Mao said that power flows through the barrel of the gun. However, he didn’t mention that you need money to buy those guns. In 1949, the Republic of China under the leadership of Chiang Kai-shek had military superiority over Mao’s communist rebellion. The Kuomintang (KMT) government received weapons and ammunition from the United States. However, weapons, ammunition and a strong military were not enough to check on the Communist revolution in China. In 1930, China spent 60 per cent of its budget on the military. The KMT lost popular support due to hyperinflation, steep economic decline and widespread corruption. KMT’s efforts to curb corruption with heavy-handedness ruffled some influential feathers in China. Chiang Kai-shek’s efforts to curb corruption at individual level backfired.
The economic decline resulted in mass unrest and created support for Mao’s revolution. Mao’s revolution that promised land reforms was perceived as an alternative to failing the agrarian economy. Rather than Mao’s thought, economic compulsions turned the table on the Chinese Nationalist Party (Panikar, 1954).
KMT’s over-dependence on militarily did not save the day for the nationalist government. When Chiang Kai-shek realised the gravity of the situation it was too late for course correction. As the fall of Nanjing (China’s Capital under KMT) became imminent, Chiang Kai-shek moved gold and foreign currency from Shanghai to Taiwan. Eventually, building the economic foundation for modern prosperous Taiwan.
In 1989, the Tiananmen Square protests did not garner the support of larger Chinese society. The student-driven democratic movement for minimal democratic rights was crushed. Majority of the Chinese society saw Deng Xiaoping’s economic reforms as stabilizer after a disastrous period of the great leap forward and cultural revolution. Again it was economy at play.
The collapse of the USSR once again proved that economic power is supreme. Militarily of the USSR was a formidable match for the USA. Though, economies of two powers differed drastically. The highly controlled state-driven economy of the USSR paved the way for 1991 collapse and the free-market economy made the United State winning power of the century and beyond. The American economic gains also translated into economic gains for its partners like Japan, the Republic of Korea, Taiwan and other European nations. In ’80s strategic experts could not envision the collapse of the USSR in a short span of time. In 1985, the Kingdom of Saudi Arabia withdrew from controlled oil production agreement and increased its oil production. As oil production surged, prices of oil declined from around $30 to as low as $10 per barrel. Lower fuel cost also fueled growth in other economies. But in producer USSR, sudden drop in revenue shocked socialist economy. USSR tried to salvage hyperinflation, pandemic corruption propelled by economic decline. The culminating effect of various economic factors led to the eventual collapse of the USSR in 1991. It was a shock for other socialist and communist economies to avoid such pitfalls. It was also a lesson that seller driven market can turn in a buyer-centric market in a very short span of time. The collapse of the USSR exposed the limitations of state-driven growth in the authoritarian communist state. The communist or autocratic system of governance can work as long as its economy is firing on all the engines. It was a lesson for others.
Coming back to the modern-day situation. The scenario that other economies are dependent on Chinese goods is changing rapidly. China is no longer a world factory producing cheap products. As Foxconn Chairman Young Liu said this week that ‘Trump’s trade war against China meant China’s days as the world’s factory are done. China is dependent on the world (mostly democratic world) for selling its goods. With a changing scenario, industrial overcapacity will haunt China. The world can change its sourcing pattern in a short span post-pandemic era. Can China change consumers that fast in a limited market? Declining demand and industrial overcapacity are two factors that can lead to economic decline, as seen in earlier examples. Such a situation creates ghost towns and investment in infrastructure goes down the drain.
A small story to end with
Choluteca Bridge in Honduras was built to withstand nature’s fury. The bridge did a pretty good job at that. After Hurricane Mitch, rain flooded the river. The river meandered and changed its course. The storming flood washed away the road connecting the bridge. As flood subsided, Honduran President Carlos Flores said, “We lost in 72 hours what we have taken more than 50 years to build, bit by bit.”
Choluteca Bridge after Hurricane Mitch on Choluteca river That bridge flawlessly performed its design function, but the river changed its course. The bridge became obsolete. Just like that, capacities built over decades can become obsolete quickly. When economic and industrial capacity takes a beating, it directly affects state power.
As Chanakya said कोषमूलोदण्डः. The core of state power is its economy, and it flows through the people – the consumer.
The views expressed above belong to the author(s).
