Examining Neo-Confucian and Neo-Liberal school of thought: A study of economic systems of the United States and China

By Abdul Wasay Ajmal

The academic study of International Relations follows on a detailed analysis on the degree of implementation of a theoretical paradigm on inter-state and intra-state interactions. Theories in themselves provide insight on questions pertaining to the cause and effects of a particular real-life phenomenon. With their general degree of acceptability, they are therefore suitable to be applied in vast real time events. The development of the International System has led to the various changes in theories and has demanded a departure from the traditional conception in International Relations. These have then led to reformed theories aiming to increase our understanding of the change in events shaping our global order. The human history of trade and commerce has been studied and recorded for as long as early Man. Trade was considered as a vital part of sharing resources based on the availability and demand of any specific item. The first recorded trade dates back to almost 3000 BC where early civilizations of the Indus Valley and Mesopotamia conducted their first foreign, long-distance trade (Whipps 2018 ). Major trading routes would soon be formed which would then continue to shape the formation of empires, conflicts and global order.

The onset of Globalization marked a radical change in the international system where in greater economic connectivity was sought in order to attain economic objectives. The first wave of Globalization was marked by the rise of the British empire as a colonial empire. The British Industrial Revolution also led to a increase in trade and commerce of essential items (Vanham 2019). The onset of Globalization also came with the rise of communication technology and various industrial revolution across Europe. It was too however be in 1989, after the fall of the Iron Curtain that Globalization truly became a global phenomenon. The United States role was marked with its efforts to restart International Trade and Commerce through the formation of various economic institutions and Programs. Organizations such as the World Bank, The International Monetary Fund and World Trade Organization all were to influence global trading and the functioning of Global Markets. China was also observing a domestic rise of the need to move away from traditional structures of governance and rule which had led them to be the victim of gross sovereign violations and economic maltreatment. The Opium Wars of the mid-19th century and the Meiji restoration in Japan were to influence Chinese thinking in moving away dynastic mode of governance.  The Republic of China formed in 1912 would try to adopt western economic models in Trade and Commerce (Paine 2010 ).

The Washington Consensus therefore stemmed from the idea first given by Neo-liberal theorists with regards to Free Market economics and liberal principals. Jhon Williamson who first used the term, described the need for free market policies to continue in order to save the Global South. For this the IMF and World Bank were to support and promote stability programs and structural adjustments within developing states in order to lead to “economic growth” (Hurt 2020). The principal targets in this process were cycles of inflation, public finance issues and balance of payment crisis. Over the next decade many developing states were seen to have benefited from the original 10-point mandate in the Washington consensus. India’s growth rate accelerated considerably post 1991 following similar principals. Brazil’s growth rate had succeeded to gain momentum despite destructive hyper-inflation. Vietnam had also observed growth and acceleration as a result of greater connectivity with global financial markets (Spence 2021 ).  However, despite the 10 points highlighting key features needed for boosting economic growth, issues remain pertaining to complex economic interactions with international and domestic market economies.

The Chinese economic and political system has for been an enigma for western academics to decipher. The countries outlook varies largely from what was deemed as an era of Capitalism. The Beijing Consensus follows a departure from traditional understandings of economic theories and policies of the original Washington consensus. Chinese thinkers have moved away from these understandings in part due to the respect for approaching unique problems with tailor made solutions. Based on the 3 fundamentals, overarching principals of Chinese development, the Beijing consensus seeks to adopt a different model for developing states. These include; Innovation, the pursuit of dynamic goals and the importance of self-determination in the making of economic policies (Turin 2010). The Beijing model of economic and social development also follows a different political thought, that of Neo-Confucianism. Neo-Confucius school of thought focuses on the importance of tradition and culture as a means to increase economic growth. This was observed and supported by the Neo-conservatives who argued the East Asian growth stemmed not from traditional Neo-liberal understandings of public welfare, GDP level of a country and foreign assistance rather from ‘traditions and culture’ (Miller 2020 ). The revival of Confucian thinking was done in order to re-vitalize traditional Confucian thinking regarding the development of the inner self and the metaphysical existence. They also sought to include these thinking’s while developing the ascetical dimensions essential to traditional Confucian thought ( 2021 ).

The study of Neo-liberal policies and the study of various economic development models offers contrasting arguments suggesting a complicated study of the propositions and their results. Many academics have argued that for long the ideas proposed by the Neo-liberal school espouses an ideological construct rather than a sound theoretical approach to the study of the drivers of economic growth. The vague generalizations of ‘Free Markets’ and ‘Economic prosperity’ are not supported by empirical evidence suggesting a general intellectual bankruptcy. The United States embrace of the Neo-liberal ideals came as a result of the De-industrialization phase where in power was taken from the labor movement. It was to be during the time of Reagan that the Neo liberal ideals would gain greater solidification (C.J 2013). With markets being allowed to operate without government intervention, corporate power brokering and market monopolization soon took precedent. These were then leading to a lack of the original conception of a ‘welfare state’ were in the conception of public service was originally created. Neo-liberal ideals were first exposed to the capitalist shocks. The economic shocks of the 1970s suggested how free market economic policies would create unsustainable economic models thus creating a domestic and international crisis. Within the United States, the easy-money policies of the American Central Banks lead to a significant rise in inflation with numbers increasing up to as much as 12 percent. Interest Rates would increase up to as much as 20 percent with famous Professor Jeremy Seagal describing it as the “Worst the greatest failure of American macroeconomic policy in the postwar period.” (Kramer 2021 ).

Neo-liberal policies which were initially idealized and formalized by countries such as the United States and the United Kingdom would soon create economic and political crisis in Europe. While the Neo-liberal argument, argued the cause of the economic crash to be due to rise in oil prices, the fall out had resulted in rise in inflation and interest rates thus damaging the ideological standpoint of Neo-liberalism. The creation of institutions such as the European Union and the International Monetary Fund would also lead to rise in economic crisis in states. The economic crisis in Greece which soon mushroomed into a far greater social and political crisis was influenced by fiscal policies laid by the International Monetary Fund and the European Union. Neo-liberal policy of enforcing austerity measures to a struggling Greek economy by the troika of EU, ECB and the IMF.

The popular narratives surrounding the Greek debt crisis included the inability of the Greek state to comply with the requirements of the European Stability and Growth pact and its reasonability in giving its economic, financial and fiscal situation in order to join the European Union. The loan of over 252 billion Euros by so called troika was done in order for Greece to rescue it from defaults. What the Neo-liberal banking system did not consider was the damage caused by the level of irresponsible lending. This degree of taking risks and dangers would bailout private sector banks which had taken an obscene degree of risk and shifted the pressure onto the Greek people. European markets were able to benefit by taking Greek Bonds at the cost of debt repayment and the social well-being of the local population (Mavelli 2016).

The Global financial crash of 2008-2009 presented arguably the most significant fall out of Neo-liberal globalization which was the influence global economic policies for many years to come. The cause of the financial crisis is generally disputed amongst economists however commonalities drawn suggesting a larger role played by the banking sector. The US banking systems offering to subprime customers with mortgage loans. Knowing that despite the lack of the possibility that owners would be able to repay the loans, banks made significant share profits with shares of subprime loans rising to almost 15 percent in 2004-2007 (Duignan 2019). The effect was to result in a massive fall out in the macro-economic indicators of the economy and with the total GDP of the United States falling by at least 7 percent according to the study made by the Federal Reserve Bank of San Francisco. The financial crisis would also have a deep inter state effect. Many banks across the world experienced shocks and had to readjust with many people losing their jobs and a high rise in unemployment. Its longstanding effects were still to be observed as according to the World Economic Outlook. The study of 24 economies shows a negative deviation in the growth trend suggesting a long standing effect as a result of the financial crash. Neo-Liberal ideals again which had been repeatedly espoused were once again showing a disastrous trend of large-scale unemployment, state bankruptcy and a endless cycle of elitist exploitation.

The Chinese model of Trade and commerce has shown a departure from its Western version of market capitalism. Its political system combined with its economic policies are as stated before a enigma for academics and western policy makers. Chinese opening after being diplomatically quarantined for a large part of the late 1970s saw a vast scale study conducted in order to ascertain the means to its success. Despite being a politically authoritarian state, its does not fall neatly into western assertions of liberal democracies and totalitarian regimes. Chinese economic policy follows much of the liberalized version of market practices. The application of “Chinese characteristics” to every foreign political/social ideology has led to an adaptation to financial and political challenges. Chinese economic outlook focuses primarily on development by the state in order to push for growth and to remove the inconsistences in financial gain posed by market system (Li 2015 ).  The Chinese model continues to gain traction amongst Western scholars and policy makers as it seeks to establish stable growth and ensure mass social uplifting of the common working class. Chinese economic policies combined with good governance models and a desire for growth have resulted in the uplifting of over 800 million people out of poverty according the World Bank (World Bank 2021 ).

In attempting to ascertain its capability in becoming the next greater global marketing and economic system certain merits and de-merits need to be studied. The Chinese economic has shown result with the steady rise of its GDP growth averaging at an almost 9.23 percent from 1989 to 2021. It however is not without its share of criticism which comes in large parts due to its authoritarian structure. As studied previously, the Chinese model for governance is based on a political structure which is a single party rule and is largely authoritarian. Western democracies have championed the conception of liberal democracies criticizes Chinese political structure on the basis of its lack of representation. However, while this may suggest a repressive regime structure, the economic progress that China has made shows a different perspective.

Chinse trading policy has come after Chinese trade flows have excessed beyond the expectations of economists. These trading policies are a product of a China’s major shift towards market orientation policy and has led a to greater economic success. The level of global trade integration based on the statistics argue that China has succeeded in raising the levels of trade intensity. A recent study studying the Chinas rise as a trading giant used the gravity model to quantify China’s trading prowess. The gravity model aimed at setting new indicators for studying trade integration. Based on these factors and radical policy and governance reforms, China was able to increase its share in the world GDP from 9.5% to 15.4% between the years of 1995 and 2005. At the same time period, Chinese openness ratio, which studied the levels of imports and exports doubled from 33% to 62% (Schnatz 2006 ). The Chinese understanding therefore suggested a robust economic and trade model for developing nations through which stable growth rates and greater world integration could be achieved. The Chinese study on its economic integration was made after extensive research studying more than 3500 bi-lateral trade relationships. Other factors such as trade volumes have grown in the last 21 years from 18.1% of exports to 17.7% of imports.

In studying and analyzing the debate between the economic propositions of the Chinese model and the neo-liberal assumptions regarding trade certain factors come into light. In the formulation of assumptions, the Chinese model offers a different view than the Washington consensus on trade policy. The degree of rigidity enshrined in the model is countered through a flexible approach of the Chinese economic model. The Chinese models follows a more pragmatic approach based on existing economic and social integrators. These have shown to be extremely useful leading to the rise of the Chinese economy in the past three decades. From trade to poverty indicators the China model has resulted in a remarkable growth and recovery (Huang 2010). The Chinese understanding of a flexible approach and state monitored economic policies offers a interesting departure from fundamental neo-liberal conceptions. The Neo-liberal perspective of a free market and a initialization of economic governance follows a ideological construct which has shown little empirical evidence. The academic grounds for the study of free market economies are based on the principals of providing greater freedom, access and ensuring minimal intervention. These are based on the motivations suggesting creator creativity and driving profits and economic growth.

Another understanding on the debate on how the Chinese model provides a sound policy alternative as an economic model is to study Chinese ideological beliefs. The neo-liberal contestation of the protection of private property was rejected by a Chinese conception of rational socialism. Chinese adaptation of Maoism and the study of Marxist philosophy underlined the importance of challenging capitalist ideals throughout. Mao’s identification of class struggle and events such as the Great Leap Forward and Cultural Revolution were done in order to promote a cultured socialism under the Chinese banner. Deng Xiaoping ascension to the leadership throne saw a rejection of previous ideals and a greater focus on promoting economic welfare. For this, unlike Mao a greater departure was reacquired were in markets and economic policies would be liberalized. The principal driver under the new rule would not be ‘class struggle’ but would ensure that the nation strived towards a collective effort to increase productivity in order to ‘catch up’ with western economies. Unlike the neo-liberal approach, economic polices under Deng ensured that “The core issue is to improve efficiency in production, construction, distribution, and other aspects of the economy in every possible way.” (Weber 2020 ). These conceptions therefore were to create a stable economic growth chart with the Chinese economy experiencing significant economic growth while at the same time maintaining its authoritarian political regime. On a theoretical basis the Chinese model does provide a alternative to tradition neo-liberal school and promotes a collective effort under the management of the state in order to drive economies towards collective growth. With greater focus on productivity and ensuring maximum utilization of labor China has been able to create sustained economic growth rates and has integrated itself well in to the global economy.

The debate around economic policies has maintained center stage amongst academicians. The study of policy making and interactions at the economic level continue to define state interactions and define future relationships. In the contestation between the two primary economic models, the China model has shown considerable resilience despite being a capitalist economic system. The Chinese economic model has begun to gain traction amongst European policy makers as a viable alternative in response to increasing challenges faced by states. Global trading patterns have also seen significant alterations with growth rates being affected due to flawed neo-liberal economic policies. The recessions and major economic crisis have had a lasting impact on trade relationships. For the Chinese model to be seen as a viable alternative as new model being adopted at a larger scale, it would have to rise to the theoretical and policy challenges posed by a pre-dominant Western audience. To the neo-liberal free market and trading principals, liberal democracies are an essential element in ensuring freedom for actions, the right to own private property and to trade at an individual and institutional capacity. Neo-liberal economic models also rely on lesser intervention from governments in the form of its authoritarian and interventionist policies and monitoring and regulating trading interactions. The government is largely seen as a ‘meddler’ in issues which fall under the realm of markets. The promotion and establishment of institutions are also another vital aspect ensuring greater rules and regulations surrounding trade and greater global and regional connectivity.

The EU has continued to allow for greater trade relationships by enforcing a centralized trading charter wherein trading rights are provided to countries wishing to utilize another’s resources. The Chinese model therefore is presented with its first challenge. While economic liberalization has followed greater trade and global connectivity, western approach has shown little effect on the Chinese political system. Despite the great opening under Deng Xiaoping Chinese political system to this day continues to remain that of a pre-dominant authorization structure. The states monitoring and intervention has created a greater environment for directed economic goals amid at increasing labor potential, skill and productivity at a national level. Western economies have while supporting Chinese economic model, have criticized its authoritarian structure which runs in tangent to the ideals of liberal democracy. The issues with regards to trade policy remains suggestive of the concept that China’s rigid control over its society has been able to stop bad policies and to award successful policies. Another issue highlighted by policy makers and academics is the consistent is that the Chinese model have followed considerable changes over the rise and rule under Mao, Deng and Xi Jingping. These policies have differed on the ideological context with the current premier seeking a return of older policies (Dissanayake 2021 ).

The rise of globalization as has been promoted by the increase in levels of communication and by a greater integration economics. Globalization was promoted by the US through the formation and institutions and supporting weak economies of Europe through programs such as the Marshall plan. Another important event in the history of globalization comes after the acceptance of Dollar as a central reserve currency of the world in 1944. This marked the monopolization of US economic policies through the acceptance of a standard currency system. The dollars would then become the central currency on the basis of which GDP would be measured and financial interactions would take place. Western academics have largely considered this to be the primary reason for American monopolization of the financial markets. The Chinese economy despite coming out of its cocoon and participating in global financial trade was unable to match the dollar and produce a currency as a parallel for the dollar. The Chinese model therefore continues to face a sustained and complicated challenge with regards to introducing its system as a viable alternative system. Developing countries adaptation of the model have been showing a mixed result. This in large part is due to a weak political structure combined with poor governance leading to lack of control of policy and implementation. While Chinese economic trading programs continue to make inroads in many developing countries, its policies face a myriad of social, political and economic challenges.

In studying economies and global trade, it is important to study the geo-political context alongside the stringent economic principals. The Cold War between the US and the Soviet Union saw a ideological contestation of principals and altering visions of a global order. The communist understanding was based on its fundamental premise of ending the class struggle which had been a product of exploitative capitalist economics. The US led camp promoted a western ideal of free market economy with the assurance of the right to control and own private property. Apart from this, geo-political tensions would also be played out over different countries adopting the others ideological model. The war in Vietnam was an example on how two great powers eyed for their adaptation of the ideological, political and economic models. Europe was at the heart of the expansive campaign through which both states sought to cement their ideological legacy. The Truman Doctrine envisaged the importance of supporting weaker European states at the cusp of ideological takeover. Countries such as Greece during the time of the Truman administration was seen as a threat which would soon be taken over by the Communist Soviet Union. Great power competition was also promoted due to control of future economic and trading systems. The free-market trading system of the United States would ensure greater monopoly and control by the US. The fall of the Soviet Union was to result in the famous ‘Unipolar’ moment where in the United States freely adapted its neo-liberal policy at a global scale.

The current contestation between the United States and China revolves around similar patterns observed during the Cold War. Despite a radical change in the global system and political dynamics, rising China continues to pose a threat to the United States hegemony with many academics fearing a ‘Thucydides trap’. Deeply integrated economies of China and the United States pose the principal barrier to any future military conflict which would prove a disaster to the world economy. However, the newer policy of sanction committed by global institutions poses a newer form of Cold War between the two nations. The Trade Wars during the time of the Trump administration showed how economic sanctions were the mainstay of US foreign policy in challenging its vision and economic model. While Great Power competition continues to pose a threat to financial order of the World, the Chinese model also continues to gain traction and inroad into major policy making circles of the World. Recent projects such as the Belt and Road Initiative and its flagship projects in many developing countries have introduced a lucrative model for trade and commerce ensuring greater social welfare. The Chinese model also focuses on building sperate trading blocs reducing the dependency and hegemony of the United States. The Shanghai Cooperation Organization illustrates Chinese ambitions to de-link US’s Asian influence to become a regional hegemon. By become a central power in Asia, policy adaptation would become more prudent for developing states. Capitalist influence in Europe became more pronounced after the unipolar moment. For the Chinese, its hegemony would mark a departure from traditional economic ideals of neo-liberalism and a adaptation of the Chinese working model of governance, trade and commerce.

The role of economic models has shown a pronounced role in defining a countries political outlook and foreign relations. Defining a ideological stance is based on it theoretical paradigm influence policy making. Both the models studied above show a parallel degree of strengths and opportunities. However the Chinese has continued to show an increasing acceptance a comprehensive model tackling major issues concerning states and ensuring economic growth. It remains to be seen how the Chinese model adapts to the rising challenges of international and domestic nature and its degree of acceptance as the new model for the economic and political world order.




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Abdul Wasay Ajmal is pursuing a degree in International Relations from the National Defense University Islamabad and is a former research associate at the Institute of Strategic Studies Islamabad. He can be reached at [email protected]

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