In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony. Eamonn Fingleton. Thomas Dunne Books (St. Martin’s Press), New York, 2008.

A book about the future published in 2008, with information preceding the publishing date, could well be considered out of date – or at worst in error – after a couple of years of passing current events.  Eamonn Fingleton’s ‘old’ work – In the Jaws of the Dragon – defies this, and is just as important a read as it should have been when first published.  Perhaps even more so because of its accuracy and depth of research fully supporting his thesis that the U.S. is now in the maw of the Dragon – if not more accurately on the slippery slope into the belly of the beast.

At first, while setting up the philosophy behind his thesis I needed to suspend my thoughts on Confucianism until he had fully stated his case.  Similarly, I had to remember that events that occurred within the past year – the huge economic downturn – had not yet occurred when this book was written, but the more one reads the book, the more it seems prescient to the current financial situation between the U.S. and not just China but the other Asian tigers as well.

After reading just the first introductory chapter in which Fingleton out lines his overall thesis, I noted that the arguments seemed reasonable, but had not included the U.S. personal debt/credit levels vis a vis his arguments on the “advanced manufacturing” loss to China and the bubble economies that have replaced them.   It becomes obvious later that while perhaps not central to his thesis, it is certainly a given part of it that is recognized within the overall structure of a “finance economy.”

Another note I made related to the corporations that are part and parcel of the U.S. entry into the Dragon’s jaw.  Fingleton continually reiterates that China is not a democratic country and is quite intrusive and controlling within its many societal functions.  He argues the same for South Korea, Japan, Taiwan and Singapore, all nominally democratic, but designed to heighten local businesses, guarding them against foreign competition, and within that, having the corporations and businesses having much more say in the political realm than the average citizens do.   As for the U.S. corporations, they are like all other corporations, decidedly non-democratic, top down command structures that will seek out wealth at the expense of democracy, human rights, and freedom.

In short, in China the U.S. corporations have made adaptations to the local business/political climate that fits into their natural corporate ethos and that have and are in process of destroying the U.S. economy.  There is more than one way to win a war: “To subdue the enemy without fighting is the acme of skill,” wrote the Chinese military commander Sun Tzu, in the 6th century B.C.

Advanced Manufacturing

The big item in the argument is the loss of “advanced manufacturing” to the Chinese (and the Japanese).  This is not the manufacturing that receives parts and then turns nuts and bolts and puts the pieces together, but the high end technologically innovative manufacturing processes that are front and centre in the aerospace, airline, computer, communications and other modern instruments of business and war.  In order to invest in China “American corporations are generally expected to transfer their most advanced production technologies to their Chinese factories….once they are transferred, American workers are vulnerable to layoffs.”    The essential argument is that the U.S. has lost most of their production technologies to either the Japanese or Chinese.

Convergence towards democracy

An over riding political sentiment expressed in the U.S. and frequently elsewhere says as China becomes increasingly wealthier, it will only naturally become increasingly more democratic.  Fingleton dissects Thomas Friedman on this account, and defines Friedman’s pattern as  “the more controversial or implausible his conclusions, the less substantiation he feels is needed.”  [At this point, I began to appreciate Fingleton much more.]  Within what Fingleton labels the Confucian work ethic, this will not happen, as the workers remain compliant to the authorities through many devices of blackmail, bribery, threats, and a system of law that is complex and used mainly for control of the population.

That in itself should be no surprise to those who watch how China operates within its domestic realm, but the U.S. corporations continue to foster the line that China is opening up, that things are getting progressively better, that more companies should operate in China – in essence becoming compliant themselves to the political demands of the Chinese hierarchy.

Savings and Debt

Another feature of Fingleton’s thesis is the comparison of the forced savings – or “suppressed consumption” – domestically in China, and the all too eager and gross consumption of the U.S.  The savings domestically are forced by trade tariffs against cheap imports, the guarded lower evaluation of the currency, the high cartel prices put on local sales, and a banking system that denies credit for property and consumer goods.  In other words, in order to buy something, the Chinese have to save long and hard for it, thus providing large amounts of capital for investment in local businesses as well as guaranteeing high profits for businesses making them more competitive abroad.

The U.S. domestic market operates conversely to this, allowing huge – and obviously unmanageable or at best barely manageable – credit in order to keep the consumptive bubble going.  The saving rate is zero or negative (depending on sources), the consumers continue to buy huge quantities of imported goods and the trade deficit balloons.   Written before the current debt crisis, the trade deficit and the budget deficit have placed the U.S. in a position in which “The reality is that every dollar America spends in projecting power abroad – indeed every dollar it spend on defense – has to be borrowed abroad.”

We now have this amazing intersection of events in which China (and Japan) ‘own’ the U.S. and have ever increasing power to control it through its financial channels, its “foreign policy will be subject increasingly to a veto in Beijing.”  While Beijing will not flaunt this, they are certain to use it.

Japan (and Taiwan and Korea)

Fingleton examines the myth of Japanese “Americanization” at the end of  World War II, and argues that while Japan superficially ordered its house similar to the U.S., they made sure that political and economic power remained in the hands of the keiretsu, the large business conglomerates and that the population at large, while able to vote, had little to say about the direction of the economy and society in general (which reminds of a saying I heard from several groups of Japanese ESL students that the “nail that stands out gets pounded back down.”)   Fingleton argues that the Japanese were leaders in exploiting U.S. ignorance and gullibility during the post war years.

He makes several critical points:

  • Contrary to stereotyping the Japanese character is hardly militaristic.
  • The ultimate goal of their empire “was to eject the Western powers from East Asia”
  • Japan would “Be granted specially privileged access to the American market.”
  • Democracy revival was “largely cosmetic” and “Japan’s elite bureaucrats quietly arrogated to themselves sweeping powers to set the rules for Japan’s electoral system” creating a “fatally divided” and “utterly ineffectual” one party state.
  • Free speech is “highly attenuated….guided by Confucian ethics, they [the media] glory in a role as the Japanese system’s propaganda department.”