Speech: The Ralph Miliband Programme “War and Peace” Lecture

The Rise of China and its Impact on the Future Global Order

01 June 2015 – London, England

Thank you for your kind invitation to deliver this year’s Miliband Lecture.It is 75 years this year, and this month, since Ralph Miliband left on the last ship from Oostende to Britain in advance of Hitler’s crushing victory over the Netherlands, Belgium and France in the spring of 1940.At its best, this country, over many centuries, has long welcomed the oppressed peoples of Europe to these islands, and its long tradition of intellectual, academic and political freedom.It was this tradition that enabled Miliband, a self-proclaimed Marxist, to be able to research, write and teach in a country well-accustomed to the battle of ideas, and well-versed in the virtues such full-blooded intellectual engagement brings not just to the life of the mind, but also to the world of public policy.Bacon, Hobbes, Locke, Bentham, Smith, Hume, Mill, Wollstonecraft, Spencer, Carlisle, Marx, Beatrice and Sidney Webb, Keynes, Popper, Hayek.And that’s before we get to the high priests of the hard sciences.The roll call is formidable.We may love some, and hate the others.But the intellectual ferment between them, and the academic institutions and the political environment that made such ferment possible, helped drive each to excellence in his or her field.Such a tradition is not an historical accident.It was not always like that, as any cursory reading of English history before the Glorious Revolution will confirm.It is a tradition that has been hard-fought.And it is an intellectual tradition to be cherished for the future too – a tradition that still acts as a global magnet to this great city as one of the great international cities of the 21st century.The same too for this school.Founded by Beatrice and Sidney Webb and the Fabians, it has always occupied a place in the hearts and minds of those of us who have labored hard in the fields for social democracy.Seeking always to reconcile the logic of the market, the universality of social justice, the complex and often conflicting demands of sovereignty, security and international solidarity, and now the overriding challenge of the sustainability of the planet itself.These are no small challenges.They are indeed great challenges.But challenges too not to be quietly swept into the international “too hard” basket.The responsibility of social democrats is to reconcile these challenges.Not to pretend, as some political traditions do, that half of them simply don’t exist, simply because they pose for us not just one, but in fact a growing number, of inconvenient truths.Which is why the LSE, if we look at its disciplines, its faculty and its student body, stands out as a global school embracing a truly global agenda.Just three years after the LSE was founded in 1895, one of its co-founders, Beatrice Webb, visited Australia to examine the progress of socialism in the Antipodes.Beatrice was not impressed.She had this to say about the Australian Labor Party in my home state of Queensland:“Though the programme and policy of the Labor Party has lost some of its virulence of language, its abstract propositions have not been worked out into feasible proposals and the Party has had to content itself with cavilling at the every day administration of the Government, and screeching loudly at each reactionary measure… Altogether the political situation in Queensland is about as hopeless from a progressive point of view as it well could be…”But that was just Queensland.Beatrice left her most focussed vitriol for the country at large:  “As for society in Australia, it is just a slice of Great Britain and differs only slightly from Glasgow, Manchester, Liverpool and the suburbs [underlined in original] of London. Bad manners, ugly clothes, vigour and shrewdness characterize…the lower and upper middle class folk…and the richer they are the more objectionable they become…Besides vulgarity and a rather gross materialism, their worst characteristic is a lack of strenuous persistency. They are…inclined to self-indulgence and disinclined for regular work…. ‘Muddling on’ with a high standard of honour and a low standard of efficiency is the dominant note of Australian Public Life.”Thank you Beatrice for the free character analysis.And thank you LSE.It would be petty of me to observe that in Queensland, we formed the first Labor Government in the world in 1899, the year after Beatrice left, so I won’t.And it would be equally churlish to observe, so once again I won’t, that within a decade of Beatrice’s departure, we formed one of the first national Labor governments in the world with an absolute parliamentary majority, fully 15 years before Ramsay McDonald’s administration here in the UK.So while Beatrice may have misjudged us, at least just a little, during her sojourn in the Antipodes, her judgement, together with that of her husband Sidney’s, in driving the establishment of this great institution, was sound indeed.Not least because you’ve educated thousands of Australians here at the LSE over the last century, including the rowdy ones up the back here this evening. A Core Argument on U.S.-China Relations The subject of this lecture is the rise of China and its impact on the regional and global order.The subject is complex, but my argument is simple.First, the strategic trajectory of U.S.-China relations, against the benchmark of the last four decades of the post-normalization relationship, is increasingly negative.Second, the core reasons for this deterioration arise from a number of factors:

• conflicting national values and interests between the two, which are real;
• compounded by significant strategic misperceptions in both directions which also influence policy;
• as well as the absence of any common strategic narrative capable of managing deep disagreement at the same time as maximizing common interests which also exist.

Finally, I argue there is nothing determinist about the future trajectory of the U.S.-China relationship. In fact, there is an alternative strategic narrative on offer which, if agreed, could succeed in negotiating the many shoals that lie ahead for the bilateral relationship, as well as contributing to the development of a sustainable regional and global order for the future: a narrative I call “constructive realism, common purpose.”Of course, this approach, particularly in the midst of recent developments in the East and South China Seas, leaves me in a distinct minority in an emerging strategic discourse in the United States, and to some extent in China as well, which increasingly assumes both countries are on a collision course.This has not always been the dominant paradigm in the U.S.-China relationship. In fact it is a relatively new development in the context of the various ebbs and flows of the last 40 years. As Professor David Lampton has recently argued:“The trend in domestic discourse in both China and the United States over the last fifteen years has been from engagement, to a light hedge, to a heavy hedge, and increasingly toward deterrence. Deterrence vocabulary leads to discussions of threat, will, capability, second-strike, and credibility. This is a far different vocabulary than the one that generally was employed during the last forty years. What worries me greatly is the gradual migration of the center of gravity of elite and popular discussion in both nations toward more extreme analyses and policy recommendations that simply feed one another. Past policy has not collapsed, but it is weakening. ”This trend has intensified over the last six months alone.If it continues in this direction, it will have profound implications for the future relationship between the world’s two largest economies and two largest militaries.It also has implications for the future of the regional order in the Asia-Pacific, which contains two thirds of the world’s population, and more than half the world’s economy.And beyond Asia, there are implications for the future of the global political and economic order as well if the U.S. and China find themselves at loggerheads over the future of the Bretton Woods institutions, the UN Security Council and other global institutions – and with conflicting interests and allegiances in other theaters of the world including Africa, Latin America and Europe.And while the rest of the world is focussed primarily on developments in the Middle East and in Central Europe, I argue that it in Asia we are seeing new geo-political, geo-economic and geo-strategic fault tines emerge with a greater capacity fundamentally to alter the post-war order.The current trajectory in U.S.-China relations is increasingly dangerous for us all – for China, for America and for the rest of us as well who depend on a stable, international rules-based order.Professor Lampton argues we have reached a tipping point.I do not go quite that far.At least not yet.This September’s Washington Summit between President Obama and President Xi will be critical.Critical if we are to take a possible tipping point and transform it instead into a turning point.Not just a tactical or temporary calming of the waters.But rather a more fundamental turning point in the way these two great countries and civilizations approach their strategic future.A divided future, with all its destructive simplicity.Or a common future, recognizing all its complexity, which avoids the risks of crisis, conflict or even long-term war, and instead seeks to build a sustainable international order for all.And that is the burden of this lecture this evening, in which I draw extensively from an article I have just written for the 70^th anniversary edition of the Chatham House publication “The World Today”. Building an International Order is DifficultIf history is our guide, the construction and preservation of international order is no easy thing, while the construction and preservation of a genuinely global order is virtually without precedent.History is littered with the institutional carcasses of noble attempts to impose order upon chaos – chaos which the high priests of “high realism,” from Machiavelli to Morgenthau, tell us is the “natural” condition of international politics.Yet the prescription of these same realists for the preservation of order has as its common theme, or variations on a theme, a classical balance of power, which itself has left us carnage at an industrial scale in what for a time was called the Great War.In these sobering years of anniversaries – 1815, the bicentenary of the Congress of Vienna; 1914, the centenary of the war to end all wars; and 1945, the 70th anniversary of the end of the world war that followed – we are haunted afresh by the ghosts of failure.The disciples of the Concert of Europe fail to mention the violent suppression of the revolutions of 1830 and 1848, as absolute monarchies clung desperately to power.Then there is the minor problem of the Crimean and Franco-Prussian Wars, which once again pitted the great powers against each other.These are uncomfortable disruptions to the comforting, retrospective narrative of the century of peace that allegedly followed the Napoleonic devastation of a continent.And that is before we add the calculated barbarism of a century of European colonialism, which subjugated much of the rest of the world with a brutality on an industrial scale that continues to influence global politics to this day.As for 1914, and the events that followed in constructing the peace in 1919, little needs to be said.We are, as I’ve said, well familiar with this unspeakable failure of the balance of power to preserve either peace or prosperity.We are equally familiar with the failure of the League, in the second of the two most over-worked university examination questions of the twentieth century – the first being on the causes of the conflagration that preceded it.So that by the time we collapsed, exhausted, amidst the ruins of 1945, we had seen in the space of thirty years the most graphic of global epitaphs written for both the Hobbesian and Kantian constructs on how to build a sustainable global peace.Both the deep cynicism of high realism and the purported nobility of liberal internationalism lay in ruins, as did much of the world itself.It was out of these dying embers that was born what we now blithely describe as the post-war, rules-based international order. From the outset, it represented a cocktail of liberal aspiration and realist power, crowned by the United Nations and Bretton Woods institutions, and underpinned by the reality of virtually unchallenged American military and economic might.And despite the high-wire nuclear act that we now, equally blithely, call the “Cold War,” and the American “unipolar moment” that briefly followed it, the order, by and large, has remained fundamentally unchanged since then.At least until now.Order – stable or unstable, just or unjust – remains the central question of international relations, and international development.It is as much a security question as it is an economic and social question.And it is now also an environmental question.If we ignore its centrality, fail to recognize the seeds of its disintegration, or else believe that “orders” are somehow inherently, mystically self-sustaining, then we fail to learn the core lesson of history, and in so doing abdicate our responsibility for the future.The uncomfortable truth is that the current order has already lasted longer than most of its predecessors since the Treaty of Westphalia more than 350 years ago.We therefore need to order our thinking today by asking what has fundamentally changed in world politics since 1945.This will help us to determine what challenges the existing order’s long-standing institutional arrangements can no longer meet without institutional reform.I argue there are three.First, because the UN is an international society of states, decolonization over the last 70 years has seen the quadrupling in the number of states now members of the UN, rendering the prospects of global consensus on anything of substance increasingly impossible.Second, the globalization of everything (from terrorism, finance, pollution, pandemics to unauthorized people movements), together with the incapacity of weak global and national institutions to deal with challenges which now dramatically affect the peoples of the world and not just their governments, is now inducing a crisis of global confidence in the UN, Bretton Woods and the nation state, all at the same time.Third, the rise of China means the U.S. is no longer the unipolar economic power.And this, in turn, gives rise to questions on how much longer the U.S. will continue to exercise dominant military power, as the military capabilities of others rise, new asymmetric war-fighting capacities emerge in cyber and in space, and questions grow about the future of American global strategic resolve, driven by its own increasingly divided polity. The Rise of ChinaThis returns us to the specific question of China and how China could embrace, and be embraced by, the U.S., the West and the rest to help mend, rather than fracture, an already fragile order.The dream of Chinese reformers for nearly 125 years, in the face of foreign pressure, invasion and occupation by the West and Japan, has been to modernize China in order to restore national wealth and power.This, too, is the vision of Xi Jinping, who defines his “China Dream” as a “Chinese restoration” or “fuxing” in order to make China “prosperous and powerful” or “fuqiang.”What is so different about today, as opposed to any other period since 1949, is that these deep-seated Chinese national aspirations are now being realized.Depending on the measure, purchasing power parity or market exchange rates, China is either now, or else within a decade will be, the single largest economy in the world.Once this occurs, it will be the first time since George III that this position will be occupied by a non-English speaking, non-Western, non-liberal democratic state.This is no small matter.Again, if history is our guide, where economic power goes, political power and foreign policy influence soon follow.And so the question which the rest of the world now asks is: How will China now deploy this new-found influence within the current order?There are of course limitations to Chinese influence.China remains domestically preoccupied with its internal political, economic, social and environmental challenges.China also faces a formidable quantitative and qualitative gap between its own military capabilities and those of the United States which cannot be closed until mid-century, if then.For these reasons, China has every interest in preserving the peace for the foreseeable future.To do otherwise would risk the centrality of its continued economic transformation project, which it correctly sees as central to the sustainability of China’s long-term national power.Yet it is clear from the public statements of President Xi Jinping over the last two years that China no longer intends to remain silent on the future of the global and regional order, which it argues it had no role in creating.For decades under Deng Xiaoping, China’s foreign policy orthodoxy was “hide your strength, bide your time, never take the lead” or “taoguang yanghui, juebu dangtou.” 韬光养晦 决不当头As of November 2013, this was replaced by a new commitment to a more activist foreign policy or “fenfa youwei.”Xi now speaks of the “a new type of great power relations,” “a new type of International system,” “a new type of great power diplomacy with Chinese characteristics,” and a “struggle for the future international order.” China’s Impact on the Global OrderBut beyond these generalities, what can be usefully said about China’s aspirations for the future of the global order?I argue there are at least ten important trends to note:

1. China recognizes that it has benefitted from the current order so far, particularly in facilitating the export-based growth over 30 years that has under-pinned China’s economic rise;

2. China at the same time resents and rejects the U.S. notion of China needing to become “a responsible global stakeholder,” which it sees as condescending in its assumption that China is not one at present;

3. China nonetheless has no interest in any fundamental repudiation of the existing global order, not least because it is highly wary of its own over-reach, and does not at this stage see itself as an “indispensable” global power in the unique provision of global public goods;

4. Chinese think tanks are nonetheless hard at work on China’s future role in the order. However, it would be wrong to conclude that China at this stage has an agreed internal blueprint for the systematic reform of the order, or of any alternative order;

5. China, notwithstanding the above, is now likely to become an increasingly active voice in the normal review processes of the international system, in pursuit of its general organizing principle of advocating greater “multipolarity” in international institutions, which is none-too-subtle code language for less American power;

6. China’s position in this is strengthened by the growing international support it is securing in the G77, reinforced by China’s expanding economic assistance program and growing foreign direct investment across the developing world;

7. China has long seen the UN, particularly the Security Council, as an asset to its own international influence, as well as a useful vehicle for developing an increasingly “multipolar order,” and therefore has little interest in the UN becoming less relevant over time. In fact it has the reverse view;

8. For similar reasons, China has welcomed its role in the G20, and is more likely to seek to expand its global influence over time, including under its 2016 presidency;

9. As for the Bretton Woods Institutions, China is smarting following the refusal of the U.S. Senate to increase its IMF quota, despite this having the support of both the G20 and the IMF member states;

10. In part for these reasons, China has decided to establish the Asian Infrastructure Investment Bank outside the Bretton Woods framework, and it is possible that China will further innovate in the international financial and economic domain where its global strength is greatest.

Each of these thematics proceeds from the premise of China’s growing global economic power.This in turn places an absolute premium on the success or otherwise of the transformation of China’s economic growth model – a process that has formally been underway now for the last two years, and where many obstacles have so far been encountered.But assuming this transformation process broadly succeeds, China’s global financial and economic influence will continue to increase.Not just in trade, where it is already the world’s largest trading country.Not just in investment, where it is now the world’s second largest source of FDI and rising.But increasingly in the internationalization of its currency.First, in trade transactions, where the RMB rather than the dollar is now the currency of exchange for 15% of trade, and rising.Second, where the debate now begins. On the future status of the RMB as one of the basket of only four currencies that make up the Strategic Drawing Rights or SDRs of the IMF.Third, the future debate, but not too far into the future, of the liberalization of the Chinese capital account, in order to become a fully-fledged global reserve currency, potentially challenging the current status of the U.S. dollar.These are not small policy challenges.They are large ones.And unless these challenges are resolved collaboratively, there is potential for considerable destabilization of global currency and financial markets. China’s Impact on the Regional OrderChinese and U.S. interests, however, find themselves in much sharper potential conflict in Asia.This is where their interests most directly rub up against one another – whether on questions of competing territorial claims in the East and South China Seas between China and U.S. allies, Taiwan or the Korean Peninsula.On questions of order, as Robert Kaplan recently reminded us, geography still matters.And it is in Asia that we see the clearest, early manifestation of the gradual bifurcation of the region: an economic Asia increasingly centered on China, and a security Asia still predominantly centered on the U.S.On security, the U.S. has concluded that China is seeking to weaken and destroy its regional military alliances, to eventually push the U.S. out of the region and, in time, replace it with a Chinese sphere of influence.Meanwhile, China has concluded that the U.S. is seeking to weaken, undermine and ultimately sabotage China from within, and contain China’s diplomatic freedom of maneuver from without.China’s fundamental conviction is that the U.S. will never willingly surrender its long-held position of regional and global preeminence to China.As for the regional economic order, China’s dominance over the U.S. in every single bilateral trading relationship in Asia, its deployment of the AIIB, the Silk Road Investment Fund, together with the normal operation of its sovereign wealth funds across the region, are creating a new economic reality in the region of which most in the Washington political elite remain blissfully unaware.The economic reality in Asia is literally changing under America’s feet.At the same time, the region runs the prospect of becoming further divided economically with sharpening battle lines between Washington’s Trans Pacific Partnership (TPP) excluding China on the one hand, and Beijing’s advocacy for a Free Trade Area for Asia and the Pacific (FTAAP) on the other.Trade has traditionally brought Asia closer together.For the first time in decades, it now has the prospect of further dividing the region.Broader strategic developments across the wider region are compounding the regional stability.I have not today elaborated on the current dispute between China and Japan on the East China Sea, other than to say that this problem has not gone away.Nor have I elaborated on the South China Sea where Chinese island reclamation efforts have now seen a robust U.S. military response, and where the U.S. Defence Secretary’s statement last week that Chinese reclamation must now stop leaves us wondering how the U.S. will respond when China does not.Will we now see greater use of both Subic Bay in the Philippines and Cam Ranh Bay in Vietnam by the U.S. Pacific Fleet as part of a general process of escalation?Will this in turn lead over time to more formal basing rights as Vietnam’s and the Philippines’ reactions to China’s South China Sea policies intensify?What we can see, however, is the increasing militarization of the South China Sea over time.Then there is Taiwan where Presidential elections loom, where the likelihood of the return of the pro-independence DPP to power has already seen China warn of growing instability across the Taiwan Strait.That is before we turn our focus to North Korea, which remains the largest threat to security in the wider region because of its continued nuclear weapons program and the increasing range and accuracy of its missiles.And all this occurs in the context of the release of China’s most recent and increasingly robust Defence White Paper last week (its ninth since 1998) in which there is a  strong emphasis on “maritime military struggle and maritime preparation for military struggle.”The report goes on to say that the “traditional [Chinese] mentality that land outweighs sea must be abandoned, and great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests.”Each of these security challenges is worthy of separate analysis in its own right.Each has escalation potential.But this potential is compounded, not improved, by the deteriorating state of the overall U.S.-China strategic relationship.And this, in turn, has profound implications for the stability of the regional order – a stability that has underpinned the last 40 years of unprecedented economic prosperity and which now fuels most of global growth as well. Possible Approaches to the Future of U.S.-China RelationsSo what, then, is to be done if a functioning global and regional order is to be preserved for the future?This question can only ultimately be resolved between Washington and Beijing.The divisions between them are clear.And while these are less pronounced globally at present than they are regionally, the trend is clear.For these reasons, as I have recently argued in my report entitled U.S.-China 21 completed at the Harvard Kennedy School over the last twelve months, the time has come for these two powers to consider a common strategic framework of what I have called “constructive realism – common purpose.”This is not some sort of utopian dream.It is deeply realist in nature.It seeks to construct, for the first time, a common narrative for the two that is capable of embracing deep strategic disagreement and deep strategic collaboration at the same time, rather than making the resolution of disagreements a precondition for constructive engagement, or assuming that constructive engagement will automatically result in the resolution of long-standing differences.This framework has three conceptual and practical elements.First, it recognizes those fundamental strategic disagreements that are deeply “realist” in nature which cannot be resolved between the two under present circumstances, or for the foreseeable future, where the strategic objective is to manage these disagreements rather than to solve them.These include:

• The East China Sea;
• Taiwan;
• The South China Sea;
• The future of U.S. alliance structures in Asia;
• Human rights, the rule of law and democracy.

Second, this new framework also advocates a vigorous program of constructive strategic cooperation, including the following.Bilaterally:

• A Bilateral Investment Treaty;
• Deep cooperation on counter-terrorism threats;
• A common cyber security protocol;
• New military transparency measures to reduce accidental conflict;
• Collaboration on the ratification of the CTBT.

Regionally:

• Detailed contingency planning on North Korea;
• Deep collaboration on the implementation of any Iranian nuclear agreement;
• The long-term harmonization of regional free-trade agreements to prevent the economic bifurcation of the region;
• The evolution of the East Asia Summit into a long-term Asia Pacific Community, thereby having a regional institution capable of managing regional tensions down over time, rather than just see them escalate, by building a long-term sense of a regional security community, including the U.S. and China.

Globally:

• Collaboration on climate change both before and beyond the December Paris Conference of the Parties;
• A combined approach to global development and poverty reduction that deploys scarce global public capital to leverage private investment capital by reducing investment risk in fragile states;
• A combined approach to the reform of the G20 as the principal institution of global economic governance;
• A combined approach to UN reform, starting with failing institutions such as the WHO in the face of the continuing threat of global pandemics; and
• S. ratification of UNCLOS and China using UNCLOs mechanisms to help resolve territorial disputes with its neighbours.

The third pillar of this proposed common strategic narrative of “constructive realism” is what I call “common purpose.”This goes to the common challenges with both countries now face from outside the current global order, which increasingly will outweigh the differences the two sides have within the order.The enemies of “order” are there for all those with eyes to see:

• Violent, global jihadism seeking to destroy the very notion of secular states or any society of states;
• New weapons of mass destruction in the form of cyber terrorism, cyber crime and state-based cyber attacks against critical infrastructure;
• A new generation of global pandemics;
• Existential threats to the planet through irreversible climate change; and
• Associated crises in food, water and basic energy supply.

I argue that the diplomatic ballast and political capital derived from the implementation of such a strategic framework over time be further deployed to reform and strengthen the current order, rather than allowing it, through a process of strategic drift, to slowly die the death of a thousand cuts.I also argue that, over time, the political capital derived through constructive engagement be deployed over the long term to deal with the deeply “realist” problems in the U.S.-China relationship that cannot be solved in foreseeable future.As with 1919 and 1945, however, the future of the international order will ultimately be determined by political leaderships capable of grasping the future and acting accordingly.Or not.The alternative is to conclude that somehow we are the hapless victims of the forces of historical determinism, and that the current order is in a state of inevitable decline.Perhaps we should all be reminded afresh what the absence of order actually looks like.The uncomfortable truth is that one form of international anarchy or another has been the predominant global condition since the rise of the modern state half a millennium ago.Our common resolve should be never to return to such a condition again.    

Thank you for your kind invitation to deliver this year’s Miliband Lecture.

It is 75 years this year, and this month, since Ralph Miliband left on the last ship from Oostende to Britain in advance of Hitler’s crushing victory over the Netherlands, Belgium and France in the spring of 1940.

At its best, this country, over many centuries, has long welcomed the oppressed peoples of Europe to these islands, and its long tradition of intellectual, academic and political freedom.

It was this tradition that enabled Miliband, a self-proclaimed Marxist, to be able to research, write and teach in a country well-accustomed to the battle of ideas, and well-versed in the virtues such full-blooded intellectual engagement brings not just to the life of the mind, but also to the world of public policy.

Bacon, Hobbes, Locke, Bentham, Smith, Hume, Mill, Wollstonecraft, Spencer, Carlisle, Marx, Beatrice and Sidney Webb, Keynes, Popper, Hayek.

And that’s before we get to the high priests of the hard sciences.

The roll call is formidable.

We may love some, and hate the others.

But the intellectual ferment between them, and the academic institutions and the political environment that made such ferment possible, helped drive each to excellence in his or her field.

Such a tradition is not an historical accident.

It was not always like that, as any cursory reading of English history before the Glorious Revolution will confirm.

It is a tradition that has been hard-fought.

And it is an intellectual tradition to be cherished for the future too – a tradition that still acts as a global magnet to this great city as one of the great international cities of the 21st century.

The same too for this school.

Founded by Beatrice and Sidney Webb and the Fabians, it has always occupied a place in the hearts and minds of those of us who have labored hard in the fields for social democracy.

Seeking always to reconcile the logic of the market, the universality of social justice, the complex and often conflicting demands of sovereignty, security and international solidarity, and now the overriding challenge of the sustainability of the planet itself.

These are no small challenges.

They are indeed great challenges.

But challenges too not to be quietly swept into the international “too hard” basket.

The responsibility of social democrats is to reconcile these challenges.

Not to pretend, as some political traditions do, that half of them simply don’t exist, simply because they pose for us not just one, but in fact a growing number, of inconvenient truths.

Which is why the LSE, if we look at its disciplines, its faculty and its student body, stands out as a global school embracing a truly global agenda.

Just three years after the LSE was founded in 1895, one of its co-founders, Beatrice Webb, visited Australia to examine the progress of socialism in the Antipodes.

Beatrice was not impressed.

She had this to say about the Australian Labor Party in my home state of Queensland:

“Though the programme and policy of the Labor Party has lost some of its virulence of language, its abstract propositions have not been worked out into feasible proposals and the Party has had to content itself with cavilling at the every day administration of the Government, and screeching loudly at each reactionary measure… Altogether the political situation in Queensland is about as hopeless from a progressive point of view as it well could be…”

But that was just Queensland.

Beatrice left her most focussed vitriol for the country at large:  “As for society in Australia, it is just a slice of Great Britain and differs only slightly from Glasgow, Manchester, Liverpool and the suburbs [underlined in original] of London. Bad manners, ugly clothes, vigour and shrewdness characterize…the lower and upper middle class folk…and the richer they are the more objectionable they become…Besides vulgarity and a rather gross materialism, their worst characteristic is a lack of strenuous persistency. They are…inclined to self-indulgence and disinclined for regular work…. ‘Muddling on’ with a high standard of honour and a low standard of efficiency is the dominant note of Australian Public Life.”

Thank you Beatrice for the free character analysis.

And thank you LSE.

It would be petty of me to observe that in Queensland, we formed the first Labor Government in the world in 1899, the year after Beatrice left, so I won’t.

And it would be equally churlish to observe, so once again I won’t, that within a decade of Beatrice’s departure, we formed one of the first national Labor governments in the world with an absolute parliamentary majority, fully 15 years before Ramsay McDonald’s administration here in the UK.

So while Beatrice may have misjudged us, at least just a little, during her sojourn in the Antipodes, her judgement, together with that of her husband Sidney’s, in driving the establishment of this great institution, was sound indeed.

Not least because you’ve educated thousands of Australians here at the LSE over the last century, including the rowdy ones up the back here this evening.

A Core Argument on U.S.-China Relations

 The subject of this lecture is the rise of China and its impact on the regional and global order.

The subject is complex, but my argument is simple.

First, the strategic trajectory of U.S.-China relations, against the benchmark of the last four decades of the post-normalization relationship, is increasingly negative.

Second, the core reasons for this deterioration arise from a number of factors:

• conflicting national values and interests between the two, which are real;
• compounded by significant strategic misperceptions in both directions which also influence policy;
• as well as the absence of any common strategic narrative capable of managing deep disagreement at the same time as maximizing common interests which also exist.

Finally, I argue there is nothing determinist about the future trajectory of the U.S.-China relationship. In fact, there is an alternative strategic narrative on offer which, if agreed, could succeed in negotiating the many shoals that lie ahead for the bilateral relationship, as well as contributing to the development of a sustainable regional and global order for the future: a narrative I call “constructive realism, common purpose.”

Of course, this approach, particularly in the midst of recent developments in the East and South China Seas, leaves me in a distinct minority in an emerging strategic discourse in the United States, and to some extent in China as well, which increasingly assumes both countries are on a collision course.

This has not always been the dominant paradigm in the U.S.-China relationship. In fact it is a relatively new development in the context of the various ebbs and flows of the last 40 years. As Professor David Lampton has recently argued:

“The trend in domestic discourse in both China and the United States over the last fifteen years has been from engagement, to a light hedge, to a heavy hedge, and increasingly toward deterrence. Deterrence vocabulary leads to discussions of threat, will, capability, second-strike, and credibility. This is a far different vocabulary than the one that generally was employed during the last forty years. What worries me greatly is the gradual migration of the center of gravity of elite and popular discussion in both nations toward more extreme analyses and policy recommendations that simply feed one another. Past policy has not collapsed, but it is weakening. ”

This trend has intensified over the last six months alone.

If it continues in this direction, it will have profound implications for the future relationship between the world’s two largest economies and two largest militaries.

It also has implications for the future of the regional order in the Asia-Pacific, which contains two thirds of the world’s population, and more than half the world’s economy.

And beyond Asia, there are implications for the future of the global political and economic order as well if the U.S. and China find themselves at loggerheads over the future of the Bretton Woods institutions, the UN Security Council and other global institutions – and with conflicting interests and allegiances in other theaters of the world including Africa, Latin America and Europe.

And while the rest of the world is focussed primarily on developments in the Middle East and in Central Europe, I argue that it in Asia we are seeing new geo-political, geo-economic and geo-strategic fault tines emerge with a greater capacity fundamentally to alter the post-war order.

The current trajectory in U.S.-China relations is increasingly dangerous for us all – for China, for America and for the rest of us as well who depend on a stable, international rules-based order.

Professor Lampton argues we have reached a tipping point.

I do not go quite that far.

At least not yet.

This September’s Washington Summit between President Obama and President Xi will be critical.

Critical if we are to take a possible tipping point and transform it instead into a turning point.

Not just a tactical or temporary calming of the waters.

But rather a more fundamental turning point in the way these two great countries and civilizations approach their strategic future.

A divided future, with all its destructive simplicity.

Or a common future, recognizing all its complexity, which avoids the risks of crisis, conflict or even long-term war, and instead seeks to build a sustainable international order for all.

And that is the burden of this lecture this evening, in which I draw extensively from an article I have just written for the 70^th anniversary edition of the Chatham House publication “The World Today”.

Building an International Order is Difficult

If history is our guide, the construction and preservation of international order is no easy thing, while the construction and preservation of a genuinely global order is virtually without precedent.

History is littered with the institutional carcasses of noble attempts to impose order upon chaos – chaos which the high priests of “high realism,” from Machiavelli to Morgenthau, tell us is the “natural” condition of international politics.

Yet the prescription of these same realists for the preservation of order has as its common theme, or variations on a theme, a classical balance of power, which itself has left us carnage at an industrial scale in what for a time was called the Great War.

In these sobering years of anniversaries – 1815, the bicentenary of the Congress of Vienna; 1914, the centenary of the war to end all wars; and 1945, the 70th anniversary of the end of the world war that followed – we are haunted afresh by the ghosts of failure.

The disciples of the Concert of Europe fail to mention the violent suppression of the revolutions of 1830 and 1848, as absolute monarchies clung desperately to power.

Then there is the minor problem of the Crimean and Franco-Prussian Wars, which once again pitted the great powers against each other.

These are uncomfortable disruptions to the comforting, retrospective narrative of the century of peace that allegedly followed the Napoleonic devastation of a continent.

And that is before we add the calculated barbarism of a century of European colonialism, which subjugated much of the rest of the world with a brutality on an industrial scale that continues to influence global politics to this day.

As for 1914, and the events that followed in constructing the peace in 1919, little needs to be said.

We are, as I’ve said, well familiar with this unspeakable failure of the balance of power to preserve either peace or prosperity.

We are equally familiar with the failure of the League, in the second of the two most over-worked university examination questions of the twentieth century – the first being on the causes of the conflagration that preceded it.

So that by the time we collapsed, exhausted, amidst the ruins of 1945, we had seen in the space of thirty years the most graphic of global epitaphs written for both the Hobbesian and Kantian constructs on how to build a sustainable global peace.

Both the deep cynicism of high realism and the purported nobility of liberal internationalism lay in ruins, as did much of the world itself.

It was out of these dying embers that was born what we now blithely describe as the post-war, rules-based international order. From the outset, it represented a cocktail of liberal aspiration and realist power, crowned by the United Nations and Bretton Woods institutions, and underpinned by the reality of virtually unchallenged American military and economic might.

And despite the high-wire nuclear act that we now, equally blithely, call the “Cold War,” and the American “unipolar moment” that briefly followed it, the order, by and large, has remained fundamentally unchanged since then.

At least until now.

Order – stable or unstable, just or unjust – remains the central question of international relations, and international development.

It is as much a security question as it is an economic and social question.

And it is now also an environmental question.

If we ignore its centrality, fail to recognize the seeds of its disintegration, or else believe that “orders” are somehow inherently, mystically self-sustaining, then we fail to learn the core lesson of history, and in so doing abdicate our responsibility for the future.

The uncomfortable truth is that the current order has already lasted longer than most of its predecessors since the Treaty of Westphalia more than 350 years ago.

We therefore need to order our thinking today by asking what has fundamentally changed in world politics since 1945.

This will help us to determine what challenges the existing order’s long-standing institutional arrangements can no longer meet without institutional reform.

I argue there are three.

First, because the UN is an international society of states, decolonization over the last 70 years has seen the quadrupling in the number of states now members of the UN, rendering the prospects of global consensus on anything of substance increasingly impossible.

Second, the globalization of everything (from terrorism, finance, pollution, pandemics to unauthorized people movements), together with the incapacity of weak global and national institutions to deal with challenges which now dramatically affect the peoples of the world and not just their governments, is now inducing a crisis of global confidence in the UN, Bretton Woods and the nation state, all at the same time.

Third, the rise of China means the U.S. is no longer the unipolar economic power.

And this, in turn, gives rise to questions on how much longer the U.S. will continue to exercise dominant military power, as the military capabilities of others rise, new asymmetric war-fighting capacities emerge in cyber and in space, and questions grow about the future of American global strategic resolve, driven by its own increasingly divided polity.

The Rise of China

This returns us to the specific question of China and how China could embrace, and be embraced by, the U.S., the West and the rest to help mend, rather than fracture, an already fragile order.

The dream of Chinese reformers for nearly 125 years, in the face of foreign pressure, invasion and occupation by the West and Japan, has been to modernize China in order to restore national wealth and power.

This, too, is the vision of Xi Jinping, who defines his “China Dream” as a “Chinese restoration” or “fuxing” in order to make China “prosperous and powerful” or “fuqiang.”

What is so different about today, as opposed to any other period since 1949, is that these deep-seated Chinese national aspirations are now being realized.

Depending on the measure, purchasing power parity or market exchange rates, China is either now, or else within a decade will be, the single largest economy in the world.

Once this occurs, it will be the first time since George III that this position will be occupied by a non-English speaking, non-Western, non-liberal democratic state.

This is no small matter.

Again, if history is our guide, where economic power goes, political power and foreign policy influence soon follow.

And so the question which the rest of the world now asks is: How will China now deploy this new-found influence within the current order?

There are of course limitations to Chinese influence.

China remains domestically preoccupied with its internal political, economic, social and environmental challenges.

China also faces a formidable quantitative and qualitative gap between its own military capabilities and those of the United States which cannot be closed until mid-century, if then.

For these reasons, China has every interest in preserving the peace for the foreseeable future.

To do otherwise would risk the centrality of its continued economic transformation project, which it correctly sees as central to the sustainability of China’s long-term national power.

Yet it is clear from the public statements of President Xi Jinping over the last two years that China no longer intends to remain silent on the future of the global and regional order, which it argues it had no role in creating.

For decades under Deng Xiaoping, China’s foreign policy orthodoxy was “hide your strength, bide your time, never take the lead” or “taoguang yanghui, juebu dangtou.” 韬光养晦 决不当头

As of November 2013, this was replaced by a new commitment to a more activist foreign policy or “fenfa youwei.”

Xi now speaks of the “a new type of great power relations,” “a new type of International system,” “a new type of great power diplomacy with Chinese characteristics,” and a “struggle for the future international order.”

China’s Impact on the Global Order

But beyond these generalities, what can be usefully said about China’s aspirations for the future of the global order?

I argue there are at least ten important trends to note:

1. China recognizes that it has benefitted from the current order so far, particularly in facilitating the export-based growth over 30 years that has under-pinned China’s economic rise;

2. China at the same time resents and rejects the U.S. notion of China needing to become “a responsible global stakeholder,” which it sees as condescending in its assumption that China is not one at present;

3. China nonetheless has no interest in any fundamental repudiation of the existing global order, not least because it is highly wary of its own over-reach, and does not at this stage see itself as an “indispensable” global power in the unique provision of global public goods;

4. Chinese think tanks are nonetheless hard at work on China’s future role in the order. However, it would be wrong to conclude that China at this stage has an agreed internal blueprint for the systematic reform of the order, or of any alternative order;

5. China, notwithstanding the above, is now likely to become an increasingly active voice in the normal review processes of the international system, in pursuit of its general organizing principle of advocating greater “multipolarity” in international institutions, which is none-too-subtle code language for less American power;

6. China’s position in this is strengthened by the growing international support it is securing in the G77, reinforced by China’s expanding economic assistance program and growing foreign direct investment across the developing world;

7. China has long seen the UN, particularly the Security Council, as an asset to its own international influence, as well as a useful vehicle for developing an increasingly “multipolar order,” and therefore has little interest in the UN becoming less relevant over time. In fact it has the reverse view;

8. For similar reasons, China has welcomed its role in the G20, and is more likely to seek to expand its global influence over time, including under its 2016 presidency;

9. As for the Bretton Woods Institutions, China is smarting following the refusal of the U.S. Senate to increase its IMF quota, despite this having the support of both the G20 and the IMF member states;

10. In part for these reasons, China has decided to establish the Asian Infrastructure Investment Bank outside the Bretton Woods framework, and it is possible that China will further innovate in the international financial and economic domain where its global strength is greatest.

Each of these thematics proceeds from the premise of China’s growing global economic power.

This in turn places an absolute premium on the success or otherwise of the transformation of China’s economic growth model – a process that has formally been underway now for the last two years, and where many obstacles have so far been encountered.

But assuming this transformation process broadly succeeds, China’s global financial and economic influence will continue to increase.

Not just in trade, where it is already the world’s largest trading country.

Not just in investment, where it is now the world’s second largest source of FDI and rising.

But increasingly in the internationalization of its currency.

First, in trade transactions, where the RMB rather than the dollar is now the currency of exchange for 15% of trade, and rising.

Second, where the debate now begins. On the future status of the RMB as one of the basket of only four currencies that make up the Strategic Drawing Rights or SDRs of the IMF.

Third, the future debate, but not too far into the future, of the liberalization of the Chinese capital account, in order to become a fully-fledged global reserve currency, potentially challenging the current status of the U.S. dollar.

These are not small policy challenges.

They are large ones.

And unless these challenges are resolved collaboratively, there is potential for considerable destabilization of global currency and financial markets.

China’s Impact on the Regional Order

Chinese and U.S. interests, however, find themselves in much sharper potential conflict in Asia.

This is where their interests most directly rub up against one another – whether on questions of competing territorial claims in the East and South China Seas between China and U.S. allies, Taiwan or the Korean Peninsula.

On questions of order, as Robert Kaplan recently reminded us, geography still matters.

And it is in Asia that we see the clearest, early manifestation of the gradual bifurcation of the region: an economic Asia increasingly centered on China, and a security Asia still predominantly centered on the U.S.

On security, the U.S. has concluded that China is seeking to weaken and destroy its regional military alliances, to eventually push the U.S. out of the region and, in time, replace it with a Chinese sphere of influence.

Meanwhile, China has concluded that the U.S. is seeking to weaken, undermine and ultimately sabotage China from within, and contain China’s diplomatic freedom of maneuver from without.

China’s fundamental conviction is that the U.S. will never willingly surrender its long-held position of regional and global preeminence to China.

As for the regional economic order, China’s dominance over the U.S. in every single bilateral trading relationship in Asia, its deployment of the AIIB, the Silk Road Investment Fund, together with the normal operation of its sovereign wealth funds across the region, are creating a new economic reality in the region of which most in the Washington political elite remain blissfully unaware.

The economic reality in Asia is literally changing under America’s feet.

At the same time, the region runs the prospect of becoming further divided economically with sharpening battle lines between Washington’s Trans Pacific Partnership (TPP) excluding China on the one hand, and Beijing’s advocacy for a Free Trade Area for Asia and the Pacific (FTAAP) on the other.

Trade has traditionally brought Asia closer together.

For the first time in decades, it now has the prospect of further dividing the region.

Broader strategic developments across the wider region are compounding the regional stability.

I have not today elaborated on the current dispute between China and Japan on the East China Sea, other than to say that this problem has not gone away.

Nor have I elaborated on the South China Sea where Chinese island reclamation efforts have now seen a robust U.S. military response, and where the U.S. Defence Secretary’s statement last week that Chinese reclamation must now stop leaves us wondering how the U.S. will respond when China does not.

Will we now see greater use of both Subic Bay in the Philippines and Cam Ranh Bay in Vietnam by the U.S. Pacific Fleet as part of a general process of escalation?

Will this in turn lead over time to more formal basing rights as Vietnam’s and the Philippines’ reactions to China’s South China Sea policies intensify?

What we can see, however, is the increasing militarization of the South China Sea over time.

Then there is Taiwan where Presidential elections loom, where the likelihood of the return of the pro-independence DPP to power has already seen China warn of growing instability across the Taiwan Strait.

That is before we turn our focus to North Korea, which remains the largest threat to security in the wider region because of its continued nuclear weapons program and the increasing range and accuracy of its missiles.

And all this occurs in the context of the release of China’s most recent and increasingly robust Defence White Paper last week (its ninth since 1998) in which there is a  strong emphasis on “maritime military struggle and maritime preparation for military struggle.”

The report goes on to say that the “traditional [Chinese] mentality that land outweighs sea must be abandoned, and great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests.”

Each of these security challenges is worthy of separate analysis in its own right.

Each has escalation potential.

But this potential is compounded, not improved, by the deteriorating state of the overall U.S.-China strategic relationship.

And this, in turn, has profound implications for the stability of the regional order – a stability that has underpinned the last 40 years of unprecedented economic prosperity and which now fuels most of global growth as well.

Possible Approaches to the Future of U.S.-China Relations

So what, then, is to be done if a functioning global and regional order is to be preserved for the future?

This question can only ultimately be resolved between Washington and Beijing.

The divisions between them are clear.

And while these are less pronounced globally at present than they are regionally, the trend is clear.

For these reasons, as I have recently argued in my report entitled U.S.-China 21 completed at the Harvard Kennedy School over the last twelve months, the time has come for these two powers to consider a common strategic framework of what I have called “constructive realism – common purpose.”

This is not some sort of utopian dream.

It is deeply realist in nature.

It seeks to construct, for the first time, a common narrative for the two that is capable of embracing deep strategic disagreement and deep strategic collaboration at the same time, rather than making the resolution of disagreements a precondition for constructive engagement, or assuming that constructive engagement will automatically result in the resolution of long-standing differences.

This framework has three conceptual and practical elements.

First, it recognizes those fundamental strategic disagreements that are deeply “realist” in nature which cannot be resolved between the two under present circumstances, or for the foreseeable future, where the strategic objective is to manage these disagreements rather than to solve them.

These include:

• The East China Sea;
• Taiwan;
• The South China Sea;
• The future of U.S. alliance structures in Asia;
• Human rights, the rule of law and democracy.

Second, this new framework also advocates a vigorous program of constructive strategic cooperation, including the following.

Bilaterally:

• A Bilateral Investment Treaty;
• Deep cooperation on counter-terrorism threats;
• A common cyber security protocol;
• New military transparency measures to reduce accidental conflict;
• Collaboration on the ratification of the CTBT.

Regionally:

• Detailed contingency planning on North Korea;
• Deep collaboration on the implementation of any Iranian nuclear agreement;
• The long-term harmonization of regional free-trade agreements to prevent the economic bifurcation of the region;
• The evolution of the East Asia Summit into a long-term Asia Pacific Community, thereby having a regional institution capable of managing regional tensions down over time, rather than just see them escalate, by building a long-term sense of a regional security community, including the U.S. and China.

Globally:

• Collaboration on climate change both before and beyond the December Paris Conference of the Parties;
• A combined approach to global development and poverty reduction that deploys scarce global public capital to leverage private investment capital by reducing investment risk in fragile states;
• A combined approach to the reform of the G20 as the principal institution of global economic governance;
• A combined approach to UN reform, starting with failing institutions such as the WHO in the face of the continuing threat of global pandemics; and
• S. ratification of UNCLOS and China using UNCLOs mechanisms to help resolve territorial disputes with its neighbours.

The third pillar of this proposed common strategic narrative of “constructive realism” is what I call “common purpose.”

This goes to the common challenges with both countries now face from outside the current global order, which increasingly will outweigh the differences the two sides have within the order.

The enemies of “order” are there for all those with eyes to see:

• Violent, global jihadism seeking to destroy the very notion of secular states or any society of states;
• New weapons of mass destruction in the form of cyber terrorism, cyber crime and state-based cyber attacks against critical infrastructure;
• A new generation of global pandemics;
• Existential threats to the planet through irreversible climate change; and
• Associated crises in food, water and basic energy supply.

I argue that the diplomatic ballast and political capital derived from the implementation of such a strategic framework over time be further deployed to reform and strengthen the current order, rather than allowing it, through a process of strategic drift, to slowly die the death of a thousand cuts.

I also argue that, over time, the political capital derived through constructive engagement be deployed over the long term to deal with the deeply “realist” problems in the U.S.-China relationship that cannot be solved in foreseeable future.

As with 1919 and 1945, however, the future of the international order will ultimately be determined by political leaderships capable of grasping the future and acting accordingly.

Or not.

The alternative is to conclude that somehow we are the hapless victims of the forces of historical determinism, and that the current order is in a state of inevitable decline.

Perhaps we should all be reminded afresh what the absence of order actually looks like.

The uncomfortable truth is that one form of international anarchy or another has been the predominant global condition since the rise of the modern state half a millennium ago.

Our common resolve should be never to return to such a condition again.