Economic stupidity might not only make you poorer, but also it could kill you.
Introduction
One of the issues not taught to students of economics is the paramount importance of economic understanding in avoiding world wars. The universities of the United Kingdom in particular do not seem to have any department which teaches, or any individual who knows, about these issues. Yet these topics are of paramount importance in determining the future peace and prosperity of the world. This is the first of a short series of articles on this subject.
The differences between the financial-industrial structures of economies have become clearer and sharper since the 1980s. From 1946, Japan copied the USA’s growth-accelerating procedures that had helped the Allies to win the Second World War. China, in turn having copied Japan’s financial-industrial system, is rapidly growing to world power and is likely if current trends persist to become the next and largest superstate, or, as Japan’s Foreign Ministry put it in 1980:
“During the first half of the 21st century, China will emerge as an overwhelming military and economic power. “
The rise of China is potentially a bit of a problem. Two American researchers –Organski and Kugler, in their book The War Ledger, Chicago Press, 1980 — demonstrated that world wars in the past have occurred when the leading hegemonic power is challenged by a rapidly growing contender. What they say is:
“If a challenger overtakes a dominant nation, a change in the leadership and/or a change in the system may be in the offing. At least it is likely to be tried. The established leader fights to retain control, the challenger to obtain what is his by right of strength. We can now suggest that if nuclear weapons are available to both sides when such changes occur, there is maximum danger of their being used.”
Hence the First and Second World Wars were due to the rise of German economic might and its challenge to the previous world leader of the UK. That research has been validated and slightly updated in two respects. First, Henk Houweling and Jan Siccama have pointed out that this result is valid not only for the three or four strongest nations but all major powers. This result means that major powers can precipitate world war by going to war first and then dragging others into the conflict. In the epilogue of “Power Transitions as a Cause of War” Houweling and Siccama say
“In Chapter 9 we investigated whether there is a correlation between power transitions between major powers and outbreaks of war between them. This certainly proves to be the case. [….] There is a high risk of war if the distribution [of power] proves to be unstable.”
Second, further research has demonstrated that the emergence of a new overwhelming economic power is a necessary but not a sufficient condition for war. In other words, there has to be a bone of contention as well as a contender. But when the challenge is made, a precipitating incident — or bone of contention — is, as you might well think, readily found, particularly when both contenders are global powers that will come into contact in many areas.
Furthermore, as the above quotation implies, the low growth rate of the USA makes atomic war much more likely.
Naturally most politicians would want to do everything in their power to prevent that, for the sake present and future generations. Organski and Kugler posed the question — “Given that nations do not intend to use atomic bombs, why do they make so many of them?” and came up with the answer — “Atomic weapons exist to be used in world wars, and are produced to stop the world-order from changing.”
More recent research by Rapkin and Thompson (in their 2013 book “Transition Scenarios — China and the United States in the 21st Century” and in their articles) has identified a zone of maximum danger and greatest war probability around the transit point when the contending power is between 20% less and 20% more than the power of the hegemonic leader.
The world is currently entering a new and dangerous period of contending powers. From the research conducted by Organski and Kugler and reported in “The War Ledger” Chicago Press, 1980, it appears that
- World wars do not result from wickedness but from economic conflicts
- World war is most likely to result when the previously most powerful and ascendant nation (the hegemonic leader) is overtaken by a contender
- The best predictor of national power is Gross National Product (GNP)
- Hence World War I and World War II (the replay) were due to the rise of German economic might and its challenge to the previous hegemonic British world-empire
- Atomic weapons exist to be used in world wars
- The conflict can quickly escalate if the challenger is rapidly overtaking the leader
- The point of maximum danger is the period of transition when the economy of the contender approaches or exceeds the economy of the leader (excluding the economic strength of any alliances the leader may have)
And, given the current economic position of the world, all of these circumstances now prevail, or are coming to pass, because:
- China may be America’s nemesis; that is, the economic potentials of China exceed those available to the existing USA in every particular
- China is growing now, and has grown for several decades, at an average economic growth rate of about 9% pa, over three times greater than the comparable rate of the USA
- The Americans do not understand Shimomuran macro-economics at present: the Chinese do
- There are about four times as many Chinese as Americans: The Chinese economy may become as large as the American one when average Chinese living standards exceed about one quarter of these in the USA
- World War III (or the first atomic war, which is what its survivors might call it ) becomes more likely as a result of the rise of Chinese economic power and its challenge to the existing hegemony of the USA
This is not likely to happen intentionally, because neither side may intend it: it is likely to happen, as most wars have started, by accident and by the politics of mistakes and misunderstandings. The main danger is that nations build up military forces whose function is the waging of war, and the military leaders in these forces will want war and imagine war is winnable when it is not, particularly in the new world of high-tech military hardware and atomic weapons. Furthermore, military forces set up standing orders and rules of engagement which assume war will be escalated according to a tit-for-tat automatic eye-for-several-eyes programme. Since every exchange of damage occurs at logarithmically higher level than the previous exchange, automatic systems escalate war damage without much or any human intervention.
The crossover point (at which the Chinese economy actually exceeds the productive capacity of the USA) will happen sooner rather than later, because the Yuan is considerably undervalued; that is, the 2013 Chinese economy is about 43.5% larger than the $9.33 trillion figure given by conversion at the exchange rate value (ERV). The CIA’s continually updated World Fact Book has recently assessed the Chinese economy as the third largest in the world at 2013 purchasing power parities, at about $13.39 trillion, about 80% of the size of the $16.72 trillion US economy, so we have now entered the Rapkin-Thompson zone of high war probability.
These forecast conflicts could be avoided by better economic understanding. If the US economy grew more rapidly, then these potential conflicts could be avoided for decades, particularly if there was a customs union including most or all of the large democratic states.
Einstein was once told that by encouraging the invention of the atomic bomb (in his letter to Franklin Delano Roosevelt) he had helped create the circumstances for the death of mankind. He replied
I hope the day may never come when the Queen calls in her advisors after an atomic war which has devastated the USA, Britain, Europe and the world to ask “Why did no-one predict this event?” She would perhaps receive the reply
“They did, Ma’am, but the Western Governments were more concerned with continuing with neo-classical economics and giving bigger share of income to the already rich than in preserving the peace of the world.”
In the long run, the best solution to suppress world war indefinitely lies in the creation of the hyperstate — a customs and possibly federal union of developed nation states that would contain more than half of the world’s population — for in that circumstance there would be only be a small possibility of the emergence of an economic rival.
Note: George Tait Edwards has published a book about “Shimomuran Economics” at http://www.lulu.com/shop/george-tait-edwards/shimomuran-economics/paperback/product-21688864.html and much else elsewhere during the last four decades.
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