CHAPTER III
The Rise of China as a Necessary Condition for Post-Neoliberal Breaks
A fundamental proposition of this book is that, after decades of breakneck growth, the relative weight of China within the world economy has now reached a stage where the People’s Republic has become a major driver of the global accumulation process. Further, as a medium-income state that is still urbanizing and industrializing at pace, the sources and characteristics of Chinese growth are very different from that of the other main engines of world capitalism, found in the global North. This means that as the gravitational pull exercised by the Chinese economy on the rest of the world strengthens, its potential to disrupt and transform the coordinates of the larger capitalist whole comes increasingly to the fore. Should swift Chinese growth continue in the medium to long term, particularly if combined with the kind of relative stagnation in the North that has been seen since 2008, the evidence for China-driven structural change is likely to appear in a variety of forms.
For now, though, the clearest example of Chinese-led global political-economic transformation remains the commodity boom of the years 2002 to 2013. Having set out the empirical case for Chinese import demand as the primary source of the boom, in chapter 1, I now turn to focus on the other side of this equation and to investigate the political-economic consequences for those resource-exporting states that found themselves pulled along in China’s wake.
To begin, I will recap the argument that underpins the primary hypothesis, concerning the connection between the commodity boom and the ability of resource-exporting states to break with neoliberal policy orientations. In this section, I endeavor to draw out the implications of the conceptual framework for the rest of the analysis in this book. Of particular importance is the rationale behind the decision to use national indicators (principally in terms of policy change) to measure the impact of a global phenomenon (China-driven reshaping of commodity markets).
In addition, I will draw on the theoretical model discussed in previous chapters to begin more tightly specifying the hypothesis. In this regard, I argue that direct interaction with China (via trade or loans) was not required for a natural resource–exporting state to leverage its resource revenues toward policy autonomy and a break with neoliberalism. Instead, the key necessary condition is that a given state’s main exports were commodities in which a resource-hungry China has raised prices and demand across the global market. It therefore is of little importance whether an exporter of such products was selling directly to China or to other partners. I also address precisely what I mean by policy autonomy and how this differs from the notion of policy space in existing literature. Following these observations, I turn toward the analysis itself, with an application of the qualitative comparative analysis technique to test the hypothesis that a high concentration of exports of natural resources subject to the Chinese demand shock during the commodity boom years was a necessary (but not sufficient) condition for a given (highly indebted) state to break with neoliberalism.1
National Policy Autonomy Under Boom Conditions
In line with the theoretical and historical framing of the research set out in chapters 1 and 2, China-driven changes in commodity markets are fundamentally conceptualized as a global shift within a single world division of labor, but also, importantly, as a phenomenon that is first manifest at the nation-state level. In line with this logic, neoliberalism is here understood as a tendential global regime of accumulation that, however, has been primarily implemented by national authorities. For all that such implementation has been uneven across time and space, the neoliberal orientation of a particular economy is reflected in and substantially driven by policies set by its government. It follows, then, that a national economy in which the overall thrust of policy changes, to stand in contradiction to neoliberal orthodoxy, can no longer, in an important sense, be considered as belonging to the neoliberal fold. It is for these reasons that the analysis in the remainder of this book is primarily framed at the national level. While the ultimate unit of analysis remains the global political economy, the state is adopted as the unit of observation, and both neoliberalism and breaks from it are defined in terms of national policy orientation.
Chapter 2 detailed the tightened constraints that national authorities, particularly in the South, faced in setting policies during the neoliberal era of the 1980s and 1990s. Some governments, of course, wholeheartedly embraced neoliberalization and needed little prompting from external sources to do so. Many others, though, found their options increasingly limited by such forces, whether they arrived in the form of international financial institution conditionality, policy priorities mandated by international donors, or more indirect disciplinary pressure exercised through the preferences of global capital markets. All three of these phenomena might be thought of as channels through which a larger shift in the shape of global accumulation was transmitted to the national authorities of the global South.
Clearly, such change was not blanket or uniform, and many Southern states stalled, resisted, or avoided externally imposed neoliberal discipline in a variety of ways, with varying degrees of success. Nevertheless, as the 1980s and 1990s wore on, the trend was toward shrinking space for Southern governments to propose and implement policies that ran counter to a liberalizing trajectory. This was especially the case in states rendered vulnerable to the three channels of neoliberal influence mentioned. High levels of sovereign indebtedness necessitated negotiations with the IFIs, aid dependence afforded donors direct participation in the policy process, and the fight to attract scarce mobile capital forced states to compete as destinations for investment.
Many states in the South, then, have been increasingly circumscribed within a neoliberalizing trajectory as the unfavorable circumstances of their insertion into the global economy have pushed their acceptance of these transnational demands.2 No matter the source of neoliberalization, though (and of course domestic constituencies have also played at least some role in all cases), its implementation is always manifested in terms of national policy change, along the familiar axes of deregulation, privatization, and liberalization, together with corresponding shifts in monetary and fiscal policy.
The notion advanced here is that China’s effect upon natural resources markets produced, for exporters of these goods, a new, much more favorable shift in their circumstances of insertion into the global economy. With China driving substantial increases in both demand and prices, resource-exporting states were given the possibility of capturing a greater share of the extractive surplus—a larger slice of an expanding pie. With this new potential revenue stream not subject, for the most part, to the whims of IFIs, donors, or capital markets, states that were able to leverage their resource wealth in the conditions of the commodity boom now possessed the capacity to escape externally imposed neoliberal constraints, in a double sense. First, greatly expanded flows of resource revenues often meant that states previously dependent upon IFIs, donors, and capital markets no longer needed to accept the demands for liberalizing policies that, in varying forms, accompanied these sources of funding. The second, linked point is that beyond lifting or reducing debt and aid dependence, new revenue flows had the potential to create sufficient fiscal space for development strategies of various stripes, involving increased public spending, in contrast to the austerity and retrenchment often prescribed by the dire state of national accounts prior to the commodity boom.
If neoliberalism can be thought of as a global shift reflected through changes in national policy, then, a similar framing applies to the commodity boom. A rising China disrupted and altered the dynamics of world markets for a range of extractive commodities, in turn creating the global conditions that provided exporters of these goods with the wherewithal to escape neoliberal constraints in favor of their own nationally defined development agendas. Again, the primary site of change lies at the global level, and yet its results may be observed at the national scale. Given this, for the purposes of this book, a break with neoliberalism is defined as a substantive change in a state’s political-economic orientation away from neoliberal goals and means, as indicated by the overall set of policies adopted. I will comment on this definition in more detail later and then discuss its operationalization as a key component of the QCA.
Importantly, though, the theorization applied here relies upon a logic of China-driven change on a global scale (via commodity markets), which is then reflected in the external conditions encountered by resource-exporting states. The resultant policy autonomy does not, therefore, rely upon direct Chinese interaction with these states, whether in the form of investments and loans or of bilateral trade links. The implication, in terms of formulating the hypothesis, is that it does not matter whether or not a resource-exporting state traded directly with China. As long as the state in question had a high level of export concentration in commodity markets that were subject to the China effect on prices and demand, the posited mechanism through which these resource exports allowed for a break with neoliberalism remained the same. For example, in 2012, the PRC accounted for less than 3 percent of Bolivian exports (United Nations Comtrade n.d.). However, because Bolivia’s main exports—natural gas and various metal ores—are classes of goods in which China’s growing demand drove boom conditions from 2002 to 2013, the hypothetical policy autonomy provided by such export sectors should also extend to Bolivia.
The evident disconnect between orthodox prescriptions of development policy and those successfully pursued by the “Asian Tigers” (Wade 1990; Amsden 1994) helped to stimulate a debate on the degree of policy space open to developing countries by the early to mid-2000s (Wade 2003; Gallagher 2005; Mayer 2009). Much of this literature focused on the extent to which trade regulations being negotiated at the World Trade Organization (WTO) at the time might serve to remove as options policies that were crucial to many successful efforts at “late” development—whether, in Fredrich List’s phase, rich countries were “kicking away the ladder” after themselves (Chang 2002). One way of framing these issues has been to argue that policy space needs to be divided into two components: de jure (formal policy sovereignty) and de facto (the ability to achieve goals via use of policy instruments) (Mayer 2009). In this view, while de jure policy space is limited by participation in international agreements such as the WTO, the effects of globalization and international integration on de facto policy space pull in different directions. For example, capital market liberalization may reduce policy space through the greater need to set monetary policy in relation to global market conditions rather than in furtherance of domestic goals. On the other hand, the effectiveness of policy instruments will be increased by trade integration, which facilitates easier access to a larger market, and the restraints that multilateral rules place upon states pursuing “beggar thy neighbor” policies.
While these may be reasonable arguments in some ways, my own focus is not on whether particular policy instruments are effective in meeting their desired targets but on whether it is feasible for a given state to select them in the first place. This is therefore a less expansive notion than that which appears in much of the literature, and for this reason I use the term “policy autonomy” rather than “policy space” to denote it. In my usage, policy autonomy encompasses the formal de jure authority of states to implement favored policies. It also incorporates the question of the extent to which creditors, donors, and investors exercise disciplinary power over policy choice—whether these groups’ power to withdraw financing in response to negatively received policy changes effectively constitutes a veto over such policies being pursued. This means that I am interested in the conditions under which it is practicable for a state to pursue policies that deviate from those favored by IFIs, donors, and creditors. I depart from some of the policy space literature in leaving aside questions of whether particular policies are likely to prove successful or not in the long run.
The argument here is built on the observation that an external veto on policy has effectively been exercised on a number of occasions, when states’ attempts to implement heterodox programs were met with the removal of IFI, creditor, and/or donor support, the economic consequences of which pushed governments to change course (Baer and Beckerman 1989; Gwynne and Kay 2000; Kayizzi-Mugerwa 1990). But the power of external “capital controllers” (Winters 1996) to exert such disciplinary force clearly is not invariant or all-constraining. First, the extent to which a state is reliant upon gaining or maintaining access to such funds will condition the amount of damage that can be wreaked by their withdrawal. This is why commodity boom conditions, in providing an alternative stream of funding largely independent of creditors and donors, weaken the disciplinary force which their exit can threaten. Second, my contentions around the ability of governments to break with orthodox policy prescriptions are not posed at the level of individual policies. It seems clear that states always retain some flexibility in their policy agendas and that external reactions to singular policy changes may vary with a variety of contextual factors (Fairfield 2015, chap. 6). Instead, my claim is that, of those states subject to neoliberalizing policy discipline, only those that benefited from the 2002–2013 China-driven commodity boom then possessed the policy autonomy to break with orthodoxy at the level of their policy orientation overall.
Qualitative Comparative Analysis
I use qualitative comparative analysis to test the hypothesis that the China-driven commodity boom opened the way for the exercise of policy autonomy among Southern resource-exporting states. QCA mimics the thickness of qualitative case-based comparative studies but enables the comparison of a much larger number of cases than is typically possible with such methods, by following individual case-based analysis with the reduction of each case to a configuration of conditions (akin to variables), which then may be simultaneously compared across a relatively large number of cases. Crucially, for my purposes, the logic of causality and comparison on which QCA is based makes it very suitable for testing hypothesized necessary causes.
I apply QCA to a set of eighteen country cases from across the South, all with relatively high levels of indebtedness at the beginning of the boom and with populations above 10 million.3 Following on the discussion of neoliberalism as it translates from global regime to national policy constraints (chapter 2), I define a break with neoliberalism as a given state’s adoption of an overall policy trajectory that, during the neoliberal era of the 1980s and 1990s, would not have been acceptable to IFIs or donors and thus would have been impossible to enact without a highly damaging rupture with creditors or Development Assistance Committee members.4
Qualitative comparative analysis data by case
Alongside my hypothesized necessary condition, RES (the presence of a high export concentration in natural resources subject to the China demand shock), I test a number of other conditions of possible causal significance. These are CFF (high levels of Chinese financial flows to the state concerned), POR (significant outflows of portfolio investment), ODA (high levels of dependence on official development assistance), FDI (high levels of foreign direct investment), and ENG (high export concentration in energy commodities, in particular, rather than in resources more broadly). The cases considered and the values assigned to them on each of the conditions (1 indicating the presence of a condition, 0 indicating its absence) can be seen in table 3.1. Performing a QCA analysis of necessary conditions for the outcome BRK gives the results shown in table 3.2.
Table 3.2 shows the results of testing for the presence and absence (~ before a condition indicates its absence) of all conditions in respect of the outcome (BRK). Consistency scores measure necessity—a score of 1 means that a condition was necessary for the occurrence of the outcome (a break with neoliberalism). Since the condition RES has a consistency score of 1, this means that, as hypothesized, the presence of a high export concentration in resources subject to the China-demand shock of the boom years is a necessary condition for breaks with neoliberalism to have taken place in this period. Significantly also, ~ODA (a lack of dependence on official development assistance) was also a necessary condition for a break to occur, a finding to which I will return in chapter 8, in particular, where the impact of aid dependence on several resource-exporting cases is explored in more detail.
Analysis of necessary conditions for the outcome BRK
|
Condition Tested |
Consistency Score |
|
|
RES |
1.00 |
|
|
ENG |
0.71 |
|
|
CFF |
0.57 |
|
|
POR |
0.29 |
|
|
ODA |
0.00 |
|
|
FDI |
0.29 |
|
|
~RES |
0.00 |
|
|
~CFF |
0.43 |
|
|
~POR |
0.71 |
|
|
~ODA |
1.00 |
|
|
~FDI |
0.71 |
|
|
~ENG |
0.29 |
Source: Calculations using fsQCA.
Building from this base, the following chapters examine resource-exporting states in more detail. I begin with the resource exporters from the QCA set examined here. However, I increase the number of cases considered, from the ten resource exporters included in the QCA analysis to fifteen, by relaxing the scoping conditions on indebtedness and population, adding Jamaica, Laos, Mongolia, South Africa, and Colombia to this new set of cases, for the purposes of typology formation.