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.
