How Trade With China Threatens Western Institutions The Economic Roots of A Political Crisis 1St Edition Robert Gmeiner Full Chapter PDF

How Trade with China Threatens
Western Institutions: The Economic

Roots of a Political Crisis 1st Edition
Robert Gmeiner
Visit to download the full and correct content document:
https://ebookmass.com/product/how-trade-with-china-threatens-western-institutions-t
he-economic-roots-of-a-political-crisis-1st-edition-robert-gmeiner/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Business, Government and Economic Institutions in China

1st Edition Xiaoke Zhang
https://ebookmass.com/product/business-government-and-economic-
institutions-in-china-1st-edition-xiaoke-zhang/
Unpacking EU Policy-Making towards China: How Member

States, Bureaucracies, and Institutions Shape its China
Economic Policy 1st ed. Edition Bas Hooijmaaijers
https://ebookmass.com/product/unpacking-eu-policy-making-towards-
china-how-member-states-bureaucracies-and-institutions-shape-its-
china-economic-policy-1st-ed-edition-bas-hooijmaaijers/
The Political Economy of the China-Pakistan Economic

Corridor Bai Gao
https://ebookmass.com/product/the-political-economy-of-the-china-
pakistan-economic-corridor-bai-gao/
The Political Economy of Normative Trade Power Europe

1st ed. Edition Arlo Poletti
https://ebookmass.com/product/the-political-economy-of-normative-
trade-power-europe-1st-ed-edition-arlo-poletti/
Living with the Party: How Leisure Shaped a New China
Yifan Shi
https://ebookmass.com/product/living-with-the-party-how-leisure-
shaped-a-new-china-yifan-shi/
A Sketch of the World After the COVID-19 Crisis: Essays

on Political Authority, The Future of Globalization,
and the Rise of China 1st ed. Edition Jean-François
Caron
https://ebookmass.com/product/a-sketch-of-the-world-after-the-
covid-19-crisis-essays-on-political-authority-the-future-of-
globalization-and-the-rise-of-china-1st-ed-edition-jean-francois-
caron/
Political Economy Of Capitalisms 1st Edition Robert

Boyer
https://ebookmass.com/product/political-economy-of-
capitalisms-1st-edition-robert-boyer/
A Geo-Economic Turn in Trade Policy?: EU Trade

Agreements in the Asia-Pacific Johan Adriaensen
https://ebookmass.com/product/a-geo-economic-turn-in-trade-
policy-eu-trade-agreements-in-the-asia-pacific-johan-adriaensen/
A Geo Economic Turn In Trade Policy: Eu Trade

Agreements In The Asia Pacific Johan Adriaensen
https://ebookmass.com/product/a-geo-economic-turn-in-trade-
policy-eu-trade-agreements-in-the-asia-pacific-johan-
adriaensen-2/
How Trade with
China Threatens
Western Institutions
The Economic Roots
of a Political Crisis
robe rt gm e i n e r
How Trade with China Threatens Western
Institutions
Robert Gmeiner
How Trade
with China Threatens
Western Institutions
The Economic Roots of a Political Crisis
Robert Gmeiner
Methodist University
Fayetteville, NC, USA
ISBN 978-3-030-74708-4 ISBN 978-3-030-74709-1 (eBook)

https://doi.org/10.1007/978-3-030-74709-1
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2021
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
For Carmel, who was endlessly patient and supportive through the countless
hours I spent writing this book.
Preface
China’s perception among Western countries has changed much in recent

years. China itself, however, has been remarkably consistent in its goals
and aims. Views in the West have begun to change as China has become
more assertive. China’s assertiveness is more of a reflection of its growth
and newfound stature than any change of policy or attitudes of its leaders.
It was once commonly believed that trade between China and the West
would help China liberalize. Few major Western leaders seem to believe
that anymore, although there is no clear consensus on what should be
done. This book makes the case that, instead of causing China to adopt
the West’s model, trade has caused Chinese influence to grow in the West
to the detriment of deeply held Western ideals of free markets, freedom of
expression, property rights, and democratic political institutions. In addi-
tion to chronicling the rise of Chinese influence in the West, this book
explains the reasons why it has happened, which are inextricably linked to
the welfare gains from trade.
Fayetteville, USA Robert Gmeiner
vii
Contents
1 Introduction 1
References 6
2 China’s Economy and Success Without Freedom 7
From Starvation to Superpower: Evolution of China’s
Overall Economic Approach 7
Decentralization of State Economic Control 8
Economic Incentives and Outcomes under Decentralized
Planning 9
The Sino-Soviet Split: A Harbinger of China’s Intentions 10
Illusory Reforms Under Deng Xiaoping 11
Socialism Without Soviet Characteristics 12
Rapprochement with the United States 13
Freedom? Just Economic Incentives and Political
Repression 14
Incomplete Nature of Reforms 16
The Tiananmen Square Massacre and a New Era
of Repression 19
Naivete of the West—Trade and Political Freedom 20
The Current Economic Landscape of China 22
State Planning—Still an Integral Part of China’s
Economy 25
What Do “Property Rights” Entail in China? 26
Foreign Direct Investment—One Part of the Growth Strategy 28
ix
x CONTENTS
Currency and Banking 31

Debt and Asset Bubbles 35
Intellectual Property, Innovation, and Technological
Advance 36
Mercantilism with Chinese Characteristics 36
The Chinese Approach to Intellectual Property 38
A Traditionalist and Socialist Aversion to IPRs 38
IPR Enforcement—A Persistent Challenge 39
Development of IP Law in China 41
The Belt and Road 44
What Is Not to Like About China’s Economic Model? 45
References 48
3 The American Economy and Institutions with Sino-US
Trade 55
Intellectual Property Rights and Other Economic Institutions 55
Comparative Advantage Differences 59
America—Still a Manufacturing Powerhouse 61
The United States Is Still a Leading Manufacturer 61
Output and Employment—A Major Divergence 62
American Monetary Policy: Creating and Exacerbating
Problems 63
Asset Bubbles and Supply-Side Deflationary Pressures 64
Monetary Expansion—A “Cure” That Becomes a Problem 66
Currency Devaluation—Not Just a Chinese Issue 67
China’s Currency Manipulation—A Response
to America’s 67
Direct Domestic Harm of Easy Money 68
Macroeconomic Economic Accounts 68
Whence the Capital Surplus? Imprudent Domestic Policies
or Good Investment Climate 69
A Net Debtor that Earns Net Income 71
Chinese Investment in Foreign Assets 72
The Avoidable Current Account Deficit—A Symptom,
Not a Problem 73
Bilateral Balance with China 73
Trade Balance in Intellectual Property—A Declining
Surplus 74
American Vulnerabilities 75
CONTENTS xi
Institutions in Models of International Trade 76

Economic Surplus from Many Different Institutions 78
Spillovers of the Economic Value of Institutions 79
Excludability of Institutional Value 80
Institutional Interaction Between the United States
and China 81
Trade Policy and Macroeconomic Accounts 82
The Structure of American Trade Policymaking 84
The United States Trade Representative 84
Relationship Between the USTR and Industry 85
Special 301 Report 88
Committee on Foreign Investment in the United States 90
Other Policymaking Entities 91
The Structure of Chinese Trade Policymaking 92
Comparison of US and Chinese Policymaking Structures 93
References 94
4 Specific Problems in the US-China Trade Relationship 99
Intellectual Property 99
Intellectual Property Theft—Quantifying the Problem 100
The Economics of Intellectual Property: Reasons
for a Dispute 103
Intellectual Property and Trade 105
Specifics of IP Misappropriation—Theft, Infringement,
and Extortion 105
Disguising Extortion: Joint Venture Requirements 106
Economic Espionage 108
Academia—The Source of Unsuspecting Threats 110
Talent Acquisition Programs 111
Civil-Military Integration 115
Global Advance of China’s Domestic Repression 123
Noncommercial Motives of Theft 123
Exporting Surveillance and Repression 129
Conclusion 131
References 132
5 Institutional Free Riding 141
The Source of Advantages for Countries and Firms 141
Institutions: The Root of Economic Advantage 143
xii CONTENTS
“Unfair Competition” or Natural Comparative

Advantage? 144
Institutional Differences and Nonexcludability 146
Institutional Free Riding 147
Prior Research on Trade, Institutions, and Free Riding 148
Overview of Institutional Free Riding 150
Free Riding: What It Is and What It Is Not 151
History and Examples 152
Harmless and Beneficial Free Riding 154
Multinationals: They Belong to No Single Country 154
Opportunistic Institutions 155
Feasibility of and Susceptibility to Institutional Free Riding 156
Domestic Know-How 157
Ability to Entice Acquiescence 157
Why Do Firms Acquiesce to Foreign Free Riding? 158
The Prisoner’s Dilemma 159
Market Size and Desirability for Investment 160
The Role of Trade Policy 161
Institutional Free Riding and Innovation 162
Innovation in the United States and the West 165
Economic Incentives for Continued Innovation 166
Chinese Acquisition of Innovative Firms 167
Innovation in China 169
Institutional Free Riding and Production 172
Market Structure 172
Effects on Output 173
Institutional Degeneration 174
References 175
6 Institutional Change in the West 181
Institutional Change and Pressure from China 181
Espionage Against Government and Business 183
State and Local Governments 185
The Chinese Diaspora 189
Repressed Minorities 189
Extraordinary Renditions 191
Chinese Global Soft Power 193
Political Influence in the West 194
Military Power and Territorial Expansion 195
CONTENTS xiii
Potential Claims to the West 197

China’s Economic Threats Are not Idle 199
Belt and Road Colonialism 200
Chinese Censorship in Western Countries 201
Censorship of Foreign Corporations 202
Chinese Students in the West 204
Censorship of Academia 206
Censorship of Media 211
Censorship of Western Governments 212
Censorship of Religion 213
Pollution and the Censorship of Information 216
References 218
7 Confronting the Threat 231
Domestic Policy Options 233
A Coalition of Diverse Interests 234
Monetary Policy 235
Ease the Regulatory Burden 236
Restrict Trade with China 239
Security Reasons 239
Other Export Controls 241
Strategic Advantage 243
Constrain the Subnational Governments 243
Limits on Foreign Investment 244
Boycotts and Embargoes 246
Academia 247
Internet 249
Reform American Patent Law 250
Protect Western Institutions at Home 252
Conspiracy Against Rights 253
Strengthen Poorer Communities 253
Multilateral Approaches 254
Hong Kong: A Lost Opportunity 255
International Treaties and Organizations 261
Pivot to the Asia-Pacific Region 262
A NATO for the Asia-Pacific? 263
xiv CONTENTS
Military Superiority and Alliances 264

Trade Liberalization and the Trans-Pacific Partnership 266
Alternatives to the Belt and Road Initiative 269
Caution and Unintended Consequences 270
References 270
8 Conclusion 277
The Choice Confronting the West 277
Why Did This Choice Come About? 278
The Urgency of Decision 279
Consequences 280
Index 283
Abbreviations
AIA Leahy-Smith America Invents Act of 2011

AmCham American Chamber of Commerce (in a Foreign
Country)
ASD Australian Signals Directorate
ASEAN Association of Southeast Asian Nations
ASPI Australian Strategic Policy Institute
BRI Belt and Road Initiative (China)
CAFC Court of Appeals of the Federal Circuit (United States)
CCP Chinese Communist Party
CFIUS Committee on Foreign Investment in the United States
CMC Central Military Commission (China)
CMI Civil-Military Integration (China)
CPI Consumer Price Index
CPPCC Chinese People’s Political Consultative Conference
CSAIL Computer Science and Artificial Intelligence Laboratory
(Massachusetts Institute of Technology)
CSSA Chinese Students and Scholars Association
DoD U.S. Department of Defense
DOJ U.S. Department of Justice
EFW Economic Freedom of the World Index
EU European Union
FBI U.S. Federal Bureau of Investigation
FCC U.S. Federal Communications Commission
FDI Foreign Direct Investment
FROCA Federation of Returned Overseas Chinese Associations
(China)
xv
xvi ABBREVIATIONS
GDP Gross Domestic Product

IJOP Integrated Joint Operations Platform (China)
IP Intellectual Property
IPR Intellectual Property Rights
IPRWC IPR Working Conference (China)
MIT Massachusetts Institute of Technology
MITI Ministry of International Trade and Industry (Japan)
MOFCOM Ministry of Commerce (China)
MOFTEC Ministry of Foreign Trade and Economic Cooperation
(China)
MOU Memorandum of Understanding
NATO North Atlantic Treaty Organization
NBA National Basketball Association
NDRC National Development and Reform Commission
(China)
NIPA National Intellectual Property Administration (China)
OCAO Overseas Chinese Affairs Office (China)
OECD Organization for Economic Cooperation and Develop-
ment
PBOC People’s Bank of China (China)
PLA People’s Liberation Army (China)
PTAB Patent Trial and Appeal Board (United States)
Quad Quadrilateral Security Dialogue
R&D Research and Development
SAFE State Administration for Foreign Exchange (China)
SAR Special Administrative Region (SAR)
SASAC State-Owned Assets Supervision and Administration
Committee (China)
SIPO State Intellectual Property Office (China)
SOE State-Owned Enterprise
SPC State Planning Commission (China)
THAAD Terminal High Altitude Area Defense (United States)
TPP Trans-Pacific Partnership
TRIPS Agreement on Trade-Related Aspects of Intellectual
Property
UFWD/United Front United Front Work Department (China)
UNCLOS United Nations Convention on the Law of the Sea
USPTO United States Patent and Trademark Office
USTR Office of the United States Trade Representative (U.S.)
WIPO World Intellectual Property Organization
WIV Wuhan Institute of Virology
WTO World Trade Organization
CHAPTER 1
Introduction
Now that China is a major trading nation with the world’s second-
largest economy, most if not all of the world must confront the reality
that China’s actions affect the global economy and that of many indi-
vidual countries. This necessitates economic and political decisions by
firms and governments. These decisions are made with a view toward
economic gain, political expediency, and moral philosophy. This book
highlights the ramifications of trade between China and the West that go
far beyond economic welfare gains and specifically focuses on institutions.
Succinctly, institutions are arrangements and structures that undergird
culture and society. In the West, institutions include the free market, rule
of law, freedom of expression, property rights, constitutionally limited
government, and many others.
When rapprochement began between China and the West, it was
thought that China could become a valuable counterweight to the Soviet
Union that might eventually become a free and prosperous country.
Since that time, the Soviet Union has collapsed under the weight of
economic stagnation and China has become increasingly powerful on the
global stage and repressive at home. As economic links grew between
China and the United States and other Western countries, many hoped
that China would embrace the successful Western order and liberalize
its economy and political system. Shortly after the collapse of the Soviet
Union, democratic and capitalist countries led by the United States almost
© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2021
R. Gmeiner, How Trade with China Threatens Western Institutions,
https://doi.org/10.1007/978-3-030-74709-1_1
2 R. GMEINER
completely dominated the world economy and its geopolitical order. It

seemed reasonable that trade and openness would allow other countries
to taste the prosperity and success of the West and that China would
inevitably realize the superiority of its system.
The tacit assumption in this line of thinking was that Western institu-
tions would spread along with trade and openness. It was complemented
by the notion that economic and political freedom naturally go together
with economic freedom being a starting point for eventual political liber-
alization. This view was advanced by Friedman (1962) and shared by
many prominent Western politicians after the end of the Cold War, espe-
cially concerning China. Friedman’s work was authored in the same year
that James Buchanan and Gordon Tullock published The Calculus of
Consent (1962), which became a seminal early work in public choice
theory. Buchanan and Tullock correctly pointed out that politicians act
rationally in response to incentives just like market participants, and that
special interests can exert outsized influence opposing the public interest.
These interests can be foreign or domestic, and international trade always
introduces foreign pressures into the political system. Before Friedman,
Schumpeter (1942) argued that capitalism held the seeds of its own
destruction because it would nourish an intellectual class that opposed
it. This may be the case, but the view taken in this book is that global
capitalism may carry the seeds of the destruction or erosion of free and
democratic institutions by introducing illiberal foreign influence.
There are elements of truth in what Friedman wrote, but China’s expe-
rience raises questions. It is tenuous to call China a counterexample to
Friedman’s hypothesis because China lacks both economic and political
freedom, although it has achieved economic growth. Rapid economic
growth without economic freedom counters much modern economic
thought. The reasons why it has worked are outlined in Chapter 2 of
this book. The remainder of the book focuses on the dangers that the
success of China’s approach poses for the West. Capitalism in the West
has not collapsed because of an intellectual class as Schumpeter predicted
(although many of them do oppose capitalism), but it has degenerated
because of populism and corporate rent seeking. Buchanan and Tullock
offered less in the way of predictions than observations and a theory
to explain their observations, leaving little to challenge and much room
for further thought. Their insights explain well why China’s leaders have
pursued the policies they have, why those policies have produced substan-
tial economic growth, and why Western countries have supported them
1 INTRODUCTION 3
through trade. Despite rhetorical Western opposition to China’s repres-

sive regime, trade with the West has facilitated much of the growth that
has legitimized China’s government.
China has shown that economic growth and economic freedom need
not go together, and that economic growth need not lead to political
liberalization. Trade with China has not brought freedom to China, but it
has brought illiberal influences to the West. This book looks at the reasons
for this and develops a contrary view, namely that trade with China can
lead to institutional degeneration and loss of freedom in the West. There
is no imminent risk that the United States and other Western countries
will fall prey to Chinese oppression, but trade with China can facilitate
China’s own repression, strengthen its hand globally, and lead to slow
erosion of freedom in the West.
When China began opening up to the world, it was still an industrial
backwater with little influence on the global stage, so there was no a
priori reason to think that its own institutional structure would eventu-
ally challenge the West’s. International trade has contributed to economic
development in China and material prosperity for both China and its
trading partners, but the idea that China will liberalize politically seems
far-fetched. Instead, its influence seems to be spreading in its near abroad
and on the global stage more generally. The story of China’s “opening
up” to the world is a continuing narrative of using any and all means,
ideological or not, to achieve economic growth, establish global power,
and maintain Communist Party dominance. As China’s global influence
has grown at the expense of the West’s, many countries have hesitated to
take a strong line on China for fear of losing gains from trade. Insofar
as China poses a threat to the liberal order among developed, wealthy
countries, continuing this trade only let the threat grow.
Economic literature on international trade recognizes the benefits of
trade so plainly that support of free trade is one of the issues on which
very diverse economists are most united. The mutual gains from trade
between China and the West are equally plain—Westerners (and people
all over the world) can now buy cheaper products from China, living stan-
dards in China have risen dramatically, and there is now an export market
in China for many Western products. In this context, it is worth asking
why China has not embraced a liberal democratic system like those of
the West, which are more appealing to many people than oppression. To
go further, one could question whether this liberal system is the key to
Western success and prosperity, which it may not be. These questions are
4 R. GMEINER
very reasonable given China’s continued growth and the fact that its insti-
tutions and global worldview now challenge the once-dominant liberal
Western hegemony.
Institutions undoubtedly determine a country’s trading position
because things such as the rule of law, sound monetary policy, property
rights, and ease of starting a business all affect incentives for economic
activity. Countries with these good institutional characteristics can have a
comparative advantage in producing goods and services that rely on them
(Nunn and Trefler 2014). It was once easy to think that institutional
structures common in the West were the basis for economic prosperity.
They undoubtedly facilitate the West’s prosperity, but China has shown
that although they may be a sufficient condition, they are not a neces-
sary condition. China’s novel contribution was to plainly demonstrate
that incentives for economic production and activity are what matter for
growth and development, and that these incentives can exist without the
market-oriented institutions of the West. China has created incentives for
economic activity without using Western institutional structures.
Scholarship on international trade has not looked extensively at
economic institutions and the ways in which international trade in
goods and services influences the political pressures that shape institu-
tions, although there is some mention. Likewise, economic research on
economic and political institutions has paid little, but not zero, atten-
tion to the role of international trade. The focus on static, or even
dynamic, welfare gains without looking at economic institutions and the
mutual effects of trade and institutions on each other obscures the insti-
tutional harm that can result from trading with countries that lack good
institutions. Institutional quality is not always reflected in the quantified
welfare gains from trade. This book explains why trade with China is
harmful to Western institutions and why it is difficult or impossible for the
West to have unfettered trade with China without suffering institutional
degeneration.
Economic gains from trade always exist; that is a point that has been
repeatedly demonstrated both theoretically and empirically. This book
makes no attempt to dispute that point, but instead looks at the harm that
this trade can inflict on free and inclusive institutions. This harm results
in large measure because of the economic gains from trade, not in spite of
them. Even if Western countries can avoid this harm, continued Chinese
economic growth that is facilitated by trade with the West leads to a
1 INTRODUCTION 5
growing Chinese sphere of influence, bringing others within its repressive

reach, as discussed in Chapters 4 and 6.
China is a unique country because it has economic characteristics
(outlined in Chapter 2) that make it more of a threat to Western insti-
tutions than other repressive countries. Chapters 2 and 3 are a prelude
to this book’s theoretical arguments and are vital for understanding the
danger to American and Western institutions that results from trade with
China. These two chapters lay out the institutional characteristics of the
China and the United States, respectively. China’s characteristics could
make it a strong force for liberty and pluralism if its government had those
priorities. China’s economic characteristics are what causes its influence
to spread, and this is only problematic because of the specific institu-
tions its leaders have embraced. There is no reason why trade with China
must be detrimental; it is only so because its institutional and economic
characteristics combine in a way that threatens Western innovation and
pluralistic values. In reading Chapters 2 and 3, it is essential to remember
that China as a country is distinct from its government. China’s govern-
ment is controlled by the Chinese Communist Party (CCP) and has an
agenda that is antithetical to Western values. All of the harmful things
that its government does are by choice; China’s people have a tremendous
potential for good just like the people of any other country. Nothing in
this book should be taken as a disparagement of the Chinese people or
their culture. As is common practice, this book often uses “China” as a
metonym for its government, but this is always clear from the context.
Chapter 4 follows with a discussion of specific problems in the US-
China trading relationship, showing the specific harm that trade with
China causes. In many cases, this harm differs from what is heard in Amer-
ican political rhetoric; it involves a loss of both freedom and innovative
advantage in the United States and other Western countries and growing
dominance of China in its near abroad and elsewhere.
This discussion is followed by Chapter 5, which presents a theory of
“international free riding on institutions,” or “institutional free riding.”
This theory stands apart from the discussion of the institutional char-
acteristics of the United States and China, but it is an essential part of
the book. This chapter draws on the discussion of the preceding chapters
to present a mechanism by which trade with China causes institutional
degeneration in the West. This mechanism relies on economic ideas of
rivalry and excludability from public goods theory to show why an open
trading regime allows other countries, especially China, to “free ride” on
6 R. GMEINER
their economic surplus. This free riding is distinct from trade in goods and
services that is facilitated by comparative advantage that stems from inclu-
sive institutions. The institutions that make the United States and other
Western countries innovative and successful are the same institutions that
make international trade easy. This trade is accompanied by free riding
which leads to the degeneration of economic and political institutions.
Chapter 6 validates the theory from Chapter 5 that describes instances of
this institutional degeneration. Potential policy responses are outlined in
Chapter 7.
References
Buchanan, James M., and Gordon Tullock. 1962. The Calculus of Consent:
Logical Foundations of Constitutional Democracy. Ann Arbor, MI: University
of Michigan Press.
Friedman, Milton. 1962. Capitalism and Freedom. Chicago: University of
Chicago Press.
Nunn, Nathan, and Daniel Treffler. 2014. Domestic Institutions as a Source of
Comparative Advantage. Handbook of International Economics. 4: 263–315.
Schumpeter, Joseph A. 1942. Capitalism, Socialism, and Democracy. New York:
Harper and Brothers.
CHAPTER 2
China’s Economy and Success Without

Freedom
From Starvation to Superpower: Evolution

of China’s Overall Economic Approach
China’s government structure is fundamentally different from that of any
developed Western nation and is completely dominated by the Chinese
Communist Party (CCP). The incentives for economic activity differ
sharply between China and the United States and the West. Although
China has a much freer economy than it once did, it is far from having
a traditionally capitalist structure. State-owned firms are a major part of
its business landscape (Coase and Wang 2012; Huang 2017; Univer-
sity of Alberta China Institute 2019; Yu 2019). Because the relationship
between firms and government is less clear-cut, there is more room for
a state industrial policy, which China has (GB Times 2015; Jones and
Zou 2017). Even those firms that are not state-owned are subject to
considerable state oversight, which comes in many more forms than just
command and control rules. In China, government policies in many areas
(financial system, exchange rates, FDI rules) can be shaped to suit the
interest of state-owned firms and Chinese domestic firms more generally.
A unified strategy pervades China’s economy. Although the line between
the state and the firm is blurred in China, China’s economy is about as
far from being centrally planned, at least in the Soviet model, as it is from
being a capitalist free market. An overview of the structure of China’s
economy is essential in this chapter because it is very different from both
© The Author(s), under exclusive license to Springer Nature 7

Switzerland AG 2021
R. Gmeiner, How Trade with China Threatens Western Institutions,
https://doi.org/10.1007/978-3-030-74709-1_2
8 R. GMEINER
a traditional capitalist structure and a centrally planned socialist economy.

China’s economic institutions are anything but similar to those of the
West.
Decentralization of State Economic Control

Even in the time of Mao Zedong, China’s economy was never as centrally
planned as the Soviet Union. Under Mao, private enterprise was harshly
repressed, but state enterprises were locally administered. The market
reforms after Mao further decreased centralization in some but not
all respects and introduced more market-type incentives. Although the
government tightly controlled the poor and deteriorating economy, Mao
never tried to copy the Soviet model. Mao wished for local self-sufficiency
without horizontal dependence among localities, eschewing Soviet inno-
vations like monotowns. Although locally administered, state-owned
enterprises (SOEs) worked toward goals set by the central government
but enjoyed autonomy in doing so. Despite this autonomy, Mao toler-
ated even less of a private sector than the Soviet Union, which at least
permitted some agriculture on private plots. Mao’s policy of decentraliza-
tion and self-sufficiency left a legacy that would be harnessed when Deng
Xiaoping began his economic reforms as it provided a mechanism through
which competition could be facilitated. Decentralization continues to be a
hallmark of state oversight of China’s economy (Coase and Wang 2012).
For China’s economy and governance structure more generally, decen-
tralization means geographic decentralization of administrative decision
making. There is absolutely no separation of powers. At all levels of
government, China is a one-party state that the CCP tightly controls.
Local officials have considerable autonomy but may not do anything
contrary to the wishes of the CCP. China’s economic planning approach
should be thought of as a centralized strategy with decentralized imple-
mentation. Overarching strategy permeates China’s socioeconomic plan-
ning at all levels. This stands in sharp contrast to the United States and
other decentralized Western nations such as Australia and Canada; these
countries lack an overarching economic strategy that has the force of state
planning. The degree of decentralization has varied over time, but the
major evolution of China’s approach has been to introduce accountability
and incentives at subnational levels of government to encourage economic
growth.
2 CHINA’S ECONOMY AND SUCCESS WITHOUT FREEDOM 9
Economic Incentives and Outcomes under Decentralized Planning

Under Mao, decentralization meant that local authorities had control
without responsibility for failures or credit for successes, and they didn’t
set their own goals. This culminated in the disaster of the Great Leap
Forward in which an estimated 30 million peasants died, most as a result
of a man-made famine. Local authorities did not want to displease their
overlords, so they inflated grain production totals and tried to cover
up starvation and population exodus. In the aftermath, some centraliza-
tion ensued, but it never approached the Soviet extent of the practice.
The Cultural Revolution, another atrocity of monumental proportions,
followed (Coase and Wang 2012). During this time, legal scholars were
among the persecuted groups; not only were legal institutions completely
upended during this time, but those with knowledge of law and the
functioning of such institutions were sent away for re-education (Willard
1995). The post-Mao era would involve building new legal institutions
and a new legal profession almost completely from scratch.
The mismatch between incentives of local governments and the central
government still exists today for information reporting. China is a noto-
riously difficult country for economic research. Although it is easy in the
West to attribute it to the motives of central government, the extent
of the central government’s own knowledge is questionable. Economic
growth has clearly been positive and rapid, but its precise level and distri-
bution throughout the country are not fully known; summing economic
growth figures reported by provinces produces a total that consistently
exceeds the central government’s own figure by a substantial margin
(Wang 2018). The conclusions of this book are not solely based on unre-
liable Chinese information. Much of the information used in this book
comes from the trading relationship between the American and Chinese
governments and firms and from what has been reported by foreign
journalists.
The economic stagnation of the Mao years of China’s government
can be attributed to planning, but not to central planning because
central planning was not comprehensive. Much government planning
local, which destroyed incentives for production, but it was not central-
ized. Importantly, the poor outcomes ought not to be linked to a lack
of private property because China’s subsequent economic boom under
Deng Xiaoping and his successors did not involve private property, yet
economic output and living standards rose dramatically. Although private
10 R. GMEINER
property exists to a greater extent in China that it once did, it is still a far
cry from the standards of developed Western countries. Rather, the stag-
nation can simply be linked to a lack of incentives for economic growth.
During the Mao years, one problem was that the local leaders were not
rewarded or punished for successes or failures. Not only did workers and
managers lack meaningful incentives to produce (the primary problem in
the Soviet Union), local government leaders who did the planning and
reporting lacked incentives for honesty. Lack of incentives for productive
activity is a broader, more comprehensive reason for economic stagnation
than just a lack of private property rights. In this chapter’s analysis of
the institutional characteristics of the United States and China and how
they pertain to international trade, it is critical to separate incentives from
the institution that generally creates the incentives. There are ways to
facilitate economic growth without private property, as China has shown.
Whether these are as good as the incentives generated by private prop-
erty is a debatable matter, but it is now an empirical fact that economic
growth can be generated with little private property.
The Sino-Soviet Split: A Harbinger of China’s Intentions

In 1950, Mao and Soviet leader Joseph Stalin signed the Sino-Soviet
Treaty of Friendship, Alliance, and Mutual Assistance. After Nikita
Khrushchev succeeded Stalin, Sino-Soviet relations slowly began to dete-
riorate. Stalin and Mao were eager to confront the West, but Khrushchev
quickly denounced Stalin and chose to pursue peaceful coexistence with
the West. The 1956 crackdown in Hungary showed the Khrushchev had
no plans for real liberalization, but he was not eager for armed conflict
with the West, especially in the newly inaugurated nuclear age. Mao’s
rhetoric, in contrast, became increasingly bellicose, much to Moscow’s
alarm (Pillsbury 2016). Unlike China, the Soviets continued to project
military power around the world at high cost as part of their competi-
tion with the West. The Soviets were interested in preventing expansion
of American military dominance, but not in violent, presumably nuclear,
conflict.
In September 1958, American intelligence informants (CG-5824-S,
later revealed to be two brothers, Morris Childs and Jack Childs) reported
that, concerning the ideological struggle with the West, the Chinese took
the lead, as opposed to the Soviets. The informants did not, however,
believe that the Chinese could do without Soviet help. They viewed China
as an equal partner to the USSR, which was stunning given the Soviets’
vast military and economic superiority, although Mao personally bragged
about stopping the Americans militarily in Korea. China’s leaders, led
by Mao, insisted on a tough policy toward the West, and this is evident
throughout the informants’ reports (U.S. Federal Bureau of Investigation
2011).
The Soviets perceived that China’s goal was to replace the USSR as
the dominant socialist country and then to achieve dominance over the
West. Sensing the Mao’s grandiose ambitions, which were widely held
among China’s top leaders, the Soviets became more hesitant to build
up a potential rival. This Sino-Soviet split culminated when the Chinese
double-crossed their Soviet benefactors in 1969 in a series of armed
border clashes. China’s intentions were clear to the Soviets, but less so to
the Americans. At the time, the United States viewed China as a bulwark
against the Soviet Union. China’s quest for dominance has unfolded and
become clearer over several decades, presumably because its leaders did
not want to alienate the United States as they had the Soviets by revealing
their intentions too plainly and too soon. Trade with the West, after
all, was essential to its economic growth and expanding military power
(Pillsbury 2016).
Throughout this book, it is essential to keep in mind China’s leaders’
goal of global domination. This discussion of China’s economic reforms,
its current economic landscape, and the subsequent chapters should all
be read in this context. China’s goal is not just economic gain, but domi-
nance. Economic prosperity and global trade are just steps along the
way.
Illusory Reforms Under Deng Xiaoping

Following a brief power struggle after Mao’s death, Deng Xiaoping
emerged as the paramount leader of China and ushered in a series of
reforms which shaped China’s economic development. Traces of current
allegations of China’s underhanded behavior concerning its international
trade and economic growth have their roots in Deng’s reforms. It was
easy to see that market economies outperformed socialist economies
by looking at East and West Germany or North and South Korea.
Compounding this was Deng’s acute awareness that China had been on
a path that was not leading to any semblance of a prosperous socialist
utopia. Deng’s strategy could be summarized as a cafeteria-style approach
12 R. GMEINER
to taking some things that worked from market economies and harnessing
them to advance state goals and raise living standards, while preserving his
own rule and quest for dominance. The “Leap Outward” began late in
1977 and involved many goals, some good and some bad. One that has
had a lasting impact was a new strategy to borrow money from the West
to acquire and implement new technology (Coase and Wang 2012).
Socialism Without Soviet Characteristics

After Mao, China’s government remained committed to the ideal of
socialism despite Deng’s reforms. This ideal remained in principle and
theory, but under Deng’s leadership a somewhat pragmatic approach
was adopted with a view toward ameliorating the living standards of
the population. Although becoming more open toward the West and
willing to coexist, China had still rejected the Soviet model. Under Mao,
China opposed the Soviet system as a betrayal of Marxism-Leninism after
Khrushchev denounced Stalin. By Deng’s time, China embraced some
market-oriented reforms but retained an economic structure distinct from
both the Soviet and Western models. Coexistence with the West was
part of Deng’s strategy of biding time and persisting in its ambitions
for dominance; limited market reforms served these ends. Mao cate-
gorically rejected Josip Broz Tito’s anti-Stalinist approach in Yugoslavia,
saying that he too had betrayed Marxism-Leninism by abandoning class
struggle (U.S. Federal Bureau of Investigation 2011). Deng, however,
eventually borrowed a fair amount from Tito’s playbook. State capi-
talism and the exploitation of market-type incentives were prominent
aspects of Tito’s rule which China would later borrow. Yugoslavia’s prac-
tice of organizational self-management in which workers played a role in
the management of state-owned enterprises influenced Deng and others
(Coase and Wang 2012). Despite granting autonomy to firm managers,
Yugoslavia’s economic system, which wasn’t very successful, and from
which China borrowed, did not have any meaningful private property
rights. The economic reforms were a slow process that allowed time to
test what works and learn from mistakes (Woo 1999).
The goal of acquiring advanced technology by borrowing from the
West did not last long, and China’s leaders developed some aversion to
borrowing. After a state visit to Singapore, which was populated largely
by exiled Chinese from earlier generations, Deng embraced the Singa-
porean strategy of inviting foreign direct investment (macroeconomically
similar to borrowing), setting the stage for current IP theft issues. FDI
was a better strategy for inviting growth because it facilitated knowledge
transfers to make use of foreign technology, which debt-based acquisition
did not do. Despite this increasing openness, FDI did not substantially
increase until the mid-1990s and only in the mid-2000s, after China
acceded to the World Trade Organization (WTO) in 2001, did it increase
dramatically (Coase and Wang 2012; Huang 2017).
Rapprochement with the United States

Relations between the United States and the People’s Republic of China
(hereafter referred to as China in contrast to the Republic of China which
is referred to hereafter as Taiwan) were normalized in 1976 under Pres-
ident Jimmy Carter. Early on in his tenure as president, US President
Richard Nixon viewed China as more dangerous than the Soviet Union
(Pillsbury 2016). During his 1971 meeting with Mao, Nixon said, “We,
for example, must ask ourselves—again in the confines of this room—
why the Soviets have more forces on the border facing you than on
the border facing Western Europe” (U.S. Department of State 1976).
He later came to view China as a bulwark against the Soviet Union,
a view that would persist in American administrations until the Soviet
Union collapsed. Nixon’s rapprochement with China began after what
was thought to be the height of the Sino-Soviet split when fighting had
erupted along the border. The tension between the Soviet Union and
China had not eased, and it would later emerge that the Soviet Union
considered a nuclear strike on China, only to be dissuaded by Nixon
(O’Neill 2010; Osborn and Foster 2010).
It was China, which also wanted an alliance against the Soviets,
that initiated the rapprochement, not the United States. As revealed by
declassified Central Intelligence Agency reports, the Chinese viewed the
trilateral Sino-Soviet-American hostility as an opportunity to maneuver to
their own advantage. At the time, the United States maintained diplo-
matic relations with Taiwan (which was not a democracy) and the PRC
was unwilling to negotiate until the United States supported the reunifi-
cation of Taiwan with the mainland. Realizing the usefulness of an alliance
against the Soviets, China relented on this insistence (Pillsbury 2016;
U.S. Central Intelligence Agency 1971). The CCP did not forget about
Taiwan but chose to let the matter alone for the time being. Until quite
recently, Taiwan was very safe from an invasion from the mainland because
14 R. GMEINER
of an American-equipped military and the fact that it is easier to defend

an island than to capture it. Concerning trade, former Chinese President
Hu Jintao remarked that it is cheaper to buy Taiwan though trade and
influence than to conquer it militarily (Pillsbury 2016).
Freedom? Just Economic Incentives and Political Repression

Although never tightly controlled by the central government, the power
exercised by government departments over SOEs was diminished and
firm managers were more empowered. Critical among these reforms
were the ability of firms to retain some profits and to increase produc-
tion beyond state mandates. These reforms began in Sichuan province
and were spearheaded by Zhao Ziyang, who later became the premier
of China. Remembered in the West for supporting the pro-democracy
student protestors in Tiananmen Square, for which he was purged, Zhao
was an advocate for economic freedom as well as political freedom.
Though his support for political liberalization cost him his position, his
economic reforms have had a lasting impact in China (Coase and Wang
2012; Paterson 2018). At the time of these reforms, the Soviet Union
had not yet collapsed, although it was stagnating under the weight of an
arms race. The USSR’s failure to become competitive with the West was
a final warning for the CCP that a sustainable economic structure was
needed if it was to preserve and expand its power.
Zhao’s reforms gave new incentives for productive growth to local
governments and firm managers. They could “grow out of the plan” by
producing what the central government requisitioned and then operate
in somewhat of a market environment with any remaining capacity
(Naughton 1995). This cemented the central government’s power by
entrenching support among local administrators, obtaining what it
wanted, and permitted living standards to increase through market-type
incentives. Although not privately owned and managed, these state-
owned firms had an incentive structure that did not exist in the failed
socialist economies that existed in the Soviet bloc. In time, enterprises
that were owned and operated by local governments overtook those that
were centrally owned (and still required to meet the central government’s
production goals), but locally managed. Private property was absent,
but local governments controlled the property and the firms and got to
keep income from it, thus allowing property to fulfill its market function
without private ownership. The market that developed was one in which
local governments “competed” with each other economically. Within

and among China’s local governments, the line between government
and market activity was blurred, unlike in the United States. Socialism
remained (and still remains) the stated ideal of the Chinese government,
which viewed its actions as borrowing some positive characteristics from
capitalism to save socialism from stagnation and poverty.
By the 1980s, many bright Chinese had been able to study overseas,
but very few of them returned to China. The Ministry of Education was
embarrassed by this; many officials worried that China was losing essen-
tial talent. Deng wanted to convince them to return. The Overseas Affairs
Commission of the State Council saw a chance to gradually build influ-
ence abroad. Zhao Ziyang, an economic and political liberal, suggested
that China was not losing talent when its bright citizens left, but was
just letting potential grow abroad which would be available for future
use, referring to it as “storing brain power abroad” (Zweig and Rosen
2003). The Chinese government finally came around to Zhao’s view in
the early 2000s and fully embraced it (U.S. Senate Permanent Subcom-
mittee on Investigations 2019). Zhao proved prescient, and this policy
has had powerful effects which are elaborated in Chapter 6.
During this time, most of China was still a backwater even as growth
was starting. Growth rates appeared high, and they were, but this was
not overly difficult to achieve given the low starting point that resulted
from recent decimation and a lack of growth and development before the
Second World War. Seeing greater prosperity next door in stridently capi-
talist Hong Kong, then a British colony, many Chinese illegally emigrated.
Some local leaders on the mainland near the border with Hong Kong
desired a violent crackdown, but Deng worried that this would alienate
the West. He realized that the exodus reflected a failure of the main-
land’s governance to make it a desirable place to live and saw fixing that
problem as the solution. Showing remarkable restraint and pragmatism
for an ostensibly socialist leader, Deng instead began to develop China’s
Special Economic Zones. The first of these would be in Shenzhen, adja-
cent to Hong Kong (Coase and Wang 2012). Although PRC would
assume sovereignty over Hong Kong in 1997 and retain its free market
and pluralistic political system (at least for a couple of decades), the estab-
lishment of Special Economic Zones would ultimately serve to reduce
Hong Kong’s importance to China (see Chapter 7). China’s decentral-
ized structure has encouraged local officials to attempt to develop their
own local economies and establish regional power bases at the expense
16 R. GMEINER
of other localities and the central government. Although China’s central

government is in no visible danger, this has made it more difficult for the
central government to pursue policies that are at odds with those favored
by local officials, leading to “trade wars” within China (Willard 1995).
Deng’s goal of ameliorating living standards, while undoubtedly doing
good for many people, was surely accompanied by a fair amount of self-
interest as it preserved his and his party’s position in government. This
assertion is part of basic economic theory that people, including political
officials, act in their own rational self-interest. As the 1989 Tiananmen
Square massacre would show, China’s rulers were not about to tolerate
challenges to their rule or give the people more political freedom even as
they eased their economic hardship. They did recognize, however, that
economic growth was critical to expanding their influence.
Trade between China and the United States began to grow noticeably
after 1984 when China implemented additional economic reforms and
after Deng visited President Ronald Reagan in Washington. It is not coin-
cidental that this increase in trade occurred when the Special Economic
Zones were established as they provided a desirable place for foreign
investment to take root, thus bringing more Western economic activity
under the umbrella of the CCP. This increase in trade was noticeable but
much slower than what would come later after WTO accession in 2001.
Incomplete Nature of Reforms

Government planning of the economy, whether local or central, and a
lack of property rights are not the best ways to run an economy. This
has been repeatedly demonstrated by the failures of countries that have
done it, and by the successes of those that have not. Property rights, the
rule of law, and a free market system are good ideas not because of their
intrinsic value as ideas, but because they create incentives for productive
activity. China’s government has shown its ability to create and main-
tain incentives that have caused rapid, sustained economic growth. It has
adopted neither a Western-style free market nor any of the failed models
of socialism. Termed “socialism with Chinese characteristics,” China’s
strategy maintained the ideal of socialism, at least in rhetoric, but paid
close attention to incentives for economic activity that could raise living
standards. All large-scale economic activity was and still is directed toward
achieving CCP goals. Socialism, both as an economic system and philos-
ophy, lacks a theory of wealth creation. The “Chinese characteristics” can
be thought of as the CCP’s introduction of incentives for production and

exchange, and their uniqueness is in their success, standing in contrast to
the abysmal failures of Soviet-led Eastern bloc.
Although far better than a comprehensively centrally planned system,
China’s system still did not have fully functional price signals into the
1990s because of local government involvement in the economy and the
earlier philosophy of avoiding horizontal interdependence. Through the
setting of state goals, local autonomy with responsibility, and a recog-
nition of the need to participate in the global order, China developed
a mix of incentives that could encourage economic activity without a
free market. Rather than serving individual interests like a market does,
China’s system works toward state goals and produces a surplus (or
a subservient market) to meet the wishes of the population for living
standards.
China did make some market-oriented reforms, but its rhetoric about
moving toward capitalism far exceeded its material steps to do so. Its
leaders emulated market economic incentives, but SOEs continued to play
a major role in the economy, which they still have. Government plan-
ning is still an important part of China’s modern economy. The World
Bank provided much of the expertise that informed the structuring of
the Chinese economy under Deng. Justin Lin, who served as the World
Bank’s chief economist from 2008 to 2012 and was also an economic
advisor to the Chinese Government, described the World Bank’s preem-
inent role in developing China’s economy. Despite publicly encouraging
China to adopt a free market, World Bank economists recommended that
China exploit its high savings rate and achieve productivity growth to
surpass the United States. The Bank recommended a focus on exports
(mercantilism), avoiding excessive foreign borrowing (also mercantilism),
encouraging FDI in advanced technology sectors, expanding the prac-
tices of the Special Economic Zones, and regular state planning (Lim
1985; Pillsbury 2016; Roach 2014). The World Bank is thought of as a
free market institution, and the American president traditionally appoints
its president. Its stated goal is to reduce extreme poverty (Clemens and
Kremer 2016). China, with the World Bank’s help, has shown that a free
market is not needed to achieve this goal, and has simultaneously shown
that the World Bank is not always fond of the free market.
The World Bank’s role in China’s economic development came in the
mid-1980s, shortly before the power struggle between the free market
reformers and hawks. China’s 2001 accession to the WTO was preceded
18 R. GMEINER
by fifteen years of negotiations that began in the 1980s. Many promises

that China made to win support, such as not influencing the commercial
decisions of SOEs, were hollow. At this time, however, the beginnings
of China’s intellectual property rights regime began to take shape and its
first patent law was promulgated in 1984. During this time, its interna-
tional trade was growing, but nowhere near as fast as would happen after
accession in 2001.
To put this timeframe in perspective, the 1989 Tiananmen Square
massacre took place after WTO accession negotiations were underway,
causing many other countries to question whether China could be a
decent player on the global stage (Mertha 2005; Paterson 2018). Shortly
before that, political reforms were being debated by top CCP officials
along with economic liberalization. Deng, despite some economic liberal-
ization, did not implement a free market and he was not about to tolerate
challenges to his rule and ordered a military crackdown that slaugh-
tered thousands of protestors. Following the massacre, the government
continued to carry out violent reprisals against groups associated with the
protests (Mertha 2005).
The Soviet Union collapsed shortly after Tiananmen, assuring the
Chinese that they had made a good choice by not following the Soviet
model. Western powers, led by the United States, maintained complete
hegemony over the global order for a time. Although the hawks had won
China’s power struggle, ensuring that there would be no political liber-
alization, there was still debate about China’s economic direction. Some
wanted China to privatize its SOEs like Russia did. Again, the hawks won,
and economic liberalization did not advance. The outcome would have
been starkly different had China done what Russia did, although it is
difficult to take Russia as a model for handling the post-socialist transi-
tion well given that it sold off state assets for a pittance, creating a class of
oligarchs that still dominate the Russian economy. The same likely would
have happened in China, given that according to World Bank estimates,
China’s SOEs were worth around 2 trillion yuan, but the population had
only around 1 trillion in savings. The World Bank’s recommendations
were to preserve the socialist economy and introduce the right incentives
for economic growth (Pillsbury 2016).
After somewhat of a lull, the market-oriented reforms picked up again
in 1992. Private property (real and intellectual) or other Western market
characteristics were not established, but private ownership of firms was
tolerated, and state enterprises had to operate completely under market-

type incentives. Perhaps this was viewed somewhat as a necessity as they
had been overtaken in efficiency by local governments’ enterprises and
the private businesses that already existed.
The Tiananmen Square Massacre and a New Era of Repression

To curry favor with the West and win economic and military help, Deng
had courted pro-American sentiment and his regime did liberalize things
somewhat. This culminated in the pro-democracy protests at Tiananmen
Square in Beijing and numerous smaller protests in other areas. These
protests came extremely close to destabilizing the CCP regime and nearly
led to real democratic reforms. Deng even believed that the United States
had encouraged the protests. A Chinese defector with ties to the Polit-
buro later revealed to American authorities that there had been a power
struggle within the CCP from 1986 until 1989. Officials at the highest
levels sincerely debated meaningful democratic reforms. The hawkish
elements of the CCP won by causing Deng, known to be paranoid, to
panic. Deng fully embraced the hawkish elements of his party and ordered
the military to brutally crush the protests. He subsequently purged CCP
leaders in support of reform, even consigning Zhao Ziyang (who had
been General Secretary of the CCP) to house arrest, where he remained
until his death in 2005 (Pillsbury 2016). Wen Jiabao, the future premier
of China from 2003 to 2013 under President Hu Jintao, was close to
Zhao and was perceived as a liberal but survived the post-Tiananmen
purges because of his loyalty to Deng. Later, as premier, he read Adam
Smith and seriously contemplated political reforms, even advocating for
them in the People’s Daily. After a stern reprimand, he backed down
(Roach 2014). The CCP has no tolerance for political reform, even when
there is mild support from a high-ranking, popular leader.
China’s surveillance state is now a well-known fact along with its
history of repression of dissidents, even those who pose little threat.
Against this backdrop, it may surprise Western readers to know that
China’s government tacitly allowed many student protestors to come
to Beijing to join the large protests at Tiananmen Square. It made no
effort to stop them. The government controlled the railways and allowed
students to travel for free (Coase and Wang 2012). This would be
unthinkable in China today. To maintain power and send a clear signal,
20 R. GMEINER
a violent crackdown made political sense despite its moral reprehensi-

bility. Western leaders condemned the crackdown, but ultimately took no
substantive action toward China.
China focused inward, restricting freedom and activities that could
lead to political unrest, which include the successful erasure and preven-
tion of any mention of the public mention of the massacre. Although
China’s government does not actively use physical violence against most
of its population outside certain areas, it maintains its grip on power
through the threat of force, like all governments. It is very willing to
use this violent power, like all governments, but differs in its ability
to control domestic dissemination of knowledge about its use. The full
extent of China’s repression is not known inside or outside of China. This
inward focus and restriction of personal and political freedom designed
to complement the economic that would mitigate a desire to protest. It
is little wonder that the hukou registration system, which had its roots
before the communist revolution, has survived even as most policies from
the Mao era have been jettisoned. Combined with China’s other repres-
sive tactics, the necessity of the hukou system for preventing protests and
uprisings may be lacking, but it remains in force.
Naivete of the West—Trade and Political Freedom

Many liberal Western leaders expressed clear hopes and expectations that
China’s increasing involvement in global trade, which would accom-
pany WTO accession, would result in political liberalization. This was
one stated reason for supporting China’s accession. Such sentiments
were echoed by US Presidents Bill Clinton and George W. Bush, Secre-
tary of State Madeleine Albright, and Mike Jendrzejczsyk of Human
Rights Watch (Albright 2000; Bush 2001; Clinton 2000; Jendrzejczsyk
2000). Clinton stated, “Now of course, bringing China into the WTO
doesn’t guarantee that it will choose political reform. But accelerating the
progress — the process of economic change will force China to confront
that choice sooner, and it will make the imperative for the right choice
stronger.”
Chinese leaders made no effort publicly to contradict these sentiments,
but experience has shown that they had other things in mind. Jendrze-
jczsyk had the foresight to see that WTO membership and increasing
trade would not change China’s human rights record by themselves.
He thought they were an important step when combined with pres-

sure from outside China and thought that there should be meaningful
reforms before normalizing trade with China. His recommendations
went unheeded. Jendrzejczsyk also recognized China’s desire for Amer-
ican technology. Naturally, those with economic interests in more trade
with China (multinational corporations) and in less (organized labor)
pushed for their respective desired outcomes, often invoking human rights
justifications for their views (Jendrzejczsyk 2000).
No political liberalization ensued. It is probably true that increasing
prosperity gave rise to demands for political freedom culminating in the
student protests of 1989, but China has plainly shown that it is a mistake
to believe economic prosperity must result in political freedom. Indeed,
China has shown incredible capacity to contain and repress dissent while
still facilitating more economic growth. From a public choice perspec-
tive, this is a shrewd, effective calculus. Economic prosperity generates a
desire for political freedom, but if it can effectively be repressed and the
prosperity is great enough (or increasing fast enough), those who desire
freedom may reasonably conclude that they are better off pursuing apolit-
ical economic activity and thus taking the rising living standards instead
of fighting for political rights.
China’s rulers understand this need for prosperity very well. The
success of their strategy ought not to be underestimated, especially when
combined with extensive surveillance capacities and control over social
and political activity. The substantial economic growth coupled with an
ability to stop political dissent before it takes root has proven so potent
at maintaining the Chinese regime’s power that it does not even have to
use Tiananmen as a reminder to prospective dissidents and even officially
denies the occurrence of the massacre and suppresses information about
it. This threat of violence is realized in the parts of China where political
dissent arises or is perceived to arise, like Xinjiang and Tibet.
It would be a mistake summarily to discredit Clinton, Bush, Albright,
and many others for their view that increased global trade would lead
to political liberalization in China. Given Friedman’s (1962) analysis
and the recent history of the fall of socialism in eastern Europe, these
views seemed reasonable. In hindsight, these leaders were mistaken and
Jendrzejczsyk seems quite prescient. A major premise of this book—
which could not have been written without observing China’s very recent
history—is that international trade when institutions differ can cause
degeneration of liberal, free market institutions, and it certainly will not
22 R. GMEINER
single-handedly reform a repressive country’s institutional structure. If a

country views its institutions as important, as the West hopefully does, it is
important to stand on principle and protect them even at the expense of
some welfare gains from international trade. Whether this can be done
is a complicated public choice problem. China’s rulers have carefully
structured their country’s trading relationships to maintain its institutions.
China’s leaders attempted to give the impression that economic liberal-
ization would continue, but they never embraced the free market. China
is no test of Friedman’s argument. China ought to be contrasted with
Chile during this same time period. In 1973, Augusto Pinochet led a
military coup that overthrew Marxist Chilean President Salvador Allende.
While the World Bank was encouraging China to keep a socialist economy
and make strategic decisions to grow economically while remaining a one-
party state, Pinochet listened to the Chicago Boys and implemented many
free market reforms. He violently repressed dissent, but he brought about
the freest market economy in Latin America. In 1990, he cooperated
with the transition to democracy (but never faced justice for his atrocities)
while China’s post-Tiananmen repression was in full swing. Chile provides
a validation of Friedman’s argument that China’s leaders have made no
effort to refute. Geographically closer to China, both Taiwan and South
Korea both transitioned to democracy after developing market economies.
Singapore has not, however, despite having a market economy.
The Current Economic Landscape of China

After WTO accession, changes to economic institutions in China
continued. Many smaller SOEs were sold off, but tightened control over
those that remained, showing the CCP’s hollow commitment to keeping
the promises it made to join the WTO. The bigger SOEs were overseen
by the newly created State-Owned Assets Supervision and Administra-
tion Committee (SASAC). These SOEs competed in private markets,
responding to price signals and owned in part by foreign investors,
although the SASAC retained majority control. SASAC had the power to
hire and fire executives at these companies, which were the most impor-
tant in China’s economy (Wu 2016). Through the SASAC, the Central
Committee of the CCP selects SOE managers. Many of them are part
of the intelligence apparatus or military and they retain these affiliations
while managing SOEs (Pillsbury 2016).
Although state control over firms is a degree of socialism, it is impor-

tant to keep in mind that in many countries traditionally thought to have
free market economies, sectors such as transportation, energy, utilities,
and telecommunications are owned or controlled by the government, and
these enterprises are often statutory monopolies. Because China’s SOEs
operate in an environment with market incentives and have international
operations, the SASAC is subject to market incentives. It is not just that
these SOEs must compete with foreign companies operating on other
territory, which may not be meaningful, but that SOEs in China must
compete with other SOEs in the same sector, providing market discipline.
China’s SOEs are not state monopolies. By operating multiple firms in the
same sector on the same territory and needing to maximize shareholder
value (of the SASAC and foreign investors) as well as meet state goals, the
state disciplines its own firms with market incentives (Wu 2016). SOEs
in China are not immune to bankruptcy. Bankruptcy law has been and
at times still is very favorable to SOEs to the detriment of their credi-
tors, most of whom are state-owned banks (World Bank 2000). To some
extent, this is still true, although in 2015 Xiao Yaqing, the chairman of
the SASAC, outlined the government’s commitment to reform the SOEs
and stated that mergers and bankruptcies would be an important part of
this process (Kim and Bansal 2018). In 2020, default rates among SOEs
increased, sparking concerns of economic turmoil and speculation about
how the government will respond (He 2020). Although the government
can steer the economy, it cannot guarantee the best returns when market
pressures are present.
Through control of finance, major business deals, and bankruptcy law,
the government can tilt the playing field as it sees fit, but generally lets
many market forces operate. As a result, SASAC has been described as a
private equity fund that owns a majority stake of the economy’s largest
companies and actively controls their management. Despite the power
wielded by SASAC, privately owned firms do contribute substantially to
China’s economic growth (Lardy 2014).
The SASAC was created to consolidate control over critical economic
sectors and maintaining market discipline, but it did not substantially
renege on the long history of decentralization. Lower levels of govern-
ment have their own SASACs that report to the central government’s
SASAC. Corporate boards in the West control their companies’ major
decisions and overall direction but do not micromanage local affairs. The
SASAC is much the same in this regard, but its focus is on meeting state
24 R. GMEINER
goals as well as maximizing shareholder value. It is not fully autonomous

but is very much subservient to the CCP. The critical differences between
China’s SOEs and those of ostensibly free market countries are that there
is an SASAC to oversee China’s, which other countries lack, and that
China’s SOEs compete with other SOEs in the same sector, mimicking
market incentives (Wu 2016). These practices are ingredients in China’s
recipe for economic growth with political control and the peddling of
global influence.
China has long been accused of playing unfairly in international trade
and the existence of dispute resolution mechanisms at the WTO was
viewed as a good reason to support China’s accession. These mecha-
nisms are said to be quite effective, and US President Barack Obama
claimed during his re-election campaign that his administration had filed
more disputes against China in four years than his predecessor, President
George W. Bush, had done in two full terms. Of interest, however, is
that before 2009, developed trading countries such as the United States,
Japan, and the European Union tended to dispute with each other. Since
that time, these countries have mostly stopped disputing among them-
selves, and China is their common trade adversary and is the target of all
of these countries at the WTO (Wu 2016).
Some grievances against China, such as poor environmental and labor
standards, are real problems, but these are not the cause of an unfair
advantage, and certainly not for the long term. For unfair advantage,
issues such as IP theft are far more pressing than wages (Gan et al.
2016; Yang et al. 2010). The United States and the capitalist countries of
western Europe and east Asia (e.g., Japan and South Korea) also once had
severe problems with environmental and labor standards. A clear trend has
been observed that, as countries become more productive and wealthier,
wages tend to rise, labor standards improve, and environmental pollution
decreases. There is no a priori reason to think China will be any different.
Wages have already risen noticeably in China in real terms, and this
has caused its current account surplus to decline. This increase in wages
and living standards is arguably the primary reason that socialist revo-
lutions did not take root in industrial capitalist countries, contrary to
Karl Marx’s expectations. The high living standards enjoyed by workers in
Great Britain shocked Wang Zhen, the vice premier of China for indus-
trial development when he visited that country in 1978 expecting to find
the exploitation depicted by Marx. The increase of living standards in
China may be one reason why its government, which does not practice
free market principles, has remained in power; the CCP certainly banks
on it. After his visit to Britain, Wang advocated for a society like Britain’s,
but ruled by a communist party (Coase and Wang 2012).
State Planning—Still an Integral Part of China’s Economy

Although never strongly centralized, state planning has been a part of
China’s economy since the CCP came to power in 1949. The State Plan-
ning Commission (SPC), which existed in Mao’s time, was rechristened
the National Development and Reform Commission (NDRC) in 2003
around the same time that SASAC was created. The NDRC is responsible
for the Five-Year Plan, something common to many socialist countries.
In addition to a long and detailed overall plan, ministries, industries, and
lower levels of government have their own plans (Paterson 2018; Wu
2016). The NDRC, through the Five-Year Plan, coordinates levels of
government, sectors of the economy, and government bodies including
the SASAC, to realize central government objectives; it has not central-
ized the economic planning. Complementing the emphasis on market
competition combined with meeting government goals, the structure of
corporate conglomerates in China is designed for efficiency gains that do
not stifle competition.
China’s conglomerates tend to be vertically, not horizontally, inte-
grated and they lack the massive size of South Korea’s chaebol or Japan’s
keiretsu, at least relative to China’s entire economy. Moreover, owner-
ship links are structured so that upstream firms tend to own downstream
firms, but not vice versa. This enables entities controlling raw materials
and resources to project their influence further into the economy, and
this is by design. In instances in which one of these upstream firms is
controlled by the SASAC, the SASAC generally does not exercise direct
control over that firm’s downstream subsidiaries (Lin and Milhaupt 2013;
Wu 2016). Beyond that, the SASAC often shows considerable deference
to talented managers of SOEs. The state and the CCP exert consider-
able control, but do not micromanage. At each step of control—CCP,
the SASAC, directly controlled firm, downstream subsidiaries—the higher
step wants results from the lower step, but not necessarily specific actions
unless those actions are integral to a result. Additionally, these interde-
pendent groups of companies often include research institutes, offering
considerable efficiency gains as research that benefits one company in
26 R. GMEINER
the group likely benefits others in similar downstream industries or the

common upstream industry (Lin and Milhaupt 2013).
The state’s role in planning, ownership, and direction of important
firms exists alongside private enterprises that dominate many sectors and
it is visibly limited to ensuring that market forces (or rather, market
discipline) lead the economy to support the aims of the CCP. China’s
government has succeeded tremendously at taking useful aspects free
market system and using them to appease its population with higher living
standards while strengthening its own grip on power. The CCP’s work-
ings are not transparent, but it clearly controls the government and, by
extension SOEs and important bodies like the SASAC and NDRC. More-
over, all organizations involving more than three party members must
have a Party Committee, including private businesses and foreign-owned
firms (Wu 2016). The wishes of the CCP prevail in these places where it
has influence, but it does permit some market forces to operate.
In some cases, private companies, though the good market sense of
their managers, effectively compete with SOEs in the sectors that SASAC
controls. A few companies that are fast becoming household names in the
West like Lenovo, Huawei, and Alibaba are not SOEs. The fact that Party
Committees exist in these companies shows that the line between private
ownership and state control is very much blurred, with informal state or
party influence going far beyond formal control and ownership. It is not
reasonable in China’s current economy to assume that a firm can grow to
a large size without at least passively supporting the CCP, if not actively.
In SOEs, the Party Committee secretary and chairman of the board of
directors must be the same person (Wang and Huang 2018).
What Do “Property Rights” Entail in China?

In American jurisprudence, property rights are thought of as a bundle
of rights, typically including to varying degrees the rights to use, earn
income from, exclude from, and dispose of the property. Property
encompasses the ideas of real and intellectual property.
Property markets, or markets for these limited aspects of property
rights, were slow to develop in China. As industrialization began in the
1980s and Special Economic Zones were established, rural collective-
owned land that had been used for agriculture was taken for industrial
development. Before the market reforms, use rights to state-owned non-
agricultural land had been granted to SOEs for free. It was increases in
foreign investment that led to the development of allocation of land use

rights to foreign firms. Use rights, not complete title, to the land were
granted, but they were not indefinite and still are not. Early in this alloca-
tion process, local governments were eager to develop economically and
negotiated directly with investors instead of allowing market processes
like auctions and bidding, keeping prices low for sales that would serve
government aims. This practice lasted until 2003, although prices are
often still low because of local government intervention. Influence from
firms on local governments, which is possible because of their close links,
causes an oversupply of industrial land (Huang et al. 2019).
China has proven highly effective at harnessing some market incentives
while maintaining state control and guiding a rapidly growing economy
toward the achievement of state goals. Property rights, which are gener-
ally thought to be a sine qua non of a functioning economy, are not well
respected in China. This necessitates a division of the idea of property
into its constituent attributes relevant for economic production, essen-
tially splitting the bundle into its constituent twigs. The right to control
something and use it for production without interference is one of these
and is clearly possible in China. This is one of the “economic rights” of
property and only materially involves the concept of possession guaran-
teed by the coercive power of the state for as long as the state chooses.
Legal rights beyond economic rights are lacking in China. Whether a
property can be repurposed, used for aims contrary to those of the state,
or transferred to another entity without state approval involve rights that
encompass more than just economic use rights.
The limited role of property in China can facilitate economic growth,
according to state aims, if the government behaves consistently so that
rational economic actors have clear expectations. The government does
this, and the result is the economic activity that the CCP wants. This
view of property applies both to real and intellectual property, which are
respected to varying degrees in China. The common thread is that the
concept of property is respected insofar as it serves the state. Foreign
investors who acquire property in China must also work toward state
economic goals. The government sets these goals and implements rules
in a way that encourages FDI, thus luring foreign firms into working for
it. These rules often spread CCP influence into these foreign firms and
into their home countries.
Property rights in the West are a bulwark against state interference
because they constrain the government as much as they constrain any
28 R. GMEINER
other non-owner. English statesman William Pitt stated, “The poorest

man may in his cottage, bid defiance to all the forces of the Crown. It
may be frail, its roof may shake; the wind may blow through it; the storm
may enter; the rain may enter; but the King of England may not enter; all
his force dares not cross the threshold of the ruined tenement.”1 Property
rights in the West, especially in countries of British legal origin, allow
decentralized, individual aims to be pursued in an economy.
Treating property like China does instead of viewing it as a bundle of
legal rights as in the West presents a major public choice problem. In
China, they exist at the whim of the state and serve state goals. To realize
the economic benefit that the West enjoys from property rights, China’s
rulers need to act with consistency, which they have evidently done. The
public choice problem is in the incentives faced beyond the need to be
consistent. By deciding what property may be used for, manipulating its
prices, and facilitating purchase or use by favored parties, China’s govern-
ment exercises far more power over the direction of economic production
than any Western government. This is a mechanism by which China
implements its unified economic strategy. This level of power creates
incentives that do not exist in the West, which are compounded by the
fact that Chinese officials are accountable internally to the CCP and
higher officials, but not externally to voters. As Western firms trade with
China, and as Western governments encourage this trade, this point must
be kept in mind. Trade offers mutual benefits to the parties to a transac-
tion; any trade involving China invariably benefits the CCP and supports
its policies that are hostile to Western values.
Foreign Direct Investment---One

Part of the Growth Strategy
The FDI-focused policy of growth that replaced the earlier approach that
emphasized borrowing was complemented by export promotion. FDI can
only be attracted if there is a market for output, which means either
a large market at home, which China did not have at the time, or an
export market. At around this time in the late 1970s and 1980s, the class
struggle doctrine, common to many varieties of socialism including that
espoused by Mao, declined in popularity among China’s rulers, making
it more politically palatable to trade with foreign capitalist countries and
1 Speech in the House of Lords, in opposition to Excise Bill on perry and cider, 1763.
invite them to establish operations in China. Export promotion was not

emphasized before this time. During these years of increasing openness
and noticeable growth, but before the post-2001 takeoff, China’s rulers
focused on productivity growth as an economic goal, which visibly paid
off later (Coase and Wang 2012).
Foreign investment is a capital export that gives foreigners control over
a country’s assets. This should be an anathema to any country that wishes
to maintain state control of the economy, which is one reason why the
Eastern bloc was not very open to it. Given China’s approach, it seems like
it ought to be an anathema to its leaders as well, but as with so many traits
of their country’s economy, they have found ways to take what the market
can do and harness it to advance their own interests. A combination of
capital controls and rules that maintain broad, although not detailed, state
control and CCP influence have mitigated these problems. Despite all
the economic liberalizations since the late 1970s, foreign investment in
China, although welcome, is tightly controlled. As of 2020, the OECD
FDI Regulatory Restrictiveness Index shows that China’s FDI restrictions
are more restrictive than the United States and the OECD average in
nearly all sectors and by a large margin in most sectors. Of 84 countries
in the index, China is ranked 74th with a score of 0.214 (0.00 is the
best and 1.00 is the worst). China’s score is nearly 2.5 times larger than
that of the United States, which ranks 52nd with a score of 0.089. These
restrictions are linked to China’s misappropriation of foreign IP and are
described in detail in Chapter 4.
A country that pursues export-led growth and invites much foreign
investment can fall into the middle-income trap in which competitive
advantage is lost as costs, particularly wages, rise. Along with the rising
wages, a lack of innovation because of a lack of organic domestic invest-
ment in higher value-added industries leads to stagnation. Whether China
will fall into this middle-income trap is still uncertain, but actions it
has undertaken indicate a recognition of this risk and an attempt to
avoid it. Domestic demand for consumption has increased faster than
other countries that have fallen into this trap, implying capacity to
continue growing even as international comparative advantages fade away
(Huang 2017). Avoiding the middle-income trap will require productivity
increases, which result from innovation, and an economic structure that
is conducive to implementing these gains (Cai 2012).
IP theft, or misappropriation of foreign technology and competitive
advantage, is one of technique to avoid the middle-income trap. Chinese
30 R. GMEINER
firms with state complicity have engaged in much IP theft and, although
this may increase productivity for the time being, it does not work once
a country reaches the technological frontier. Mitigating the foreign influ-
ence that comes from reliance on FDI is one benefit China’s rulers reap
from IP theft. A foreign firm may own assets and use them, provided it
satisfies CCP wishes, but it may not own the competitive advantage it
has from proprietary technology for very long because of IP theft. As
Chapter 4 indicates, what is commonly called “IP theft” in the West
is frequently closer to “IP extortion,” although theft does take place.
China’s government steals IP in a crafty way that is designed to give
enough incentives to foreigners to keep acquiescing. As long as foreigners
acquiesce, China’s leaders can add more and more conditions, often
bringing elements of its repression to these foreign firms and their home
countries.
China incentivizes foreign companies to be export oriented. These
incentives include permitting them to retain some foreign exchange earn-
ings and exchanging export earnings at a better rate than the official
exchange rate. Most foreign companies that invested in China were
exporters. These export promotion incentives have replaced formal export
targets by the central government in many instances, although some
local governments still issue targets (Prime and Park 1997). Much of the
economic liberalization had deliberately favored coastal regions (Coase
and Wang 2012), but this gradually started to change in the mid-1990s,
although the coast remains the most developed part of China (Prime and
Park 1997). Foreign investment was initially concentrated in the coastal
regions but has since spread to other areas in China.
Inviting foreign investment has the obvious beneficial effects of intro-
ducing and disseminating foreign technology and providing needed
capital. Encouraging foreign investors to focus on exporting seems some-
what counterproductive as it may not meet the needs of the domestic
population. This is especially noteworthy in China because the value
added in China’s exports historically has not been very high, indicating
that much of the value of these exports was added in other coun-
tries that exported intermediate inputs to China, although this has been
changing, especially in the electronics industry (Huang 2017; OECD
2018). Foreign investment in China amounts to considerably less than
domestic investment, but it has been estimated that about one-third
of China’s GDP between 2009 and 2013 was due to foreign invest-
ment, after accounting for multiplier effects and subsequent supporting
domestic investments (Enright 2017; Paterson 2018).
The focus on exports was prudent because foreign markets were
wealthier and larger than the domestic market when China first opened to
international trade. Moreover, demand in these foreign markets was for
more technologically advanced products, so an export focus would ensure
that, over time, more technology could be introduced into China. This
did not happen overnight; China’s technological rise has only recently
accelerated despite opening to FDI several decades ago. The efficiency
with which foreign enterprises operated allowed for productivity gains to
be dispersed throughout the country even in industries that were not
very technologically advanced (Coase and Wang 2012). China’s pursues
strategies, outlined in Chapter 4, designed to lure Western firms into
transferring technology.
Currency and Banking

China’s economy is controlled by the state, but the control is mostly
indirect. The central government leaves much to firm managers and
local governments, with the proviso that they work toward the central
government’s goals, which are set by the CCP. The banking sector is no
exception, although the control is somewhat tighter. Regarding currency,
China is a standout exception to the norm of central bank independence
in developed economies. The People’s Bank of China (PBOC) is just as
subservient to the CCP as any government body and plays an active role
in maintaining CCP control.
China has abundant domestic capacity for investment because of a high
domestic savings rate. In 2018, China’s savings totaled 46% of GDP,
spread across households, corporations, and government, compared to
a global average of 25% and 19% in the United States (World Bank Data
2019). Setting aside the issue of whether investment causes saving or
vice versa, a high level of domestic saving means large domestic capacity
for investment, especially when there are capital controls that restrict
the outflow of money. Technology can be pirated, but it only results in
economic growth when it is accompanied by capital investment, which
cannot be pirated. Because of abundant domestic savings, China can
invest without foreign credit.
Another random document with
no related content on Scribd:
In the effort to strengthen his Ministry Perceval persuaded Lord
Sidmouth to enter the Cabinet, but only on condition that the orders
should be left an open question. Sidmouth plainly said that he would
rather give up the orders than face an American war.[221] He also
asked that the license system should be renounced. Perceval replied
that this would be a greater sacrifice than if the licenses had never
been granted.[222] Lord Sidmouth was not a great man,—Canning
despised his abilities, and the Prince of Wales called him a
blockhead;[223] but he was, except Lord Castlereagh, the only ally to
be found, and Perceval accepted him on his own terms. The new
Cabinet at once took the American question in hand, and
Castlereagh then wrote his instructions of April 10 to Foster, making
use of Bassano’s report to justify England’s persistence in the
orders; but besides this despatch Castlereagh wrote another of the
same date, in which Sidmouth’s idea took shape. If the United States
would restore intercourse with Great Britain, the British government
would issue no more licenses and would resort to rigorous
blockades.[224] This great concession showed how rapidly Perceval
lost ground; but this was not yet all. April 21 the Prince Regent
issued his formal declaration that whenever the French government
should publish an authentic Act expressly and unconditionally
repealing the Berlin and Milan Decrees, the Orders in Council,
including that of Jan. 7, 1807, should be wholly and absolutely
revoked.
Had the United States at that moment been so fortunate as to
enjoy the services of Pinkney in London, or of any man whose
position and abilities raised him above the confusion of party politics,
he might have convinced them that war was unnecessary. The mere
threat was sufficient. Sidmouth’s entrance into the Cabinet showed
the change of current, and once Perceval began to give way, he
could not stop. Unfortunately the United States had no longer a
minister in England. In July, 1811, the President ordered Jonathan
Russell to London to act as chargé until a minister should be
appointed, which he added would be done as soon as Congress
met;[225] but he changed his mind and appointed no minister, while
Jonathan Russell, seeing that Perceval commanded a majority and
was determined to maintain his system, reported the situation as
hopeless.[226]
Brougham, without taking the precaution of giving Russell the
daily information he so much needed, devoted all his energies to
pressing the popular movement against the Orders in Council.
Petition after petition was hurried to Parliament, and almost every
petition caused a new debate. George Rose, who possessed an
unhappy bluntness, in conversation with a Birmingham committee
said that the two countries were like two men with their heads in
buckets of water, whose struggle was which of the two could hold out
longest before suffocation. The phrase was seized as a catchword,
and helped agitation. April 28 Lord Stanley, in the House, renewed
the motion for a committee on the petitions against the orders.
Perceval had been asked whether he would consent to the
committee, and had refused; but on consulting his followers he found
such symptoms of disaffection as obliged him to yield rather than
face a defeat. George Rose then announced, greatly against his will,
that as a matter of respect to the petitioners he would no longer
oppose their request; Castlereagh and Perceval, cautioning the
House that nothing need be expected from the investigation,
followed Rose; while Stephen, after denouncing as a foul libel the
charge that the orders had been invented to extend the commerce of
Great Britain, also yielded to the committee “as a negative good, and
to prevent misconstruction.”
Stimulated by the threatening news from America, Brougham
pressed with his utmost energy the victory he had won. The
committee immediately began its examination of witnesses, who
appeared from every quarter to prove that the Orders in Council and
the subsequent non-importation had ruined large branches of British
trade, and had lopped away a market that consumed British products
to the value of more than ten million pounds sterling a year. Perceval
and Stephen did their best to stem the tide, but were slowly
overborne, and seemed soon to struggle only for delay.
Then followed a melodramatic change. May 11, as the prime
minister entered the House to attend the investigation, persons
about the door heard the report of a pistol, and saw Spencer
Perceval fall forward shot through the heart. By the hand of a lunatic
moved only by imaginary personal motives, this minister, who
seemed in no way a tragical figure, became the victim of a tragedy
without example in modern English history; but although England
had never been in a situation more desperate, the true importance of
Spencer Perceval was far from great, and when he vanished in the
flash of a pistol from the stage where he seemed to fill the most
considerable part, he stood already on the verge of overthrow. His
death relieved England of a burden. Brougham would not allow his
inquiry to be suspended, and the premier’s assassination rather
concealed than revealed the defeat his system must have suffered.
During the negotiations which followed, in the midst of difficulties
in forming a new Ministry, Castlereagh received from Jonathan
Russell Napoleon’s clandestine Decree of Repeal. Brougham asked,
May 22, what construction was to be put by ministers on this paper.
Castlereagh replied that the decree was a trick disgraceful to any
civilized government, and contained nothing to satisfy the conditions
required by England. Apart from the subordinate detail that his view
of the decree was correct, his remarks meant nothing. The alarm
caused by news that Congress had imposed an embargo as the last
step before war, the annoyance created by John Henry’s revelations
and Castlereagh’s lame defence, the weight of evidence pressing on
Parliament against the Orders in Council, the absence of a strong or
permanent Ministry,—these influences, gaining from day to day,
forced the conviction that a change of system must take place. June
8 Lord Liverpool announced that he had formed an Administration,
and would deal in due course with the Orders in Council. June 16
Brougham made his motion for a repeal of the orders. When he
began his speech he did not know what part the new Ministry would
take, but while he unfolded his long and luminous argument he
noticed that James Stephen failed to appear in the House. This
absence could mean only that Stephen had been deserted by
ministers; and doubt ceased when Brougham and Baring ended, for
then Lord Castlereagh—after Perceval’s death the leader of the
House—rose and awkwardly announced that the Government,
though till within three or four days unable to deliberate on the
subject, had decided to suspend immediately the Orders in Council.
Thus ended the long struggle waged for five years by the United
States against the most illiberal Government known in England
within modern times. Never since the Definitive Treaty of Peace had
America won so complete a triumph, for the surrender lacked on
England’s part no element of defeat. Canning never ceased taunting
the new Ministry with their want of courage in yielding without a
struggle. The press submitted with bad grace to the necessity of
holding its tongue. Every one knew that the danger, already almost a
certainty, of an American war chiefly caused the sudden and silent
surrender, and that the Ministry like the people shrank from facing
the consequences of their own folly. Every one cried that England
should not suffer herself to be provoked by the irritating conduct of
America; and at a moment when every word and act of the American
government announced war in the rudest terms, not a voice was
heard in England for accepting the challenge, nor was a musket
made ready for defence. The new Ministry thought the war likely to
drive them from office, for they were even weaker than when
Spencer Perceval led them. The “Times” of June 17 declared that
whatever might be the necessity of defending British rights by an
American war, yet it would be the most unpopular war ever known,
because every one would say that with happier talents it might have
been avoided. “Indeed,” it added, “every one is so declaring at the
present moment; so that we who have ever been the most strenuous
advocates of the British cause in this dispute are really overwhelmed
by the general clamor.” Bitter as the mortification was, the headlong
abandonment of the Orders in Council called out reproaches only
against the ministers who originally adopted them. “We are most
surprised,” said the “Times” of June 18, “that such acts could ever
have received the sanction of the Ministry when so little was urged in
their defence.”
Such concessions were commonly the result rather than the
prelude of war; they were not unlike those by which Talleyrand
succeeded, in 1799, in restoring friendly relations between France
and America. Three months earlier they would have answered their
purpose; but the English were a slow and stubborn race. Perhaps
that they should have repealed the orders at all was more surprising
than that they should have waited five years; but although they acted
more quickly and decidedly than was their custom, Spencer Perceval
lived three months too long. The Orders in Council were abandoned
at Westminster June 17; within twenty-four hours at Washington war
was declared; and forty-eight hours later Napoleon, about to enter
Russia, issued the first bulletin of his Grand Army.
CHAPTER XIV.
For civil affairs Americans were more or less trained; but they
had ignored war, and had shown no capacity in their treatment of
military matters. Their little army was not well organized or equipped;
its civil administration was more imperfect than its military, and its
military condition could hardly have been worse. The ten old
regiments, with half-filled ranks, were scattered over an enormous
country on garrison service, from which they could not be safely
withdrawn; they had no experience, and no organization for a
campaign, while thirteen new regiments not yet raised were
expected to conquer Canada.
If the army in rank and file was insufficient, its commanding
officers supplied none of its wants. The senior major-general
appointed by President Madison in February, 1812, was Henry
Dearborn, who had retired in 1809 from President Jefferson’s
Cabinet into the Custom-House of Boston. Born in 1751, Dearborn at
the time of his nomination as major-general was in his sixty-second
year, and had never held a higher grade in the army than that of
deputy quartermaster-general in 1781, and colonel of a New
Hampshire regiment after active service in the Revolutionary War
had ended.
The other major-general appointed at the same time was Thomas
Pinckney, of South Carolina, who received command of the Southern
Department. Pinckney was a year older than Dearborn; his military
service was chiefly confined to the guerilla campaigns of Marion and
Sumter, and to staff duty as aide to General Gates in the Southern
campaign of 1780; he had been minister in England and Envoy
Extraordinary to Spain, where he negotiated the excellent treaty
known by his name; he had been also a Federalist member of
Congress in the stormy sessions from 1797 to 1801,—but none of
these services, distinguished as they were, seemed to explain his
appointment as major-general. Macon, whose opinions commonly
reflected those of the Southern people, was astonished at the
choice.
“The nomination of Thomas Pinckney for major-general,” he wrote,
[227] “is cause of grief to all men who wish proper men appointed; not
that he is a Federal or that he is not a gentleman, but because he is
thought not to possess the talents necessary to his station. I imagine
his nomination must have been produced through the means of P.
Hamilton, who is about as fit for his place as the Indian Prophet would
be for Emperor of Europe. I never was more at a loss to account for
any proceeding than the nomination of Pinckney to be major-general.”
Even the private report that Pinckney had become a Republican
did not reconcile Macon, whose belief that the “fighting secretaries”
would not do for real war became stronger than ever, although he
admitted that some of the military appointments were supposed to
be tolerably good.
Of the brigadier-generals the senior was James Wilkinson, born
in 1757, and fifty-five years old in 1812. Wilkinson had recently been
tried by court-martial on a variety of charges, beginning with that of
having been a pensioner of Spain and engaged in treasonable
conspiracy; then of being an accomplice of Aaron Burr; and finally,
insubordination, neglect of duty, wastefulness, and corruption. The
court acquitted him, and February 14 President Madison approved
the decision, but added an irritating reprimand. Yet in spite of
acquittal Wilkinson stood in the worst possible odor, and returned
what he considered his wrongs by bitter and contemptuous hatred
for the President and the Secretary of War.
The next brigadier was Wade Hampton, of South Carolina, who
entered the service in 1808, and was commissioned as brigadier in
1809. Born in 1754, he was fifty-seven years old, and though
understood to be a good officer, he had as yet enjoyed no
opportunity of distinguishing himself. Next in order came Joseph
Bloomfield of New Jersey, nominated as brigadier-general of the
regular army March 27, 1812; on the same day James Winchester,
of Tennessee, was named fourth brigadier; and April 8 William Hull,
of Massachusetts, was appointed fifth in rank. Bloomfield, a major in
the Revolutionary War, had been for the last ten years Governor of
New Jersey. Winchester, another old Revolutionary officer, originally
from Maryland, though mild, generous, and rich, was not the best
choice that might have been made from Tennessee. William Hull,
civil Governor of Michigan since 1805, was a third of the same class.
All were sixty years of age or thereabout, and none belonged to the
regular service, or had ever commanded a regiment in face of an
enemy.
Of the inferior appointments, almost as numerous as the
enlistments, little could be said. Among the officers of the regiment of
Light Artillery raised in 1808, after the “Chesapeake” alarm, was a
young captain named Winfield Scott, born near Petersburg, Virginia,
in 1786, and in the prime of his energies when at the age of twenty-
six he saw the chance of distinction before him. In after life Scott
described the condition of the service as he found it in 1808.
“The army of that day,” he said,[228] “including its general staff, the
three old and the nine new regiments, presented no pleasing aspect.
The old officers had very generally sunk into either sloth, ignorance, or
habits of intemperate drinking.... Many of the appointments were
positively bad, and a majority of the remainder indifferent. Party spirit
of that day knew no bounds, and of course was blind to policy.
Federalists were almost entirely excluded from selection, though great
numbers were eager for the field, and in New England and some other
States there were but very few educated Republicans; hence the
selections from those communities consisted mostly of coarse and
ignorant men. In the other States, where there was no lack of
educated men in the dominant party, the appointments consisted
generally of swaggerers, dependants, decayed gentlemen, and
others, ‘fit for nothing else,’ which always turned out utterly unfit for
any military purpose whatever.”
This account of the army of 1808 applied equally, said Scott, to
the appointments of 1812. Perhaps the country would have fared as
well without a regular army, by depending wholly on volunteers, and
allowing the States to choose general officers. In such a case
Andrew Jackson would have taken the place of James Winchester,
and William Hull would never have received an appointment from
Massachusetts.
No one in the government gave much thought to the military
dangers created by the war, yet these dangers seemed evident
enough to warrant keen anxiety. The sea-shore was nowhere
capable of defence; the Lakes were unguarded; the Indians of the
Northwestern Territory were already in arms, and known to be
waiting only a word from the Canadian governor-general; while the
whole country beyond the Wabash and Maumee rivers stood nearly
defenceless. At Detroit one hundred and twenty soldiers garrisoned
the old British fort; eighty-five men on the Maumee held Fort Wayne;
some fifty men guarded the new stockade called Fort Harrison, lately
built on the Wabash; and fifty-three men, beyond possibility of
rescue, were stationed at Fort Dearborn, or Chicago; finally, eighty-
eight men occupied the Island of Michillimackinaw in the straits
between Lake Huron and Lake Michigan. These were all the military
defences of a vast territory, which once lost would need another war
to regain; and these petty garrisons, with the settlers about them,
were certain, in the event of an ordinary mischance, to be scalped as
well as captured. The situation was little better in the South and
Southwest, where the Indians needed only the support of a British
army at New Orleans or Mobile to expel every American garrison
from the territory.
No serious preparations for war had yet been made when the war
began. In January, Congress voted ten new regiments of infantry,
two of artillery, and one of light dragoons; the recruiting began in
March, and in June the Secretary of War reported to Congress that
although no returns had been received from any of the recruiting
offices, yet considering the circumstances “the success which has
attended this service will be found to have equalled any reasonable
expectations.”[229] Eustis was in no way responsible for the failure of
the service, and had no need to volunteer an opinion as to the
reasonable expectations that Congress might entertain. Every one
knew that the enlistments fell far below expectation; but not the
enlistments alone showed torpor. In February, Congress authorized
the President to accept fifty thousand volunteers for one year’s
service. In June, the number of volunteers who had offered
themselves was even smaller than that of regular recruits. In April,
Congress authorized the President to call out one hundred thousand
State militia. In June, no one knew whether all the States would
regard the call, and still less whether the militia would serve beyond
the frontier. One week after declaring war, Congress fixed the war
establishment at twenty-five regiments of infantry, four of artillery, two
of dragoons, and one of riflemen,—making, with the engineers and
artificers, an army of thirty-six thousand seven hundred men; yet the
actual force under arms did not exceed ten thousand, of whom four
thousand were new recruits. Toward no part of the service did the
people show a sympathetic spirit before the war was declared; and
even where the war was most popular, as in Kentucky and
Tennessee, men showed themselves determined to fight in their own
way or not at all.
However inexperienced the Government might be, it could not
overlook the necessity of providing for one vital point. Detroit claimed
early attention, and received it. The dangers surrounding Detroit
were evident to any one who searched the map for that remote
settlement, within gunshot of British territory and surrounded by
hostile Indian tribes. The Governor of Michigan, William Hull, a
native of Connecticut, had done good service in the Revolutionary
War, but had reached the age of sixty years without a wish to resume
his military career. He preferred to remain in his civil post, leaving to
some officer of the army the charge of military operations; but he
came to Washington in February, 1812, and urged the Government
to take timely measures for holding the Indians in check. He advised
the President and Cabinet to increase the naval force on Lake Erie,
although he already had at Detroit an armed brig ready to launch,
which he thought sufficient to control the upper lakes. The subject
was discussed; but the delay necessary to create a fleet must have
risked, if it did not insure, the loss of the whole Northwestern
Territory, and the President necessarily decided to march first a force
to Detroit strong enough to secure the frontier, and, if possible, to
occupy the whole or part of the neighboring and friendly British
territory in Upper Canada. This decision Hull seems to have
suggested, for he wrote,[230] March 6, to Secretary Eustis,—
“A part of your army now recruiting may be as well supported and
disciplined at Detroit as at any other place. A force adequate to the
defence of that vulnerable point would prevent a war with the
savages, and probably induce the enemy to abandon the province of
Upper Canada without opposition. The naval force on the Lakes would
in that event fall into our possession, and we should obtain the
command of the waters without the expense of building such a force.”
This hazardous plan required energy in the American armies,
timely co-operation from Niagara if not from Lake Champlain, and,
most of all, assumed both incompetence and treason in the enemy.
Assuming that Hull would capture the British vessels on the Lakes,
the President made no further provision for a fleet; but, apparently to
provide for simultaneous measures against Lower Canada, the
Secretary of War sent to Boston for General Dearborn, who was to
command operations on Lake Ontario and the St. Lawrence River.
Dearborn hastened to Washington in February, where he remained
until the last of April. He submitted to the Secretary of War what was
called a plan of campaign,[231] recommending that a main army
should advance by way of Lake Champlain upon Montreal, while
three corps, composed chiefly of militia, should enter Canada from
Detroit, Niagara, and Sackett’s Harbor. Neither Dearborn, Hull,
Eustis, nor Madison settled the details of the plan or fixed the time of
the combined movement. They could not readily decide details
before Congress acted, and before the ranks of the army were filled.
While these matters were under discussion in March, the
President, unable to find an army officer fitted to command the force
ordered to Detroit, pressed Governor Hull to reconsider his refusal;
and Hull, yielding to the President’s wish, was appointed, April 8,
1812, brigadier-general of the United States army, and soon
afterward set out for Ohio. No further understanding had then been
reached between him and Dearborn, or Secretary Eustis, in regard
to the military movements of the coming campaign.
The force destined for Detroit consisted of three regiments of
Ohio militia under Colonels McArthur, Findlay, and Cass, a troop of
Ohio dragoons, and the Fourth Regiment of United States Infantry
which fought at Tippecanoe,—in all about sixteen hundred effective
men, besides a few volunteers. April 1 the militia were ordered to
rendezvous at Dayton, and there, May 25, Hull took command. June
1 they marched, and June 10 were joined at Urbana by the Fourth
Regiment. Detroit was nearly two hundred miles away, and the army
as it advanced was obliged to cut a road through the forest, to bridge
streams and construct causeways; but for such work the militia were
well fitted, and they made good progress. The energy with which the
march was conducted excited the surprise of the British authorities in
Canada,[232] and contrasted well with other military movements of
the year; but vigorous as it was it still lagged behind events. Hull had
moved only some seventy-five miles, when, June 26,[233] he
received from Secretary Eustis a despatch, forwarded by special
messenger from the Department, to warn him that war was close at
hand. “Circumstances have recently occurred,” wrote Secretary
Eustis, “which render it necessary you should pursue your march to
Detroit with all possible expedition. The highest confidence is
reposed in your discretion, zeal, and perseverance.”
THE
SEAT OF WAR ABOUT LAKE ERIE.
Engraved from a Map Published
by John Conrad.
Struthers & Co., Engr’s, N. Y.
The despatch, dated June 18, was sent by the secretary on the
morning of that day in anticipation of the vote taken in Congress a
few hours later.[234] Hull had every reason to understand its
meaning, for he expected to lead his army against the enemy. “In the
event of hostilities,” he had written June 24,[235] “I feel a confidence
that the force under my command will be superior to any which can
be opposed to it. It now exceeds two thousand rank and file.” On
receiving the secretary’s pressing orders Hull left his heavy camp-
equipage behind, and hurried his troops to the Miami, or Maumee,
River thirty-five miles away. There he arrived June 30, and there, to
save transportation, loading a schooner with his personal baggage,
his hospital stores, entrenching tools, and even a trunk containing
his instructions and the muster-rolls of his army, he despatched it,
July 1, up the Lake toward Detroit. He took for granted that he
should receive from his own government the first notice of war; yet
he knew that the steamboat from New York to Albany and the road
from Albany to Buffalo, which carried news to the British forces at
Malden, was also the regular mode of conveyance for Detroit; and
he had every reason to suspect that as his distance in time from
Washington was greater, he might learn of war first from actual
hostilities. Hull considered “there was no hazard” in sending his most
valuable papers past Malden;[236] but within four-and-twenty hours
he received a despatch from Secretary Eustis announcing the
declaration of war, and the same day his schooner was seized by the
British in passing Malden to Detroit.
This first disaster told the story of the campaign. The declaration
made at Washington June 18 was published by General Bloomfield
at New York June 20, and reached Montreal by express June 24; the
same day it reached the British Fort George on the Niagara River
and was sent forward to Malden, where it arrived June 30. The
despatch to Hull reached Buffalo two days later than the British
express, for it went by ordinary mail; from Cleveland it was
forwarded by express, June 28, by way of Sandusky, to Hull, whom it
reached at last, July 2, at Frenchtown on the river Raisin, forty miles
below Detroit.
The slowness of transportation was made conspicuous by
another incident. John Jacob Astor, being engaged in extensive
trade with the Northwestern Indians, for political reasons had been
encouraged by government. Anxious to save the large amount of
property exposed to capture, he not only obtained the earliest
intelligence of war, and warned his agents by expresses, but he also
asked and received from the Treasury orders[237] addressed to the
Collectors on the Lakes, directing them to accept and hold such
goods as might be brought from Astor’s trading-posts. The business
of the Treasury as well as that of Astor was better conducted than
that of the War Department. Gallatin’s letters reached Detroit before
Eustis’s despatch reached Hull; and this incident gave rise to a
charge of misconduct and even of treason against Gallatin himself.
[238]
Hull reached Detroit July 5. At that time the town contained about
eight hundred inhabitants within gunshot of the British shore. The fort
was a square enclosure of about two acres, surrounded by an
embankment, a dry ditch, and a double row of pickets. Although
capable of standing a siege, it did not command the river; its
supplies were insufficient for many weeks; it was two hundred miles
distant from support, and its only road of communication ran for sixty
miles along the edge of Lake Erie, where a British fleet on one side
and a horde of savages on the other could always make it
impassable. The widely scattered people of the territory, numbering
four or five thousand, promised to become a serious burden in case
of siege or investment. Hull knew in advance that in a military sense
Detroit was a trap.
July 9, four days after his arrival, Hull received orders from
Washington authorizing him to invade Canada:—
“Should the force under your command be equal to the enterprise,
consistent with the safety of your own post, you will take possession
of Malden, and extend your conquests as circumstances may justify.”
He replied immediately the same day:[239]—

“I am preparing boats, and shall pass the river in a few days. The
British have established a post directly opposite this place. I have
confidence in dislodging them, and of being in possession of the
opposite bank.... The British command the water and the savages. I
do not think the force here equal to the reduction of Amherstburg
(Malden); you therefore must not be too sanguine.”
Three days later, July 12, his army crossed the river. Not a gun
was fired. The British militia force retired behind the Canard River,
twelve miles below, while Hull and his army occupied Sandwich, and
were well received by the inhabitants.
Hull had many reasons for wishing to avoid a battle. From the
first he looked on the conquest of Canada as a result of his mere
appearance. He began by issuing a proclamation[240] intended to
win a peaceful conquest.
“You will be emancipated,” said the proclamation to the Canadians,
“from tyranny and oppression, and restored to the dignified station of
freemen.... I have a force which will break down all opposition, and
that force is but the vanguard of a much greater.... The United States
offer you peace, liberty, and security,—your choice lies between these
and war, slavery, or destruction. Choose then; but choose wisely.”...
This proclamation, dated July 12, was spread throughout the
province with no small effect, although it contained an apparently
unauthorized threat, that “no white man found fighting by the side of
an Indian will be taken prisoner; instant death will be his lot.” The
people of the western province were strongly American, and soon to
the number of three hundred and sixty-seven, including deserters
from the Malden garrison, sought protection in the American lines.
[241] July 19 Hull described the situation in very hopeful terms:[242]—
“The army is encamped directly opposite to Detroit. The camp is

entrenched. I am mounting the 24-pounders and making every
preparation for the siege of Malden. The British force, which in
numbers was superior to the American, including militia and Indians,
is daily diminishing. Fifty or sixty (of the militia) have deserted daily
since the American standard was displayed, and taken protection.
They are now reduced to less than one hundred. In a day or two I
expect the whole will desert. The Indian force is diminishing in the
same proportion. I have now a large council of ten or twelve nations
sitting at Brownstown, and I have no doubt but the result will be that
they will remain neutral. The brig ‘Adams’ was launched on the 4th of
July. I have removed her to Detroit under cover of the cannon, and
shall have her finished and armed as soon as possible. We shall then
have the command of the upper lakes.”
To these statements Hull added a warning, which carried at least
equal weight:—
“If you have not a force at Niagara, the whole force of the province
will be directed against this army.... It is all important that Niagara
should be invested. All our success will depend upon it.”
While Hull reached this position, July 19, he had a right to
presume that the Secretary of War and Major-General Dearborn
were straining every nerve to support him; but in order to understand
Hull’s situation, readers must know what Dearborn and Eustis were
doing. Dearborn’s movements, compared day by day with those of
Hull, show that after both officers left Washington in April to take
command of their forces, Hull reached Cincinnati May 10, while
Dearborn reached Albany May 3, and wrote, May 8, to Eustis that he
had fixed on a site to be purchased for a military station. “I shall
remain here until the erection of buildings is commenced.... The
recruiting seems going on very well where it has been commenced.
There are nearly three hundred recruits in this State.”[243] If
Dearborn was satisfied with three hundred men as the result of six
weeks’ recruiting in New York State in immediate prospect of a
desperate war, he was likely to take his own duties easily; and in
fact, after establishing his headquarters at Albany for a campaign
against Montreal, he wrote, May 21, to the Secretary announcing his
departure for Boston: “As the quartermaster-general arrived here this
day I hope to be relieved from my duties in that line, and shall set out
for Pittsfield, Springfield, and Boston; and shall return here as soon
as possible after making the necessary arrangements at those
places.”
Dearborn reached Boston May 26, the day after Hull took
command at Dayton. May 29 he wrote again to Eustis: “I have been
here three days.... There are about three hundred recruits in and
near this town.... Shall return to Albany within a few days.” Dearborn
found business accumulate on his hands. The task of arranging the
coast defences absorbed his mind. He forgot the passage of time,
and while still struggling with questions of gunboats, garrisons, field-
pieces, and enlistments he was surprised, June 22, by receiving the
declaration of war. Actual war threw still more labor and anxiety upon
him. The State of Massachusetts behaved as ill as possible.
“Nothing but their fears,” he wrote,[244] “will prevent their going all
lengths.” More used to politics than to war, Dearborn for the time
took no thought of military movements.
Madison and Eustis seemed at first satisfied with this mode of
conducting the campaign. June 24 Eustis ordered Hull to invade
West Canada, and extend his conquests as far as practicable. Not
until June 26 did he write to Dearborn,[245]—
“Having made the necessary arrangements for the defence of the
sea-coast, it is the wish of the President that you should repair to
Albany and prepare the force to be collected at that place for actual
service. It is understood that being possessed of a full view of the
intentions of Government, and being also acquainted with the
disposition of the force under your command, you will take your own
time and give the necessary orders to the officers on the sea-coast. It
is altogether uncertain at what time General Hull may deem it
expedient to commence offensive operations. The preparations it is
presumed will be made to move in a direction for Niagara, Kingston,
and Montreal. On your arrival at Albany you will be able to form an
opinion of the time required to prepare the troops for action.”
Such orders as those of June 24 to Hull, and of June 26 to
Dearborn, passed beyond bounds of ordinary incapacity, and
approached the line of culpable neglect. Hull was to move when he
liked, and Dearborn was to take his own time at Boston before
beginning to organize his army. Yet the letter to Dearborn was less
surprising than Dearborn’s reply. The major-general in charge of
operations against Montreal, Kingston, and Niagara should have
been able to warn his civil superior of the risks incurred in allowing
Hull to make an unsupported movement from an isolated base such
as he knew Detroit to be; but no thought of Hull found place in
Dearborn’s mind. July 1 he wrote:[246]—
“There has been nothing yet done in New England that indicates
an actual state of war, but every means that can be devised by the
Tories is in operation to depress the spirits of the country. Hence the
necessity of every exertion on the part of the Government for carrying
into effect the necessary measures for defence or offence. We ought
to have gunboats in every harbor on the coast. Many places will have
no other protection, and all require their aid. I shall have doubts as to
the propriety of my leaving this place until I receive your particular
directions after you shall have received my letter.”
Dearborn complained with reason of the difficulties that
surrounded him. Had Congress acted promptly, a large body of
volunteers would have been already engaged, general officers would
have been appointed and ready for service, whereas no general
officer except himself was yet at any post north of New York city.
Every day he received from every quarter complaints of want of men,
clothing, and supplies; but his remaining at Boston to watch the
conduct of the State government was so little likely to overcome
these difficulties that at last it made an unfavorable impression on
the Secretary, who wrote, July 9, a more decided order from
Washington:[247]—
“The period has arrived when your services are required at Albany,
and I am instructed by the President to direct, that, having made
arrangements for placing the works on the sea-coast in the best state
of defence your means will permit, ... you will then order all the
recruits not otherwise disposed of to march immediately to Albany, or
some station on Lake Champlain, to be organized for the invasion of
Canada.”
With this official letter Eustis sent a private letter[248] of the same
date, explaining the reason for his order:—
“If ... we divide, distribute, and render inefficient the force
authorized by law, we play the game of the enemy within and without.
District among the field-officers the seaboard!... Go to Albany or the
Lake! The troops shall come to you as fast as the season will admit,
and the blow must be struck. Congress must not meet without a
victory to announce to them.”
Dearborn at Boston replied to these orders, July 13,[249] a few

hours after Hull’s army, six hundred miles away, crossed the Detroit
River into Canada and challenged the whole British force on the
lakes.
“For some time past I have been in a very unpleasant situation,
being at a loss to determine whether or not I ought to leave the sea-
coast. As soon as war was declared [June 18] I was desirous of
repairing to Albany, but was prevented by your letters of May 20 and
June 12, and since that time by the extraordinary management of
some of the governors in this quarter. On the receipt of your letter of
June 26 I concluded to set out in three or four days for Albany, but the
remarks in your letter of the 1st inst. prevented me. But having waited
for more explicit directions until I begin to fear that I may be censured
for not moving, and having taken such measures as circumstances
would permit for the defence of the sea-coast, I have concluded to
leave this place for Albany before the end of the present week unless I
receive orders to remain.”

How Trade With China Threatens Western Institutions The Economic Roots of A Political Crisis 1St Edition Robert Gmeiner Full Chapter PDF

Uploaded by

Copyright:

Available Formats

You might also like

How Trade With China Threatens Western Institutions The Economic Roots of A Political Crisis 1St Edition Robert Gmeiner Full Chapter PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

How Trade With China Threatens Western Institutions The Economic Roots of A Political Crisis 1St Edition Robert Gmeiner Full Chapter PDF

Uploaded by

Copyright:

Available Formats

How Trade with China Threatens

Western Institutions: The Economic

Business, Government and Economic Institutions in China

Unpacking EU Policy-Making towards China: How Member

The Political Economy of the China-Pakistan Economic

The Political Economy of Normative Trade Power Europe

A Sketch of the World After the COVID-19 Crisis: Essays

Political Economy Of Capitalisms 1st Edition Robert

A Geo-Economic Turn in Trade Policy?: EU Trade

A Geo Economic Turn In Trade Policy: Eu Trade

ISBN 978-3-030-74708-4 ISBN 978-3-030-74709-1 (eBook)

China’s perception among Western countries has changed much in recent

Fayetteville, USA Robert Gmeiner

Currency and Banking 31

Institutions in Models of International Trade 76

“Unfair Competition” or Natural Comparative

Potential Claims to the West 197

Military Superiority and Alliances 264

AIA Leahy-Smith America Invents Act of 2011

GDP Gross Domestic Product

© The Author(s), under exclusive license to Springer Nature 1

completely dominated the world economy and its geopolitical order. It

through trade. Despite rhetorical Western opposition to China’s repres-

growing Chinese sphere of influence, bringing others within its repressive

China’s Economy and Success Without

From Starvation to Superpower: Evolution

© The Author(s), under exclusive license to Springer Nature 7

a traditional capitalist structure and a centrally planned socialist economy.

Decentralization of State Economic Control

Economic Incentives and Outcomes under Decentralized Planning

The Sino-Soviet Split: A Harbinger of China’s Intentions

Illusory Reforms Under Deng Xiaoping

Socialism Without Soviet Characteristics

Rapprochement with the United States

of an American-equipped military and the fact that it is easier to defend

Freedom? Just Economic Incentives and Political Repression

local governments “competed” with each other economically. Within

of other localities and the central government. Although China’s central

Incomplete Nature of Reforms

be thought of as the CCP’s introduction of incentives for production and

by fifteen years of negotiations that began in the 1980s. Many promises

tolerated, and state enterprises had to operate completely under market-

The Tiananmen Square Massacre and a New Era of Repression

a violent crackdown made political sense despite its moral reprehensi-

Naivete of the West—Trade and Political Freedom

He thought they were an important step when combined with pres-

single-handedly reform a repressive country’s institutional structure. If a

The Current Economic Landscape of China

Although state control over firms is a degree of socialism, it is impor-

goals as well as maximizing shareholder value. It is not fully autonomous

State Planning—Still an Integral Part of China’s Economy

the group likely benefits others in similar downstream industries or the

What Do “Property Rights” Entail in China?

foreign investment that led to the development of allocation of land use

other non-owner. English statesman William Pitt stated, “The poorest

Foreign Direct Investment---One

invite them to establish operations in China. Export promotion was not

Currency and Banking