Ukraine provides global arms manufacturers with a lab-cum-showroom

(Originally published Sept. 28 in “What in the World“) There are a lot of lenses through which to view the war in Ukraine: the front line in a new Cold War between freedom and tyranny, a proxy war in the battle to defend U.S. hegemony from China’s challenge, or the latest (and perhaps final) chapter in Russia’s centuries-old paranoid fear of Western invasion.

But except for the daily suffering inflicted on the Ukrainian people, the most tangible and immediate impact of the war is the massive boost in orders it has provided to big defense contractors able to advertise their wares for free every day for the past 18 months on Ukraine’s muddy battlefields.

The Wall Street Journal offers the latest look at how arms makers are converting battlefield performance into big-ticket sales. Because Ukraine has proved to be an old-fashioned war of lobbing shells at the other guy, it’s become an important test-range for artillery and the howitzers used to fire them. Ukraine is also a laboratory for new military technology.

And despite efforts by Florida senator Matt Gaetz and other right-wing Republicans to cut spending on arms for Ukraine, it appears the U.S. Congress will continue to fund the war effort and, in so doing, provide the military-industrial complex with more free advertising, research and development.

Beware geeks bearing false dichotomies…

Especially when they’re explaining China’s worsening predicament. Policy wonks trying to explain China’s problems have been wont to resort to just such rhetorical traps. The New York Times’ reporters have cast China’s plight as a Hobson’s choice between autocratic economic controls and free-market capitalism, while Reuters has portrayed it as a dilemma between bailing out heavily indebted borrowers and imposing painful structural reforms.

Now, MIT Sloan School of Management Prof. Yasheng Huang is back with his own dichotomy, contributing to Foreign Affairs a bite-sized version of the thesis he spins in his new book, The Rise and Fall of the East. Huang blames China’s plight, similarly to the Times, on a failure to maintain China’s shift towards free-market capitalism and instead clinging to state-directed planning. According to Huang, China’s economic success was primarily due to previous liberalizations, but now that President Xi Jinping has rolled them back in favor of statism, things are falling apart.

If only thing were so simple. Huang seems somehow to have forgotten that China’s liberalizations weren’t part of some laissez-faire experiment. They were a carefully crafted reverse engineering of the same model perfected by Japan, South Korea, Taiwan, and with varying levels of faithfulness, the economies of Southeast Asia. In this model, capital markets, bank lending and household savings are liberalized to an extent, but currencies kept artificially low, real interest rates kept artificially high, and capital channeled by government policies into industrial development, infrastructure and exports. Property, in this model, is used as an irresistible lure with which to trap public savings and then funnel it into national development.

China’s Communists famously characterized this dalliance with capitalism as “socialism with Chinese characteristics” and Huang wrote about in his 2008 book Capitalism with Chinese Characteristics. Huang concluded that China’s version of the “capitalist development state” Chalmers Johnson coined for Japan in 1982 wasn’t a step forward from socialism towards capitalism, but rather a step back from a more free-wheeling experiment with rural entrepreneurship in the late-80s. Huang seems to believe China was a crucible of economic dynamism in those days, a conclusion anyone who was in China at the time might find far-fetched.

In his latest piece, Huang holds out Hong Kong as a paragon of laissez-faire capitalism and entrepreneurship, one that established a monument to free enterprise and a counterpoint to state-guided development.

Anyone who has spent much time in Hong Kong knows this, too, is a fallacy. Hong Kong, like Singapore, is largely a case study in how to harness wealth and drive up property values by surrounding a city—like a trendy night club—with a velvet rope to create the commercial equivalent of a VIP room. Wealth, talent and cheap labor can come in, but only wealth and the wealthy are welcome to stay. Everyone else must eventually go back. Thus, these cities become hubs for allocating capital to and exploiting the resources of less-developed hinterlands (Bangladesh, India, Indonesia, Malaysia, Mainland China, Myanmar, the Philippines, and Sri Lanka), which also serve as reliable reservoirs of cheap and expendable labor.

Development in Japan and South Korea was more easily controlled by ensuring it was dominated by a handful of huge conglomerates. Hong Kong’s development was achieved thanks to a Faustian bargain with a handful of family-run conglomerates that to this day dominate property, retail, telecoms, trade and pretty much everything else—an oligarchy. Affordable housing is scarce, labor rights virtually nonexistent. The result in Hong Kong is a shrine to unabashed wealth that has produced the kind of political discontent that belies any notion that its British colonizers left behind a model of democratic development.