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China Surpasses U.S. as Leader in Sub-Sahara

That the West is losing the sub-Sahara does not come as news in Africa itself. One leader after another has been explicit on this point, from Senegal's president ("Today, it is very clear that Europe is close to losing the battle of competition in Africa") to Botswana's president ("I find that the Chinese treat us as equals; the West treats us as former subjects") to Nigeria's president at a banquet for China's President Hu ("This is the century for China to lead the world. And when you are leading the world, we want to be very close behind you").

If the West is losing hold, it's doing so at least partly for the right reasons. In recent years, Western companies have come under increasing pressure from shareholders and regulators to improve their ethical and environmental performance. The caseload at the Justice Department under the Foreign Corrupt Practices Act doubled between 2006 and 2007, and the FBI has a brand-new team dedicated to catching violators. Worldwide, the Paris-based Organization for Economic Cooperation and Development (OECD) estimates, there are now more than 150 ongoing foreign bribery investigations in 30 industrialized countries, and cooperation between countries is more common than ever. That shift, along with the enactment of the Sarbanes-Oxley law tightening financial oversight of corporations, has started to change how Western firms operate in undeveloped countries. Indeed, the world's largest mining firms (representing more than $700 billion in assets — including DeBeers, Rio Tinto, Newmont, and Anglo-American) have approached the UN for help in selling an idea to the developing world: a "badge of excellence" that would require all mining firms to meet high environmental and safety standards. The Congo's Kasongo calls it a "gimmick," and although it's hard not to laugh, one can hardly blame the firms for trying.

But all of this comes very late in the game, after much of America's capacity to lead has been lost or squandered. The charge of American hypocrisy is everywhere in the air. And still the United States and Western institutions manage to talk out of both sides of their mouths when it comes to transparent governance, human-rights protection, and fair trade in developing countries.

Leaders in Africa and China are well aware of this hypocrisy, of course, and use it as leverage against us. A year ago, China threatened to stop borrowing funds from the World Bank if the agency didn't heavily water down its anticorruption demands. The gambit worked flawlessly: A week later, the bank succumbed, and then tried to keep China's threat a secret. Last summer, the World Bank was preparing to publish a report that included the startling fact that 750,000 Chinese die prematurely each year from air pollution; China's government stepped in and insisted that the bank delete the figure, arguing that it could provoke social unrest. Again, the bank complied — and again tried to keep China's demand from the public.

Capital flight out of Africa shows Western hypocrisy from a different angle. For every dollar the West lent Africa between 1970 and 1996, studies show that 80 cents flowed back out in the same year, often into foreign bank accounts in New York, London, and Zurich. A 2005 report by the (Tony) Blair Commission for Africa estimates that "stolen African assets equivalent to more than half of the continent's external debt are held in foreign bank accounts."

It's believed that at least $500 billion is now stashed away, but Western banks and governments have done almost nothing to repatriate it — or to help African governments crack down on the thievery. "Most investigations by African countries of money laundering and tracking the funds of corruption are stifled by the developed world — by banks and governments," maintains a top Western money-laundering official with extensive knowledge of Africa. "The U.S. is the No. 1 uncooperative country, followed by the U.K."

There are two reasons for this, says the source, who would be fired if his name were revealed here. First, Western governments say they are too busy and simply ignore Africa's requests for assistance, especially if a transaction is not in the multi-millions. Second, Western banks don't want to part with the funds. "It would show they never did due diligence in the first place," says the source. "And if we pulled this money back, we'd damage the U.S. and European banking systems. Africans know this. And it puts a cynical tone to all this do-good stuff. We're part of the money-corruption problem, just like the timber problem. Globalization connects us all."

Thanks in no small part to China, the overall economy for the sub-Sahara has grown by an average of 6% a year since 2004, with nations that export oil and minerals leading the pack. At the beginning of the decade, when China was just getting started, The Economist published a cover story titled "The Hopeless Continent." It infuriated many Africans, but it was hard to argue with at the time. Today, many of China's projects in Africa deliver real economic benefit: Improving a road, or building one, helps not just the trucker hauling copper feedstock to the coast, but also the owner of the new hotel along the route and the women selling oranges in the parking lot. Some observers believe that China is Africa's only hope for an economic jump start.

But much of the wealth China injects into Africa clearly flows into the pockets of what George Ayittey, a Ghanaian economist and professor at American University in Washington, calls a "vampire parasitic elite." Last June, the head of China's Export-Import Bank took the position that transparency will come only after China's economic might has worked its magic. "Transparency and good governance are good terminologies," Li Ruogu told an audience in Cape Town, "but achieving them is not a precondition of development; it is rather the result of it."

The problem with that theory is that sub-Saharan countries are being systematically stripped of their sources of potential wealth and seeing them shipped overseas. A major aspect of China's own development was the emergence of its competitive light-manufacturing sector; Africa may never get that chance, given the flood of cheap household goods and cheap labor coming back from China. Textiles are the traditional first step toward industrialization, but the Chinese export engine has already eviscerated clothing and footwear industries in countries such as Botswana, South Africa, Kenya, and Swaziland. China has similarly destroyed the fledgling plastics industry in Nigeria. Will sub-Saharan nations be able to ascend the industrial ladder over the next generation? Or is it their fate to serve as little more than the world's mine shaft?

Every American president beginning with Nixon has asserted that engagement and trade with China will lead to democracy there. As candidate Bush declared in 2000, "The case for trade is not just monetary, but moral... . Trade freely with China, and time is on our side."

But what if the whole paradigm is a fantasy? "Why do Americans believe that with advancing prosperity China will automatically come to have a political system like ours?" wonders James Mann, the former Beijing bureau chief for the Los Angeles Times. "Is it simply because the Chinese now eat at McDonald's and wear blue jeans?" Now an author in residence at Johns Hopkins University, Mann questioned those assumptions last year in a book called The China Fantasy: How Our Leaders Explain Away Chinese Repression. He makes a powerful case that China's emerging middle class and urban elite have every reason to fear democracy, support the Communist Party, and preserve the status quo: the 900 million hungry peasants and migrant workers sitting beneath them.

"America's current China policy amounts to an unstated bargain," writes Mann. "We have abandoned any serious attempt to challenge China's one-party state, and we have gotten in exchange the right to unfettered commerce with China." As Mann sees it, "the Chinese and American elites share a common interest in the existing economic order, in which China serves as the world's low-wage, high-volume, all-purpose manufacturing center. Thus, on the surface, it looks as if middle-class Americans are identifying with middle-class Chinese, dreaming that the Chinese, too, will one day insist on their choice of political candidates the way they are now able to select from a range of lattes and mochas at Starbucks." But the business communities of China and the United States do not share these dreams, he explains. Both profit from the Chinese system staying as it is. "Trade is trade," says Mann. "It is not a magic political potion for democracy... . Few in the West are willing to allow the continuing arrests and jailing of dissidents to jeopardize ongoing business with China."

So "who's integrating whom?" asks Mann. "Is the U.S. now integrating China into a new international economic order based upon free-market principles? Or on the other hand is China now integrating the United States into a new international political order where democracy is no longer favored and where a government's continuing eradication of all organized political opposition is accepted or ignored?"

To the extent that American standards are being lowered in an effort to keep open the pipeline to — and from — China, U.S. citizens are just as complicit as their leaders. When Bill Clinton was first elected president, the U.S. trade deficit with China was $18 billion. It is now $256 billion. Ravenous Westerners have become partners in Africa's environmental destruction — and in financing the political survival of Beijing's one-party regime — just as the U.S. government and American oil companies are underwriting E.G.'s one-party regime, and just as China is financing that of Sudan.

Oxford's Paul Collier, author of The Bottom Billion and a former head of research at the World Bank, is a leading expert on African economies. "I think the sad reality is that although globalization has powered the majority of developing countries toward prosperity," he says, "it is now making things harder for these latecomers." In other words, he says, Africa "missed the boat." And on a divided, demoralized continent, one where the United States has lost both its economic leverage and moral authority, Beijing can cherry-pick almost at will. That spells trouble not only for Africa but also for our ability to outthink the global consumption death spiral we have all set in motion.

The rhetoric of globalization has for decades been driven by the logic of so-called cornucopians or boomsters, the pro-growth optimists who argue that human ingenuity always saves the day. In studying farm labor from 1800 to 1967, economist Julian Simon showed that technology increased productivity, driving down the ultimate real cost of every raw material. The price of a cooking pot today, for example, is vastly cheaper by any true measure than it was 100 or 1,000 years ago. The boomsters argue that just as a global shortage of whale blubber for lamp oil led to the discovery of kerosene, and then electricity, as China rises, we will find the kerosenes of tomorrow.

For pessimists — the Cassandras or doomsters — China's win-win blitz in Africa conjures the prospect of a hellish lose-lose, a zero-sum competition for finite resources in which one country's gain is another's loss. The doomsters note that nothing like the productivity explosion of the 19th and 20th centuries had been seen before in human history — and productivity growth has actually slowed in recent decades. Meanwhile, by 2050, 3 billion people will join the 6 billion already here — the equivalent of adding two-and-a-half Canadas every year.

Humanity, the doomster argument goes, is on a collision course with the natural world, and the signs are everywhere: shrinking forests, croplands, fisheries, and water tables; rising pollution and temperatures. During the next 50 years, if current trends continue, humans will use more energy than in all of previously recorded history. More environmental stress will mean less growth and will trigger more conflict — bitter clashes among civilizations over a dwindling resource pie, mass migrations, "climate refugees," uncontained diseases caused by "superbugs" impervious to modern medicines, water wars, maybe even food wars. In other words, the world will become like an episode of Survivor, except you can actually die.

The global boom in the cost of commodities is entering its sixth year, with no end in sight. Commodities have always been subject to boom-and-bust cycles, but many economists see a fundamental shift driving the markets now. "In the mining industry, we are all struggling to find new resources because the Chinese have created such a demand," says Anglo-American's Sunter. "For much of my career in mining, management was all about cutting costs to survive in an environment of falling prices. Now the driving issues are, Where are the next resources and we'd better hire some geologists who can find them." Or as one mining executive said to me recently, keeping up with current global demand requires that "a new super-iron-ore mine be commissioned every year — from now to eternity."

In his Pulitzer-winning Guns, Germs and Steel, UCLA evolutionary biologist and geographer Jared Diamond concludes that life is a struggle for survival in a world of scarcity. His latest best seller, Collapse, slams that message home in a series of historical horror stories of resource exhaustion and societal catastrophe. If China's 1.3 billion people are to live like Americans, he says, China would double the global environmental impact and demand on natural resources. In that scenario, the earth would need another earth to supply its needs. "Either we are going to resolve these problems in pleasant ways of our choice," Diamond says, "or else the problems are going to resolve themselves in unpleasant ways — not of our choice."

In the doomster scenario, the earth will need another earth to supply its needs.

Barring some miracle, or global trade collapse, the era of cheap basic materials does seem to be over. Perhaps we should have seen as much back in 2004, when manhole covers first started disappearing around the world. As Chinese demand drove up the price of scrap metal to record levels, "thieves almost everywhere had the same idea," writes James Kynge in China Shakes the World. "As darkness fell, they levered up the iron covers and sold them to local merchants, who cut them up and loaded them onto ships to China... . From Montreal to Gloucester to Kuala Lumpur, unsuspecting pedestrians stumbled into holes."

We cannot know precisely how the coming years will play out, but there are likely to be many holes ahead. That makes the American default in Africa and elsewhere all the more regrettable, and possibly tragic — in the true sense of the word. Had we not traded away, quite literally, our leadership potential in Africa, we could have argued for a more transparent, more sustainable global system. We could have drawn the blueprint. In the end, we seem to have acquiesced to China's game.

As all good tropical-disease experts know, hosts and parasites have an intimate relationship. They are expected to play important roles in influencing one another's evolution. When a host develops a defense against a parasite, for instance, the parasite may counteradapt. But host-parasite coevolution can turn out any number of ways. Sometimes, it's difficult to demonstrate that the host is harmed at all. Sometimes, the host drops dead.

We buy China's junk, they buy our bonds, our real estate, even our corporations; they expand into Africa with our money, enabling them to grow and sell us more junk. It's a spiderweb, a matrix — and how it spins out is as scary as it is unclear. But one thing is certain: We're all part of the same ugly scramble. Eh?

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A version of this article appeared in the June 2008 issue of Fast Company magazine.