A Thucydides Fallacy: The New Model of Power Relations for Southeast Asia, the US, and China

Have Southeast Asia, the United States, and China shifted to a new model of power relations?

A Thucydides Fallacy: The New Model of Power Relations for Southeast Asia, the US, and China
Credit: Pixabay

With full international attention on the U.S.-China conflict, it is easy to forget that other nations might still have a role to play in how the world order evolves.

June 2019’s Shangri-La Dialogue gave some clues. The meeting began with Singapore Prime Minister Lee Hsien Loong’s keynote speech, in which he argued that while Asia continued to value the United States’ presence, the U.S. needed to learn to accept China’s rise. This was “met with shock, dismay and even […] a measure of incredulity by some U.S. delegates” there and continued “to reverberate in Washington policy circles,” Hugh White wrote in an op-ed for the Straits Times. The meeting’s last day had Singapore Defense Minister Ng Eng Hen noting that “if America First or China’s rise is perceived to be lopsided against the national interests of other countries or the collective good, the acceptance of the United States’ or China’s dominance will be diminished.”

In response, Bonnie Glaser — an American scholar and Asia observer — warned the region to “not draw a false equivalence between U.S. and Chinese actions.” Glaser suggested “the choice that Southeast Asia must make is not between the U.S. and China,” but “between a future in which there are shared rules and norms within a rules-based order that everyone upholds, and a future in which power prevails, the strong bully the weak and rules are disregarded in favor of a ‘might makes right’ approach.”

The choice Glaser presents is significant in having only two predetermined options. In essence, the message is: “With us, you get international rule of law; with the others, you get arbitrary exercise of power. Nothing you do will shift that.”

For realists, such reasoning resonates: Great powers are engaged in an existential struggle for supremacy. Onlookers don’t count. In Thucydides’s words, “[…] the strong do what they can and the weak suffer what they must.” Or, as Kenneth Waltz wrote two millennia later, “It would be as ridiculous to construct a theory of international politics based on Malaysia and Costa Rica as it would be to construct an economic theory of oligopolistic competition based on the minor firms in a sector of the economy.”

The difficulty, however, is that any marketplace — whether the world order or anyone’s favorite economic sector — is more than just a supply side populated by firms. Every market is powerfully moved by both supply and demand. Equilibrium outcomes result jointly from what the supply side provides and what the demand side chooses to buy. Providers and customers both have agency.

Call this the Thucydides Fallacy, where the demand side is ignored in the determination of world order.

In the marketplace for world order, small states like those in Southeast Asia are indeed price-taking consumers. But that doesn’t imply the demand curve is flat, nor that that curve cannot shift. Suppliers in this marketplace compete with one another to satisfy the demand for peace and prosperity, for trust, and for leadership in trade and technology, in return for compensation in the form of some kind of tribute, whether soft power, prestige, or the potential for alliance.

Hugh White’s re-statement of Lee’s speech describes Asia as an articulate and empowered consumer: “China’s conduct raises deep anxieties among its neighbors, but that does not absolve the U.S. of responsibility to react prudently and realistically in a way that does not make a bad situation even worse, which is what it is doing now. […] Asians will welcome America remaining a major strategic player in Asia but will not support America in trying to contain China’s legitimate aspirations for wider regional influence.” Outside Asia, this change has occurred too: A recent survey finds Germans trusting China more now, and the United States less.  

The equivalence that Glaser eschews is actually a clear-eyed view about the actions of alternate providers of world and regional order. Each supplier brings commodities to the market that provide benefits at the same time they inflict costs.

The economics taught at the world’s best universities — whether in the West or the East — says that when confronted with options, consumers scrutinize each offer to see how well it suits. Consumers should study advertising skeptically, appropriately weigh up costs and benefits, and choose consumption bundles to mix and match optimally to increase their well-being. In every marketplace, consumers should band together and extract the best deal from potentially oligopolistic or, worse, monopolistic suppliers. Consumers must be well-informed and organized, and ask for what works for them.

The demand side should exercise agency. Small states should learn they can affect outcomes for world order.

For Southeast Asia’s nation states, ASEAN is the canvas for a natural banding together of the demand side.

Choosing to be an empowered consumer, and thus remaining on the demand side, does not mean exposing oneself to bullying from the supply side. Sure, even in modern developed markets, large firms on the supply side can exploit customers by behaving as price-gouging monopolists or conniving oligopolists. The supply side will only behave in whatever way advances their self-interests. However, once the demand side becomes sufficiently wealthy in their own right and can generate an expected stream of sufficiently great value — whether in tribute, shared prosperity, the according of admiration or prestige, or in their potential as allies — the supply side becomes incentivized to treat the demand side with respect.

Rules-based markets and modern governments exist today because in history, roving bandits — initially nomadic, only plundering and marauding for short-term gains — became stationary bandits, once they understood they stood to gain by such change. These powerful groups began to nurture and protect the population around them that the latter might undertake longer-term agricultural cultivation, commerce, and investment. Jointly, all achieved prosperity with the aid of enduring economic institutions.

The powerful on the supply side protect the demand side because doing so advances their own self-interests, not because of rule of law.

The marketplace for a new world order also promises improved balance between supply and demand.

In the new world order Asia’s leadership does not mean Asia has to become an alternative architect. Instead, Asia only needs to be an articulate and empowered consumer, and allow demand and supply to work in the marketplace. With care, thought, and unity, ASEAN (and indeed all of Asia) can continue to make a success of this new marketplace for world order.

Danny Quah is Dean and Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy, National University of Singapore.