It became commonplace to say that the world changed beyond recognition after the terrorist attacks on New York City and Washington D.C. on September 11, 2001. Experts began to speak of a “new geopolitical reality” and even described the “war on terror” as “World War IV.” The United States, which took up the mission to fight the omnipresent, yet invisible enemy, seems to have restored, if not a leading, then at least a dominant role in the world. The closing point for “the long 20th century” was defined, and supporters of the end-of-history theory fell into disgrace.

However, this new geopolitics rested on the same foundation as did the Cold War system, namely the economic domination of the Western world, above all by the U.S. America remained the absolute economic leader in the world until the first decade of the 21st century. The U.S. accounted for 24.8 percent of global GDP in 2001; the value of U.S. public companies stood at 34.7 percent of the combined capitalization of all stock markets; U.S. investment in R&D made up 38.4 percent of the global figure; the U.S. defense budget accounted for 46.2 percent of all global defense spending, and 70.7 percent of all central banks’ reserves were denominated in U.S. dollars.

America’s share of global GDP and of global industrial production did indeed decline, but, together with European Union, the “Atlantic World” controlled about one half of the global economy – just as in the early post-World War II years.

However, the situation began to change in the new century, something the U.S. and its future allies in the “coalition of the willing” have decided to ignore for now. The changes took place in two directions.

A SYMBIOSIS OF RISK

On the one hand, there emerged a group of economies within the Western world that chose an expansionist – and therefore risky – financial policy. The prerequisites for this policy had taken shape back in the 1970s-1980s when the U.S. abandoned the gold standard while developing countries resorted to heavy borrowing on the global capital markets, as they believed their natural resources, sold at record high prices in those years, would guarantee their financial stability for ever.

The 1980s did not bring a collapse of the U.S. economy under pressure from the Third World, but quite the opposite. In the first half of the 1980s, the United States launched a brave battle against inflation, which resulted in appreciation of the dollar, a decline in commodity prices and sweeping defaults by the countries of the South on their debts. Further developments, including the continued financial difficulties of the global periphery (ranging from the collapse of the Soviet Union and the Mexican default of 1994 to the Asian financial crisis and the defaults of Russia in 1998 and Argentina in 2001), brought the U.S. government and its allies to the conclusion that the financial system based on the U.S. dollar was stable. This point was backed by the rapid growth of stock markets in all developed countries in 1997-2000 and by the steady strengthening of the dollar over the same period. All these encouraging developments finally led to a large-scale liberalization of the financial sector and to the repeal of the Glass-Steagall Act in 1999.

The performance of Western economies was impressive. According to the World Bank, the ratio of stock market capitalization to GDP in the U.S. and Britain grew from 62 and 78 percent, respectively, to 145 and 171 percent between 1995 and 2007. Over the same period, the net corporate and household debts increased from 138 and 142 percent of GDP to 228 and 249 percent. The average house price in the U.S. and Britain soared by 138 percent and 164 percent. Entirely new sectors of the financial market appeared, including the derivatives market, with the nominal size, according to the Bank for International Settlements, increased from $40.1 trillion to $683.7(!) trillion. Coincidentally, 43 percent of this market at the beginning of 2008 was controlled by British, and 24 percent – by U.S. financial institutions.

The “wealth” of the Western world grew rapidly, yet it was largely fictitious as real production kept moving to less prosperous countries. Far from hailing or blaming such a policy, I would like to point at its most important feature: the U.S. and the United Kingdom (and to a lesser extent Spain with its experiments in mortgage loans; Ireland and Iceland with their banking patterns; and Italy with the largest governmental debt among European countries) became a group of countries that may be labeled as risk-producers, or risk-makers. This had to emerge at some point.

On the other hand, many things have changed in Third World countries, as well. After a long period of uncertainty, which began with debt crises of the 1980s and ended with emerging from the Asian meltdown in the late 1990s, almost all “victim states” have dramatically changed their financial policies. They gave up massive foreign borrowing in favor of increasing their trade surpluses and accumulating hard currency reserves. Factors that made this possible included the rapid economic growth in China and mounting energy and commodity prices.

These factors brought about dramatic changes in trade balances. For example, exports from China in 1996 did not exceed Belgian exports ($172 billion), whereas in 2008 Chinese exports reached $1.46 trillion, the second highest figure in the world. Also, oil exports from the Gulf region in 1998 stood at $67 billion, while in 2008 this figure amounted to $539 billion.

At the same time, foreign direct investment poured into fast-developing East Asian economies and oil producing countries, boosting their currency reserves (which were reinvested in government securities of developed countries, primarily of the U.S.). As a result, developing countries in East Asia, oil-producing Gulf states, as well as Russia, increased their total hard currency reserves between 1999 and 2008 by more than $4.9 trillion (from less than $600 billion in 1998).

Those countries, by buying U.S. Treasuries, financed almost 54 percent of the U.S. budget deficit. Meanwhile, U.S. companies and banks lent less and less money to their own government: as the average return on the T-bond fell from 6.2 percent in 1999 to 2.1 percent in 2007-2008, U.S. banks reduced the share of T-bonds in their assets from 9.7 percent in 1995 to 1.3 percent in 2008. As in the first case, I am not prepared to comment on such a policy conducted by developing countries, but it is obvious that these nations and their state institutions, investing in Western (mainly U.S.) economies, became global risk-consumers or risk-takers and thus contributed to the “risk economy” of the first decade of the 21st century.

Thus the world divided into two economic camps. Some countries “blew” financial bubbles, which increasingly departed from economic realities. Others dampened the situation by buying dollar assets. Regions that remained outside this “risk economy” included Continental Europe (with its own currency and an almost zero trade balance), Latin America (which focused on the creation of a common market and had a relatively cool attitude towards the U.S.) and Africa (which was simply not involved in the global economy). But this economic picture is not interesting per se; it is notable from the point of view of the policies conducted today by global risk-makers and risk-takers.

An inclination towards risk in the economy has now transformed into a willingness to make risky decisions in politics as well. It was hardly pure chance that it was the U.S. that took a decisive initiative in building a new world order, and that Britain, Spain and Italy formed the backbone of this coalition, whose members followed the U.S. into Iraq “without fear or doubt.” The sense of omnipotence created by financial fictions evolved into a willingness to risk one’s political influence.

At the same time, China, Russia, Arab nations and some other countries, among them Venezuela, which thought they were powerful geopolitical actors – mainly because of their integration into the Americanized world (like China) or because of speculative price increases on commodity markets (commodity exporters), began to talk about the need to change the global political and economic configuration and establish a “multipolar” world.

This “multipolar” world, which has not become a reality yet, may turn out to be far more dangerous and unpredictable than the “unipolar” world of the turn of the century or even the “bipolar” Cold War world. The trends in the last decade show that the new geopolitics is becoming “geopolitics of risk;” as Europe withdraws from the global political game, risk-makers and risk-takers are behaving more and more decisively.

The U.S. has over the past ten years intervened militarily in Serbia, Afghanistan and Iraq and until recently demonstrated willingness to use force against Iran.

On the other hand, Russia responded harshly to Georgia’s “anti-separatist” operation in South Ossetia – it went into Georgian territory and recognized the independence of two breakaway Georgian regions. China has already become the world’s second largest defense spender; it is building military bases along the entire perimeter of the Indian Ocean and has deployed troops in Sudan and Myanmar.

Risk-makers and risk-takers are equally negative about the majority of recent humanitarian initiatives, be it the Mine Ban Treaty or the International Criminal Court. The U.S. and its allies – even at the level of experts, not policymakers – are saying more and more openly that China and Russia are the main sources of obvious challenges, if not clear dangers, in the 21st century. The two countries have responded in kind, strengthening the Shanghai Cooperation Organization, which they view as a “natural counterbalance” to the “center” of the contemporary world.

THE U.S. AND CHINA – DIVIDING THE WORLD BETWEEN THEMSELVES?

What can result from the increasing confrontation between risk-takers and risk-makers? And is it fact at all? What if it is a figment of the imagination, and the U.S. and China are the Group of Two that will become the core of a new world order?

Undoubtedly, the U.S. and China are gradually forming one of the most important (although somewhat hypertrophied, with emphasis on trade and finance) economic and trading links in the world of today. FDI between the two countries totaled $70 billion in 2008; their aggregate trading transactions amounted to $409.3 billion; while the value of U.S. Treasuries held by Chinese financial institutions exceeded $760 billion. (For comparison, the U.S. and the European Union have “reverse” indicators of their economic interdependence – the Europeans hold Treasuries worth $460 billion dollars; U.S.-EU trade stands at $675 billion; and total U.S. and EU investment in each other amounts to $2.6 trillion.)

At the same time, China is not a democracy – a factor viewed by U.S. leaders as an obstacle to political rapprochement with that country. The Chinese economy has become increasingly statist in the past five years; defense spending in China has been growing by an average rate of 12 to 15 percent a year; while Beijing’s foreign-policy preferences have been straying farther away from Washington’s. In addition, the U.S. and Chinese economies differ in structure and quality, in contrast to the economies of European countries; yet they supplement each other. This implies that each of the parties can view itself as dependent on the other party (maybe even too dependent), which may exacerbate conflicts between them.

China will not likely pose a real threat to the United States in the near future, yet there are some obvious signs that China’s “peaceful rise” makes the world less comfortable for the U.S.

First, the U.S. has never dominated politically in a world where it was not an economic leader. Today all the prerequisites are in place for the U.S. to lose its economic and financial dominance in the near future, and China will surely become the new “number one.” This factor may increase the aggressiveness and unpredictability of the United States, rather than China, as Washington would naturally want to keep the status quo.

Second, China, already viewed as a “second pole” in a new multipolar world, will certainly build its foreign-policy identity on moderate anti-Americanism (or, rather, skepticism towards the United States).

Third, and far from final, both the United States and China, which have recently been demonstrating a cool attitude towards the formation of a more binding world order based on European approaches, are therefore less predictable political actors than EU countries.

Frankly, I do not believe that the U.S. with its messianic ideology and 20th-century history will be able to calmly and impartially watch the rise of China; its becoming the largest economy in the world; the strengthening of the Shanghai Cooperation Organization (which I think is unlikely, but you never can tell); the formation of a Chinese zone of influence in South Asia and the Indian Ocean; and other developments of this kind. Moreover, the current crisis will accelerate the formation of a “post-American” world and Washington’s concern will only increase.

In addition, speaking frankly again, I do not believe that China does not pose an economic or political threat to Russia today, nor that Russia is interested in consolidating its subordinate position in an alliance with a non-democratic nation and in becoming a raw-material appendage of a state that itself serves as a industrial appendage for the Western world. This is why – from the point of view of both Europe and Russia – there is nothing positive in the formation of a new bipolar world centered on Beijing and Washington.

A very primitive Realpolitik will return to this world and allies of both parties will become bargaining chips in their geopolitical games. At the same time, the emergence of China as a new center of economic and political power, alien to the West, can change world politics for the better and make the 21st-century world more cohesive and better organized.

A NEW WEST

The rise of the new Eastern giant could prompt Western nations to rethink their place and role in the world, which would be very timely. French political analyst Dominique Moisi wrote in Foreign Affairs in 2003 that the end of the Cold War marked a transition from a “two Europes, one West” world to a “one Europe, two Wests” world.

For as long as the idea of the “end of history” seemed viable in the 1990s, competition between the two models of Western civilization looked, if not natural, then at least admissible. But today, after a drastic drop in the political and now economic “authority” of the U.S., the existence of “two Wests” is a luxury in a world where a “new East” is taking shape, which is much more “Eastern” and much more powerful than the one that confronted the West during the Cold War.

Rethinking the nature of Western civilization is very important today – not only because ties between the U.S. and the EU need to be strengthened, or because the EU’s positive experience in involving ever new states in its stable and democratic development needs to be mastered and followed up. Another reason for this rethinking is that in the 1990s-2000s the West – deliberately or due to errors in its political calculations – alienated many countries that are an organic part of it.

During the 1990s, the U.S. and Europe made no attempt to integrate politically, economically or militarily Russia and the majority of other post-Soviet countries in the European part of the former Soviet Union, which in the early 1990s were ready to join the Western world. By the early 2000s, Russia was almost lost for the West, as it came under the control of moderate authoritarianists favoring a state-controlled economy and unlimited sovereignty. The same thing happened in Latin America in the first decade of the 21st century where discontent with the U.S. in the second half of the decade resulted in landslide victories for demagogic nationalist forces that hid behind ultra-leftist slogans.

Meanwhile, both Russian and Latin American societies are built on Western culture, whose positive identification has evolved in recognizing their individual differences from other versions of European civilization. The greatest mistake that the Western world could make now is not to try to reverse Russia’s gradual drift towards China, which is equally dangerous for both the West and Russia itself. A similar mistake would be to watch silently and with apparent indifference the strengthening of China’s economic positions in Latin America.

The rise of Beijing inspires hope that the West will formulate a more responsible geopolitical agenda for the first half of the 21st century. Without creating a global anti-Chinese alliance, the U.S. and the European Union might try to expand the boundaries of the Western world, while its potential and benefits of cooperation with it continue to be an attractive factor for the governments and peoples of countries gravitating, in one way or another, towards the West.

Implementing this strategy requires innovative solutions and radical actions. NATO, as a U.S.-European military alliance, could be transformed into PATO (Pan-Atlantic Treaty Organization) and invite Russia, Ukraine, Mexico, Brazil and Argentina to participate in it. Moreover, it could declare itself to be open to all countries of Eastern Europe and Latin America. The U.S., EU, Russia, Mexico, Brazil and Argentina could be the founders of a new economic organization that would repeat in its main features the economic structure of the European Union and that would promote the proliferation of free trade, introduce common rules for protecting investments and developing competition, and expand the application zone of common standards and common rules for regulating labor and social legislation.

The priority objective of these measures would be the integration of the United States – militarily the strongest, but economically and geopolitically a less and less predictable nation in the world – into the framework of an association that could become the “center of attraction” for the rest of humanity.

“The Broader West” could become an international economic and political actor of an unmatched scale. Simple calculations show that its total population could amount to 1.65 billion people and that its share in the Gross Global Product would vary from 68 to 71 percent, in world trade to about 76 percent, and in the export of capital to more than 80 percent. Countries in this new bloc would account for almost 35 percent of men under arms in the world, for 78 percent of global military spending and over 94 percent of all nuclear weapons on the planet.

The superiority of “the Broader West” in technology and innovation needs no comment. And most importantly, the involvement of human and natural resources of Russia and Latin America would make it an absolutely self-sufficient economic bloc independent of the import of labor, minerals and energy resources from outside its own borders. It is only within the frameworks of such an association – stretching from Anadyr to Hawaii and from Bergen to Tierra del Fuego – that Europe, the United States and Russia would feel safe and would enjoy all the benefits of the free movement of goods, capital and people across half of the Earth’s inhabitable land.

Such an alliance would be advantageous to all its members.

First, it would breathe new life into the former North Atlantic alliance, which can be undermined by the United States’ gradual financial and economic decline even more than by reckless U.S. actions in the Middle East.

Second, it would set a clear vector for the development of Russia, which now is unable to independently modernize its economy and become a country that would be at least relatively comparable to China in economic terms.

And third, it would help integrate the fast-developing Latin American continent into the Western world’s orbit, as the formal “Westernization” of Mexico, Brazil and Argentina, which already are in the sphere of Western influence, would essentially change the balance of forces in Latin America and would ultimately bring about the fall of populist regimes in countries like Venezuela and Bolivia.

In fact, this would be a Eurocentric structure, European in spirit, which – paraphrasing NATO’s task formulated after World War II – would make it possible to “keep America in, and China out.”

At the same time, one must realize that the main objection to these plans (along with the difficulty of their practical implementation) is the reaction of China, which will certainly view the emergence of such a structure as the construction of a “cordon sanitaire” around it. Beijing is already sensitive to the desire of the West – which so far is losing the economic competition to China (although both parties do not always play fair) – to prevent China from regaining its “natural” place in the world economy and politics.

Therefore such a policy could bring about more dangers and threats rather than help overcome them. This possibility actually exists and one should not ignore it; but it is much better to be aware of the danger in advance and to prevent a situation where this danger becomes obvious and immediate than to lend oneself to “appeasement” ideas, which have never been successful.

It must be emphasized again that it is not very likely that the reunification of the West will translate into an anti-Chinese alliance, primarily because none of the participants would be interested in a military confrontation with China (and if someone tries to move in that direction, he will be stopped by the other members of the bloc). In addition, the association of such diverse countries will require a rethinking of the values and principles that are now considered to be “Western” and will thus inevitably reduce the criticism leveled at China now for its “limited liberalism.” And finally, with the exception of Russia, members of the new union will not include countries that China views as its potential “zones of influence” (Central Asian states) or as “potential rivals” (India and Japan).

While economically China is now one of the main actors in the international arena, it remains a strong regional power both militarily and politically, building its policy on assessments of its relations with Japan, India, Russia, Pakistan, Myanmar and Southeast Asian countries. Many experts say that Asia is a region where there is a very high risk of conflict (partly because of China’s rise). The formation of the new community, which will undoubtedly be the most powerful military and political player in the world, could significantly reduce the risk of crises caused by the desire of individual countries to become equal geopolitical actors – just because this task is simply unfeasible.

* * *

Philosophers have been discussing the decline of the West for centuries; yet it is only now that this theory has begun to receive clear confirmation. For the first time since the 17th century (and for the first time ever, if we view the world as a united entity), the center of economic power is shifting from the North Atlantic to Asia, and this is occurring amid continuing globalization. Also for the first time, internal rational ideologies, formed within the framework of Western civilization, no longer govern the world. Moreover, rationality itself is in crisis, yielding popularity and influence to religious beliefs that overemphasize the division of mankind into groups and civilizations and that seek to expand by exploiting people’s emotions and prejudices.

These changes make the world increasingly ungovernable and basically different from the times when Europeans could easily exercise political and military control over the larger part of the globe. International alliances and organizations set up in the 20th century are now unable to even maintain the illusion of order that they were meant to consolidate. The growing variety of cultural and political traditions is gradually emasculating the very idea of progress as seen by the Europeans, replacing it by the anything-goes principle, which may prove very dangerous.

The traditional North Atlantic “West” is unable to reverse this trend. Talk that the 21st century will be as “American” as the 20th century was does not sound convincing – just like any linear predictions in an epoch of change. This century will be neither “American” nor “North Atlantic” – but neither the Americans nor the Europeans or the Russians are interested in seeing the 21st century becoming “Asian” and especially “Chinese.” Today as never before all of them need unity – not in order to create a military or political alliance hostile to some country, but, realizing the commonality of their cultural and historical roots in the face of something “genuinely different,” to try to make the world a better place. If this attempt succeeds, the current financial and economic crisis will not herald the decline of the West, but it will become a turning point towards the restoration of its historical role.