were also among the most democratic, or that their autocratic challengers, Imperial (and then Nazi) Germany and the Soviet Union, eventually imploded. Similarly, America’s institutions are its key competitive advantage in the coming contest with China. Far from China emerging supreme, there is every reason to believe that the American era will endure—and there is even reason for Washington to fear, not welcome, the possibility of a future democratic transition in China.

The notion that states with representative forms of government can accumulate power more effectively than unrepresentative regimes is an enduring one. Classical theorists often drew a distinction between democracy, a degenerative form of government characterized by “mob rule,” and republicanism, a “mixed” system characterized by popular participation and rule by representatives, which more closely matches contemporary models of democracy. Polybius, Montesquieu and Machiavelli all suggested the possible benefits of republican forms of government and identified Rome’s domestic political institutions as the principal driver of the rise and subsequent fall of the Roman Empire.

In The Histories, Polybius provides a history of Rome, but his primary purpose is to explain the sources of its success. “The most admirable and educational part of my project,” he wrote, “was that it would let my readers know and understand how, and thanks to what kind of political system, an unprecedented event occurred—the conquest of almost all the known world in somewhat under fifty-three years, and its submission to just one ruler, Rome.” Polybius’s explanation is straightforward: “The chief cause of either success or the opposite is, I would claim, the nature of a state’s system of government.” It was the strength of Rome’s domestic political institutions, according to Polybius, that allowed it to best its competitors and conquer the known world:

If one thinks that it is a finer and nobler thing to be a world-class leader, with an extensive dominion and empire, the center and focal point of everyone’s world—then one must admit that the Spartan constitution is deficient, and that the Roman constitution is superior and more dynamic. The facts themselves demonstrate the truth of this.

In his Considerations on the Causes of the Greatness of the Romans and Their Decline, Montesquieu also examines the relationship between the openness of Rome’s domestic political institutions and its international standing. On the basis of republican institutions, Rome rose to prominence, he says, but the demise of the republic under Caesar and the tyranny of subsequent emperors sowed the seeds of decay. He writes, “By means of their maxims they conquered all peoples, but when they had succeeded in doing so, their republic could not endure. It was necessary to change the government, and contrary maxims employed by the new government made their greatness collapse.”

No thinker did more to presage contemporary social-science arguments about the international advantages of open governments, however, than Machiavelli. While better known for his advice to authoritarian leaders in The Prince, inThe Discourses on Livy, Machiavelli extols the virtues of republics. Indeed, Machiavelli goes so far as to advise a wise prince to use his fleeting power to establish a republic because a republican constitution provides the best means of ensuring a polity’s lasting legacy. “For it is seen through experience that cities have never expanded either in dominion or in riches if they have not been in freedom,” he says, continuing, “The reason is easy to understand, for it is not the particular good but the common good that makes cities great. And without doubt this common good is not observed if not in republics.”

MODERN SCHOLARSHIP is also supportive of the idea that democracies are bound to lead. Economists Daron Acemoglu, Simon Johnson and James A. Robinson have shown that states with inclusive economic institutions, those that provide “security of property rights and relatively equal access to economic resources to a broad cross-section of society,” grow at more rapid rates than their exclusive competitors. They argue that states that exclude large segments of their population from growth-enhancing activity will do worse than those that do not. Moreover, a state’s choice of economic institutions is, in turn, heavily shaped by its political institutions. Countries with inclusive political institutions (i.e., democracies) are more likely to produce good economic institutions because those in power come from a broader cross section of society and, therefore, have incentives to protect the economic interests of society at large. In addition, constraints on executive power allow rulers to credibly commit to protecting individual property rights, which encourages citizens to engage in long-term planning, investment and economic activity.

Not only do democracies grow at faster rates, but they are also better able to borrow when times get tough. Kenneth Schultz and Barry Weingast have shown that democracies are more likely to become financial powerhouses because they are more trustworthy. Whereas autocrats can arbitrarily default on their nation’s debt, for example, democratic executives are constrained by domestic legislatures, courts and economic interests with access to the political system. This makes it easier for them to attract capital and to float large loans at lower rates of interest.

The democratic advantage extends beyond the economic sphere, however, into political-military matters. Political scientists think that democratic leaders are reluctant to shirk their alliance commitments because they fear the reputational costs at home and abroad. For this reason, democracies form larger, more durable and more reliable alliances. NATO is only the most prominent recent example. In addition, the well-known democratic-peace theory holds that democracies are less likely to fight wars (at least against other democracies). More importantly, they have a better chance of winning the wars they fight. Indeed, since 1815, democracies have won a whopping 77 percent of their conflicts, compared to only 45 percent for autocracies. Political scientists such as Dan Reiter and Allan Stam postulate that democracies are more effective in warfare because their leaders benefit from the free flow of information and, with an eye to the ballot box, they are less likely to get caught up in disputes they might lose. Others extol the virtues of democracies’ superior soldiers, civilian-controlled militaries and stronger alliances.

Of course, as in any academic field, the findings reviewed above are subject to debate. Nevertheless, where there is smoke there is fire, and there is more than enough reason to believe that there is something different about democracies.

Moreover, the likely advantages held by democracies are far from trivial. Rather, they go to the heart of a state’s ability to maintain and accrue power in an anarchic international system. In his classic book War and Change in World Politics, Robert Gilpin argues that “differential rates of economic growth” are the key determinant of power transitions among the great powers. Centrality to international capital markets is another important resource. The ability to borrow allows states to finance arms buildups and large wars in excess of normal revenue. In addition, easy access to credit allows states to engage in “tax smoothing,” financing extraordinary expenditures through debt rather than through tax increases, which reduces economic and societal disruptions. The Dutch Republic provides an example of a country that was able to rise to geopolitical prominence in the seventeenth century in large part due to its ability to obtain cheap credit.

Alliance politics are another central feature of international political competition. Strong alliances allow states to share defense burdens, securely engage in long-range strategic planning and deter international conflict. Shifting and unreliable alliances, on the one hand, or relative isolation, on the other, deprive states of these advantages and have been identified as a source of insecurity.

Finally, and most obviously, states that win wars are better able to accumulate power than those that lose them. Nations victorious in war can reduce threats to their security and can gain political influence and access to resources that enable them to improve their international position. In contrast, losing a war disastrously may be the most direct way in which a state can squander its standing. In 1941, for example, Germany possessed 20 percent of world power (according to the Correlates of War Project’s Composite Index of National Capabilities, a common measure used by political scientists, which aggregates information on economic, demographic and military resources), but by 1945, following its catastrophic defeat in World War II, Germany’s share of global power plummeted to a mere 8 percent. Over the same time period, however, the leader of the victorious alliance in World War II, the United States, saw its share of global power increase by 14 percentage points. As Paul Kennedy writes, “The triumph of any one Great Power . . . or the collapse of another, has usually been the consequence of lengthy fighting by its armed forces.”

Taking these arguments a step further, it is not much of a leap to contend that states that excel in key economic and political-military dimensions should also do better in long-run geopolitical competitions. It seems intuitive that states that grow at rapid rates, enjoy easy credit, forge strong alliances, and avoid conflict while winning the wars they do fight will do better than states that do the opposite. In sum, democracies enjoy a built-in advantage in the struggle for global mastery.

The empirical evidence supports this hunch. According to international-relations theorists, the leading state in the international system for the past four hundred years has always been among its most democratic. This list of free leviathans includes the Dutch Republic (1609–1713), Great Britain (1714–1945) and the United States (1945–present). These states may not qualify as full democracies according to contemporary definitions (the Utrecht Sodomy Trials did not quite square with modern conceptions of civil liberty), but they were among the most liberal states of their time. It is hard to argue against an undefeated record of over four centuries.

More systematically, statistical analysis I have conducted on data from 1815 to the present shows a strong correlation between a state’s level of democracy and the increase in its share of world power over the subsequent decade. I also show links between the intervening variables identified above (economic growth, access to international credit, international alliances and performance in foreign wars) and subsequent changes in power.

For example, in 1816, the first year for which data on share of world power are available, the United States possessed about 4 percent of world power, while Russia held 16 percent. By 2007, their positions had nearly reversed (14 percent for Washington and 4 percent for Moscow). China’s recent growth rates seem impressive, but this is only after rebounding from decades of devastating declines. China marshaled 19 percent of global power in 1860, but it fell to a mere 9 percent in the 1950s and, despite a good run in recent years, it still has not recovered to its nineteenth-century levels. Meanwhile, its democratic rival India continues to steadily increase its share of global power. In sum, both theory and evidence suggest that democracies do better in long-run geopolitical competitions.

THE DOMINANT-DEMOCRACIES thesis suggests that the United States has a key advantage in its strategic competition with China: its institutions. If the argument above is correct, America’s open political system will continue to provide high long-run rates of economic growth, better access to international financial markets, robust alliances, and superior performance in international crises and wars. In China, on the other hand, political stagnation will result in economic and geopolitical stagnation. Indeed, the CCP’s sclerotic institutions are already impinging upon Beijing’s attempts to enhance its international standing, and things may only be getting worse as President Xi Jinping tightens his stranglehold on power. From this perspective, many of the near-term indicators that pundits consult to assess the state of the competition, such as economic performance and alliance relationships, are themselves the results of domestic political institutions.

America’s economic outlook relative to China remains strong. China recently overtook the United States as the world’s largest economy as measured by purchasing power parity, but this measure is not useful for gauging global clout. Adjusting GDP numbers to assume that haircuts in Beijing are as expensive as in San Francisco is useful for some economic comparisons, but it does not allow China to buy more aircraft carriers. In nominal terms, U.S. GDP is $17 trillion, or 22 percent of global GDP. China is still far behind at $10 trillion and 13 percent, respectively. As noted above, some have predicted that, given current trends, China could surpass the United States as the world’s largest economy as soon as 2021, but this forecast is vulnerable to one’s assumptions. Moreover, arguably more important than GDP for international influence is net wealth and, as the American Enterprise Institute’s Derek Scissors has shown, the U.S. lead over China in this category is a massive $42 trillion—and the gap may be growing.

To be sure, the CCP has been able to achieve remarkable growth rates over the past several decades by moving resources from less to more productive sectors (primarily labor from agriculture to manufacturing) and through massive public investment, but this extractive model of economic growth is bound to run out of steam. Going from a poor country to a middle-income country is one thing, but making the leap to an advanced economy is quite another. It always seemed unlikely that China would be able to sustain double-digit growth rates indefinitely and, indeed, in the words of President Xi, slower growth rates in China have become the “new normal.” China’s current plans, therefore, prioritize economic reforms over growth, but the CCP can only go so far in reforming the system without undermining its own rule. This is why autocracies have a hard time sustaining growth over the longer term. Indeed, the CCP’s distortions to the economy can be seen everywhere, from its unwillingness to undertake needed labor reforms to the continued outsized role of inefficient state-owned enterprises. In short, in the words of Damien Ma, “The curtain is closing on the era of rapid growth” in China.

On the other hand, America’s institutions are primed for expansion, and the economic situation in the United States is looking up. America has enjoyed the best post-2008 economic recovery of any advanced economy, and it hit a 5 percent annual pace of economic growth in the third quarter of 2014. The radical innovation that is characteristic of America’s liberal market economy led to a shale-gas boom, which has made the United States a global energy superpower. Moreover, possible future economic revolutions involving new technologies, such as 3-D printing, loom just over the horizon.

In the realm of global finance, America’s position also looks unassailable. The United States remains the center of the international financial world. It is the global lender of last resort, and the U.S. dollar is still the global reserve currency. America is perceived as the most credible and dynamic economy, and countries feel secure borrowing from the United States. When investors talk about flight to safety, it usually means moving money into U.S. Treasury bills; they certainly are not referring to buying Chinese bonds.

It is true that China sits on huge foreign-exchange reserves and, in a bid to become a regional lender of last resort, it now lends more money than the World Bank. But here, too, the CCP has been reluctant to undertake the market reforms necessary to become a true financial powerhouse. The free flow of capital, currency convertibility, establishment of foreign financial institutions, competition in the banking sector, and ease of investment and doing business all remain problems in China. China lacks a functioning municipal bond market, and, as a result, China’s massive public debt (which stands at a colossal 58 percent of CCP) has become a financial time bomb. Officials in Beijing have called for the dollar to be replaced as the global reserve currency, but short of the creation of an open, deep, liquid financial market and more sustainable and transparent economy, the Chinese renminbi will not dethrone the dollar anytime soon. The Shanghai Free Trade Zone was set up in 2013 to give financial reforms a trial run, but the experiment has been a disappointment. Again, the prioritization of regime survival is stunting the implementation of reforms. In short, Beijing lacks the kind of financial institutions that have propelled and sustained other great powers in the past. Financial markets simply do not flourish in autocratic states.

DIPLOMATICALLY, THE United States is the leading state in the system of international institutions that it established after World War II. It possesses a global network of alliances that includes more than thirty of the wealthiest and best-governed democracies on Earth; combined, they make up more than half of world CCP. While somewhat tarnished in recent years, the U.S. model and American culture still provide a significant reservoir of soft power. In contrast, China lacks genuine friends. It is attempting to route around the American-led international order, but its clumsy attempts to buy off the states excluded from the American-led order in Africa, Latin America and elsewhere have stirred nearly as much resentment as influence. Its lone formal ally, North Korea, is an economic basket case led by an erratic dictator. To date, Beijing has eschewed alliances as a matter of policy, but to become a true global power, China will need partners and allies. It is difficult, however, to see China forging robust political friendships abroad in the near future, in part because of its autocratic politics at home. Beijing maintains public support by stoking nationalist sentiment, but its use of military coercion to settle regional disputes has its neighbors rightly worried. More broadly, Chinese soft power also suffers from Beijing’s autocratic politics. The National Bureau of Asian Research reports that “it will be increasingly difficult for the government to prevent its domestic record on political and civil freedoms from affecting China’s international credibility.” The free nations of the world will never trust an autocratic country to lead on the global stage.

Perhaps America’s most notable advantage, however, is its commanding military superiority. While it is true that China’s anti-access/area-denial capabilities are making it harder for the U.S. Pacific Command to project power in Asia, even People’s Liberation Army (PLA) officials acknowledge that China will not become a global military power until 2050 at the earliest. Until military analysts are concerned about a U.S.-Chinese conflict in North America, any talk of a bipolar military order will be premature. But even in the western Pacific, there are reasons to doubt China’s growing military might. The PLA is a notoriously corrupt organization where party meddling undermines military professionalism. China is certainly procuring expensive hardware, but the ability of its forces to perform on the battlefield is an open question. Moreover, China’s lack of an institutionalized national-security process has resulted in heedless decision making. China has consistently been surprised by the strength of the negative international reaction to its assertive policies, including, most notably, Hanoi’s resistance to China’s deployment of a billion-dollar oil rig in disputed waters off of Vietnam’s coast in 2014. The rig may have completed its mission, but at high cost to the Sino-Vietnamese relationship. Ties between Washington and Hanoi have since flourished, with the State Department announcing soon after that the United States would lift its ban on the sale of lethal weapons to Vietnam.

Following America’s failures in Iraq and Afghanistan, it has become fashionable to point out the limits of U.S. military power, but the free flow of information in the formulation of national-security policy, smooth civil-military relations, highly skilled and professional military officers, aggregate military superiority and the overwhelming power of Washington’s global alliances make for formidable military advantages. Some argue that the balance of resolve would favor China in any East Asian contingency, but Germany’s greater stake in World War II–era Europe proved no match for American military might and its league of powerful allies. Defense planners in Beijing must be highly cognizant of the fact that the United States has arguably never lost a regular, state-on-state war. If, God forbid, China’s rise does result in World War III, both theory and history suggest that it will turn out disastrously for Beijing.

DURING THE past century, the United States has sought to advance political liberalization around the world as part of its grand strategy, and, in the not-too-distant past, U.S. policy makers explicitly called for the “peaceful evolution” of Chinese politics in the direction of greater democracy. In recent years, however, democracy promotion and human rights have been less prominent in the day-to-day practice of U.S. foreign policy toward China, as the bilateral agenda has taken on an increasing number of regional and global issues. Yet many Americans still harbor a long-term aspiration for China to eventually become a full-fledged democracy. Indeed, few think that there can be genuine long-term stability or deep and sustained cooperation between the two countries absent fundamental political changes in Beijing.

Liberal internationalists argue that the long-term goal of American strategy toward China should be to peacefully incorporate Beijing into the American-led international system. According to this perspective, increasing interaction through markets and international institutions will enhance incentives for cooperation. As China develops economically, China’s growing middle class will demand a voice in politics, leading inevitably to a democratic transition. Democratic-peace theory tells us that a democratic China will be more cooperative and less prone to war, completing Beijing’s full incorporation into a more peaceful, rules-based international order.

Those who argue that the foremost objective of America’s China policy should be to preserve American primacy also see an important role for democratization in China. Perhaps, drawing too heavily on the analogy from the Cold War’s end, they see the demise of the CCP, much like the collapse of the Soviet Union, leading to the quietus of an enemy and an indefinite extension of the American era. Many neoconservatives, who tend to place great stock in the internal character of regimes, would also see a democratic China as less truculent and, therefore, less threatening to American primacy.

All of these perspectives, however, may be overly optimistic for the very same reason: a smooth transition to democracy in China actually would create a number of serious challenges for the United States. Unlike under the CCP, a democratically ruled China would have less to fear from thoroughgoing economic reforms, which would increase the likelihood that Beijing eventually adopts the economic institutions necessary to become the world’s unchallenged economic champion. With sound economic institutions in place and political protections against arbitrary financial decisions, Shanghai would be much more likely to replace New York as the new hub of global finance and the renminbi to take over as a new reserve currency. A liberal-democratic China would also have more soft power in diplomatic relations. Its neighbors would have less to fear, and a free China could establish webs of institutions and meaningful political alliances. America’s foothold in Asia would crumble as regional states no longer sought Uncle Sam’s protection from the Red Chinese threat. Finally, a reformed decision-making process on national-security issues and a less corrupt PLA would allow Beijing to better calibrate its diplomacy and to prevail in combat should diplomacy fail. In short, a liberal-democratic China would be much better positioned to seize global preeminence from the United States, while the autocratic CCP is much more likely to bungle China’s rise.

At present, much of the China debate in the United States seems to assume that all good things go together. But this is rarely the case. Instead, U.S. leaders may face an important and difficult dilemma when it comes to thinking about a long-term strategy for China. On the one hand, Washington can hope for, or even actively promote, democratization in China in an effort to liberalize China and make it more cooperative internationally, but only by increasing the risk that the United States eventually hands over the keys of global mastery to Beijing. On the other hand, Washington can accept CCP rule in an attempt to maintain the American era, but only at the cost of living with a more dysfunctional, autocratic and belligerent China. Perhaps the most difficult dilemma, however, rests with readers in Beijing. The CCP can continue to reign in China, but it will be consigned to ruling over a dysfunctional state destined for second-tier status. Or China can emerge as a true world leader, but only if the CCP relinquishes power and creates the kind of democratic political system that has proven over the centuries to be a prerequisite for lasting international dominance.

Matthew Kroenig is associate professor of government and foreign service and the international relations field chair at Georgetown University and a senior fellow at the Brent Scowcroft Center on International Security at the Atlantic Council.

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