In Asia, U.S. Still Guards the Fort but Surrenders the Bank

By William H. Overholt

Bill Overholt is director of the RAND Center for Asia Pacific Policy and holds the center’s chair in Asia policy research. Previously, he was a joint senior fellow at the Harvard Kennedy School and the Harvard University Asia Center. From 1980 to 2001, he ran investment bank research teams, mainly in Asia, and served as a consultant to several major political figures in Asia. This essay is adapted from his latest book, Asia, America, and the Transformation of Geopolitics (Cambridge University Press, 2008). The study presented in the book was performed as part of the RAND Corporation’s continuing program of self-sponsored independent research. The study does not necessarily reflect the opinions of RAND research clients and sponsors.

The United States owes its victory in the Cold War to a joint military and economic strategy of nation-building and reconstruction. But in recent years, the United States has abandoned this recipe for success. Nowhere is this more apparent than in Asia.

The Cold War strategy built bulwarks of freedom by creating strong polities and economies in Western Europe, Japan, Southeast Asia, and elsewhere. American leaders created the Marshall Plan for Europe, encouraged the economic revitalization of Japan and funded aid and institution-building programs through the Agency for International Development, the Peace Corps, education programs, and other efforts. The United States and its European allies created major global institutions — the World Bank, the International Monetary Fund, the General Agreement on Tariffs and Trade (now the World Trade Organization), the Asian Development Bank, and other development banks — to stabilize the free world. The U.S. military protected the allies and others, while the nation-building strategy gradually proceeded. Without the military, the nation-building would never have had time to succeed. Without the nation-building, the military defense was unsustainable.

Shanghai, China
Soaring housing prices, strong economic growth, and surging demand from developers and upwardly mobile families underlie the crowded skyline of Shanghai, China, seen here in November 2007.

The Asian economic miracle, supported by U.S. aid and institution-building programs and by the vast regional expenditures that accompanied the Korean and Vietnam wars, contributed to U.S. victory in the Cold War in two ways. First, the economic takeoff gave citizens of Asian countries a stake in the stability and success of their countries while giving governments the resources to build national administration, national infrastructure, and effective national military and police forces. From Japan to Indonesia, this economic expansion drained the motivation for ideological extremism while endowing governments with the administrative, police, and military capacity to suppress the residue of that extremism.

Second, the economic expansion changed the international priorities of most Western-oriented Asian governments. For centuries, the only path to wealth and power had been territorial aggrandizement: grabbing neighbors’ territory, seizing their golden temples, and taxing their peasants. In the new world of the Asian miracle, domestic economic reform could lead to wealth and power at a speed unimaginable in the old era. Conversely, the devastating power of modern military technology often meant that the old strategy of forcible territorial aggrandizement would lead at best to a Pyrrhic victory.

At the turn of this century, there seemed little reason for the region not to continue on its path toward prosperity and peace. The United States had the world’s preeminent economy, the world’s overwhelmingly preeminent military, the world’s preeminent ideology (free-market democracy), and the world’s preeminent cultural influence. Its principal opponent, the Soviet Union, had collapsed. Its other Asian opponents of note, China and Vietnam, had responded positively to the incentives to join the U.S.-nurtured global economic system and likewise had responded to the disincentives against persisting with border disputes, ideological proselytization, and subversion of their neighbors. Japan, a strong ally that nonetheless saw itself as competing with the United States for geopolitical preeminence in Asia, had suffered a decade of troubles, leaving it a loyal ally but no longer a serious competitor. Clearly, it seemed, Asia was headed for an era of U.S. dominance, reduced polarization, and consolidation of a 50-year trend toward peaceful economic cooperation at the expense of old geopolitical conflicts.

But that is not what happened.

What Did Happen

China’s emergence triggered a reaction in the United States and Japan. China had joined all the major economic institutions nurtured by the West in the Cold War, opened its economy far more than Japan did, resolved most of its border disputes to the satisfaction of its neighbors, and engaged in a very successful campaign for good diplomatic relations with most of its neighbors. All these seemed to support U.S. and Japanese interests, particularly in comparison with an earlier era when China had been systematically attempting to destabilize its neighbors and to spread communism globally.

Nonetheless, China’s success evoked various theories that rising powers are inherently destabilizing, that undemocratic regimes are inherently aggressive, and that, since China is perhaps the only power that could conceivably challenge the United States, American military planning should focus on China. Tensions over Taiwan became a particular focus for the U.S. military, and thus, too, did the risk of Sino-American war. That focus was greatly intensified by various U.S. interest groups that had much to gain from building new weaponry for war against China or from hampering trade with China.

While China rose, Japan slipped. Through 1989, Japan’s leaders had been anticipating that the 21st century would be the Asian century and that Japan would dominate Asia. But a dozen years of Japanese stagnation and financial crisis, together with U.S. economic resurgence and China’s superior economic growth and openness, ended that dream. Japanese leaders abandoned their vision of regional leadership through economic diplomacy. Instead, ascendant Japanese leaders sought to build renewed national pride around a rewriting of the history of the 1930s and 1940s and adopted a resentful, threatened, defensive posture toward China’s new eminence.

Japanese law-makers follow a Shinto priest at Tokyo's Yasukuni Shrine on August 15, 2007.
Japanese lawmakers, led by former Agriculture Minister Yoshinobu Shimamura, follow a Shinto priest at Tokyo’s Yasukuni Shrine on August 15, 2007, the 62nd anniversary of Japan’s World War II surrender. Visits to the war shrine by Japanese lawmakers have outraged Japan’s Asian neighbors. The shrine honors 2.5 million Japanese war dead, including executed World War II criminals.

American policy, which for a half-century had protected China from Japan by keeping Japan disarmed and protected Japan from China by allying with Japan, tilted toward an emphasis on consolidating the military alliance with Japan, pressing for a revival of Japan’s military, and overtly targeting China as the object of the alliance, even formally bringing the Taiwan conflict under the purview of the U.S.-Japan alliance. This led China, which had long tacitly supported U.S. bases and alliances in the region because they facilitated the peace and stability necessary for China’s economic revival, to change its view of American bases and alliances, increasingly perceiving them as hostile.

Major changes in U.S. priorities spurred additional major changes in U.S. relations in the region. As the new century began, the role of the military and the emphasis on spreading democracy rose, while the emphasis on economic development and building regional institutions declined. These new priorities, combined with America’s inability to support Indonesia and Thailand during the Asian financial crisis of the 1990s, have fundamentally weakened the U.S. relationship with Southeast Asia. The new priorities also preclude the possibility of following in Central Asia the kinds of policies that had led to success in East and Southeast Asia during the Cold War.

The decline of economic and regional institution-building priorities has led to a U.S. role in Asia organized predominantly around the U.S.-Japan alliance and the requirements for military bases. This shift has changed the U.S. image from one of a nation-builder defending that role to one of a great power asserting itself. It has caused negative reactions among smaller countries, including South Korea and most of Southeast Asia, whose concerns about Japan often exceed their important concerns about China. Virtually all Southeast Asian nations want a forward U.S. military presence, but they want it as a U.S. balance between Japan and China, not (as they see it) as U.S. support of a Japanese gun aimed at China. Similar issues in other contexts have recently led U.S. Secretary of Defense Robert Gates to call for a stronger State Department and led top U.S. generals to call for greater emphasis on economic development.

While the United States has always supported democratization in Asia, during the Cold War democratization took a back seat to economic development, regional institution-building, and military security. The post–Cold War case for treating democracy as a prerequisite of aid rests on the theory that democracies are better at economic development than are nondemocracies. This theory, however, is inconsistent with the Asian experience. Taiwan, Singapore, and South Korea all began as socialist or quasi-socialist economies led by leaders with Leninist visions. Taiwan and Singapore had fully developed Leninist parties. Taiwan and South Korea under Chiang Kai-shek, the early Chiang Ching-kuo, and Park Chung Hee were considerably more abusive of human rights than China is today. But today — because economic development has created educated, middle class societies — these three countries are the most robust democracies in the developing world. In contrast, the Philippines, originally America’s greatest example of third-world democracy, has descended from Asia’s second-richest country to a poor cousin. As a result, most East Asian countries see the U.S. emphasis on early democratization as dangerous ideological naiveté.

Related to this view, the smaller countries of Asia mostly see the differences between China’s emerging post-socialist, post-Leninist regime and their own as developmental, whereas the United States sees a Manichean divide between good and evil, with Leninist systems on one side of a great political and moral chasm and democracies on the other, allowing no connection between the two sides other than a Soviet-style collapse into the chasm. The Asian reality, to the contrary, has been an evolutionary one: Subsequent to economic success, Asia’s developmental authoritarian countries have mostly made relatively smooth transitions to more democratic politics. For most Asian countries, including such strong traditional allies as South Korea and Singapore, the degree of U.S. hostility toward China seems gratuitous. The Chinese, meanwhile, argue that successful democracy has almost always come after a considerable amount of economic development and that trying to reverse the natural path of evolution ensures failure.

Paradoxically, Washington is greatly increasing its military power but sharply degrading its political influence. Throughout Asia, the talk is of declining U.S. influence. No one in Asia doubts that the United States is the world’s biggest military power, the world’s biggest economy, and the world’s greatest cultural influence, but it is seen as declining because it is preoccupied elsewhere, has weakened its relationships with key quasi-allies, has lost its image as a partner in nation-building, has tarnished its moral standing by its actions in Iraq, and has allowed its leverage through regional organizations other than the U.S.-Japan alliance to wither.

The post–Cold War case for treating democracy as a prerequisite of aid rests on the theory that democracies are better at economic development than are nondemocracies. This theory, however, is inconsistent with the Asian experience.

The United States now finds itself torn between its increasing military reliance on the U.S.-Japan alliance and its increasing political and economic reliance on its relationship with China. The United States copes with the East Asian aspects of the war on terror, North Korea, regional crime, drug and human trafficking, and Southeast Asian instability primarily through a partnership with China. China’s more open economy is much more compatible with U.S. interests in free trade, freedom of investment, and modern agriculture than is Japan’s more closed economy. The tension between military-ideological alignments and political-economic interests is increasingly severe, untenable, and prone to crisis.

How We Move Forward

For the United States, the great institutions of the Cold War, preeminent among them the U.S.-Japan alliance and the marriage of military defense with economic development, have served the country brilliantly. But the post–Cold War divorce of the U.S.-Japan alliance from the parallel reassurance of China, the divorce of military considerations from the economic priorities that led to strategic success, and the ideological triumph of the notion that democracy is, in all situations, the best path to stability, peace, prosperity, and human dignity can threaten much of the success achieved during the Cold War. The pain the United States is enduring in Iraq reflects in part the divorce of military strategy from economic strategy and an expanded strategic reliance on the promotion of democracy.

China is not free. It has not become a democratic society or anything approaching one. The continuing suppression of religious expression is inhumane and counterproductive. When the West criticizes the lack of human rights, it is correct. However, most Western observers miss key points. Unlike the Soviet Union, China does not seek to export its current system of government. Chinese leaders do not see their current political system as anything more than a transitional phase. Most see the Taiwanese political system, like the Taiwanese economic system, as more advanced than their own. They want to discover and test things themselves, step by step. They are willing to consider nearly everything.

Much of the current national-security establishment in Washington expresses fear of being forced out of Asia by China. China has indeed made disproportionate gains in recent years. But this is not because it has forced the United States out. It is because Washington has deliberately stepped back from Asian regional institutions that include the United States, such as the Asia-Pacific Economic Cooperation, and created a vacuum into which China has stepped with institutions that exclude the United States, such as the Shanghai Cooperation Organization, the East Asia Summit, and others. Likewise, South Korea and the Association of Southeast Asian Nations have distanced themselves from U.S. policy and cultivated a relationship with China that is much warmer than it was before. China’s disproportionate success in both Asia and Africa has come from adopting policies that had been the core U.S. strategies in winning the Cold War. The United States had a patent on those strategies but ceded the intellectual-property rights to China.

There is a real risk that future historians will conclude that the most influential foreign-policy decisions of this era concerned not Iraq, not the war on terror, but rather the reignition and acceleration of Sino- Japanese rivalry. Washington can still reestablish the old balances between military and economic priorities and between China and Japan. Future U.S. administrations would do well to revive an Asia policy that emphasizes diplomacy with all Asian countries, promotes economic liberalization throughout the region, and abates rather than fosters hostility among regional neighbors. square

Related Reading

Asia, America, and the Transformation of Geopolitics, William H. Overholt, New York: Cambridge University Press, 2008, 366 pp., ISBN 978-0-5217-2023-6.