This three-part piece examines the re-arrangement of global economic and power structures underway. This part examines potential pathways for a divided world. The first part can be read here and second part here.
Different Pathways
The Ukraine conflict may be important in the re-shaping of a fractured world.
Individual trajectories within the Western bloc will differ, in part because of internal divisions. The most likely to peel off are Europe and Japan.
The US strategy appears to be to weaken Russia by sacrificing Ukrainians and Europeans as actual or economic cannon fodder. Given its high dependence on imported energy and sensitivity to fuel costs, Europe, especially Germany and Italy, risk a severe economic contraction, damage of its industrial base, loss of living standards and a banking crisis. Unsurprisingly, industrial leaders have written to the European Commission warning of an "existential threat" from higher power prices. They highlighted the danger that shutdowns pose to employment, taxes and ability to repay borrowings that would be ruinous for Europe. Environmentalist are concerned variously about recommissioning nuclear power plants and restarting dirty old coal fired power plants.
European unity is not deep. Precarious coalition governments in Germany and Italy may not survive internal disagreements on the issues. There are also complex differences within the European Union, with many former Eastern Europe COMECOM countries equivocal about the position on Russia and access to energy.
This means Europe is keen for a negotiated solution, if possible. It is noteworthy that despite periodic mindless moralising, the German Chancellor, French President and Italian Prime Minister have sought to maintain communications with Russia.
Japan’s high exposure to energy prices and also important trade relationship with China complicates support for the West’s position. The US's struggle to implement its east Asian 'Chip 4' alliance with Japan, South Korea and Taiwan to secure access to semiconductors highlight the tensions. The east Asian partners have cited trade and security concerns.
Australia and New Zealand's commitment to the Western alliance depends to a large extent on developments in relations with China.
Over 35 percent of Australian exports go to China, greater than the combined total to Japan, South Korea, India, the US and UK. Australian imports from China comprise approximately 20 percent of the total. China is normally Australia's largest source of higher education international students (over 160,000 or 38 percent). China is also its second-largest inbound tourist market (around 1.4 million arrivals) and the largest by expenditure.
Over 28 percent of New Zealand's exports and 38 percent of imports are to or from China. It is its second-largest source of tourism and 47 percent of foreign students at New Zealand universities are from China.
If the US were to place sanctions on China, then Australia and New Zealand would find it extremely difficult to trade with their major trading partner without broad exemptions which may not be forthcoming. The cost in national income would be substantial.
The problem is not exclusively antipodean as Europe is highly dependent on Chinese trade. In 2021, China was the third largest destination for European Union goods exports (10 percent) and the largest source for European Union goods imports(22 percent).
Outside of the economics, there are concerns about the Disunited States of America. Recent history has revealed a polarised nation divided between honest hard-working people, a thoughtful and able intelligentsia, oppressed minorities and racist, misogynistic, conspiracy theory subscribing, religious fanatics. For outsiders, the internal divisions, which border on a cold or hot civil war, are worrying in a strategic partner. Abrupt policy shifts in the wake of a never-ending electoral cycle complicates any alliance.
American foreign policy seems to be simplistic, Manichean, shaped by pursuit of Superman's goals - "fight for Truth, Justice and the American Way". The need to venture forth to slay foreign demons - starting wars, staging coups or otherwise interfering in the internal affairs of other nations - is unsettling.
The actual willingness or ability of America to support allies, other than with low-risk remote assistance and stand-off weaponry, is increasingly questionable. Outside of minor affairs like Panama and Granada, the US record in actual combat is poor. For Australians tied to the US and UK through the opaque 2021 AUKUS defence agreement, the possibility of being drawn into a military conflict with China and the prospect of the US cavalry not reporting for duty is becoming clear. Parallels to Great Britain’s abandonment of Australia during World War 2 are frequently drawn.
US economic support is also uncertain. Despite promises, America has, to date, been unable or unwilling to help meet European oil and gas needs. This is due to production constraints and prioritisation of domestic supply to keep prices low at home.
Playwright Harold Pinter's acceptance speech for the 2005 Noble Prize for Literature set out a widely held view of US foreign policy: "The crimes of the United States have been systematic, constant, vicious, remorseless, but very few people have actually talked about them. You have to hand it to America. It has exercised a quite clinical manipulation of power worldwide while masquerading as a force for universal good. It’s a brilliant, even witty, highly successful act of hypnosis."
More recently, the now demonised President of the Russian Federation Vladimir Putin provided a succinct, lucid and rational updated analysis: "Europe is about to throw its achievements in building up its manufacturing capability, the quality of life of its people and socioeconomic stability into the sanctions furnace, depleting its potential, as directed by Washington for the sake of the infamous Euro-Atlantic unity. In fact, this amounts to sacrifices in the name of preserving the dominance of the United States in global affairs…. The competitive ability of European companies is in decline, for the European Union officials themselves are essentially cutting them off from affordable commodities and energy, as well as trade markets. It will come as no surprise if eventually the niches currently occupied by European businesses, both on the continent and on the global market in general, will be taken over by their American patrons who know no boundaries or hesitation when it comes to pursuing their interests and achieving their goals."
America's partners are now increasingly suspicious of the rhetoric, disinformation and propaganda that masks American intent, which is to preserve its hegemony.
These concerns are shared by the non-West. In addition, they recognise the open hypocrisy. After having spent decades championing free trade and capital movement and forcing the Washington Consensus on other countries (most recently on Sri Lanka and Argentina), the West are busily implementing the very policies they derided – trade and capital restrictions, price caps, subsidies, nationalisation and replacing market forces with state controls.
For British statesman Lord Palmerston, countries had no eternal allies or perpetual enemies just permanent interests. It is probable that Europe, Japan and perhaps Australia and New Zealand will drift away from the alliance. The stance on Ukraine may be an indication of the long-term trajectory. Already, large protests have taken place in the Czech Republic against continued support of Kyiv and its effects on the cost of living.
The most durable support for the US (the current global empire) comes from the UK (the previous holder of that position). The British empire ended over six decades ago and its position as a great power has been declining for a century, since its penurious victory in World War 1. The UK's 'special relationship' with the US is little more than sponging off the latter's economic and military strength to maintain the illusion of British global standing. For the US, the UK is an useful messenger as evidenced by ex-Prime Minster Boris Johnson's obedient deliveries of missives to Ukraine.
The UK provides an useful road map to decline. Since the 1970s when it sought IMF assistance, the British economy has been propped up by a combination of North Sea oil, membership of the European Union and flight capital. Common market membership provided cheap labour (mainly from the East and South) and trade opportunities especially in financial services. Monetary inflows of frequently dubious origins from Russia, the Middle East, China and other less salubrious jurisdictions underpinned prosperity. It propped up South-East property markets, National Health System, cultural and educational establishments and 'cool Britannia'.
Today, North Sea oil production is in decline. Brexit means worker shortages, loss of trade and a reduced role for London as the centre for Euro financial markets. Sanctions mean the end of much of the previous inflow of capital. Brexit's promise of sovereignty and new trade opportunities may founder on the simple fact that Europe is hard to replace and Britain does not actually make much of anything anymore. Even the special relationship may be weakened if the UK decides to abandon the Northern Ireland protocols which the US insist should remain in place.
The UK's position perhaps provides a guide to America's fate. There are similar economic susceptibilities -- high debt, lagging infrastructure, a hollowed out industrial structure and problems of inequality. Both are poor societies where the less well-off rank badly and a small group of the rich fare particularly well skewing average incomes.
Food self-sufficiency is at risk due to climate change induced extreme weather. Energy independence is reliant on shale oil and gas production. Estimated US oil proven reserves that can be economically recovered is around 69 billion barrels -- enough for less than 10 years based on daily consumption of 20 million barrels. In contrast, Saudi Arabia, other Middle-East producers, Canada and Venezuela have reserves totalling more than 1,270 billion barrels. Barring new discoveries or new technologies, the US will revert to an old importer once the shale oil boom has run its course.
In The Rise and Fall of the Great Powers published in 1987, Paul Kennedy argued that great power ascendancy and decline correlates to available resources and economic durability. America's military overreach and military spending – greater than China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and South Korea combined– is unsustainable. Ungovernability, deadlocked body politic, elite looting and absence of leadership add to the problems.
America and the UK revel in the past. The UK, as the Queen's death evidences, love expensive and meaningless pageantry which is nothing more than tawdry nostalgia for empire. MAGA (Make America Great Again) too is a fantasy of return to a simpler, more prosperous and hopeful time.
But the facts suggest that the US will join the UK as a failed first-world state, a Somali with nukes. As historian Arnold Toynbee argued: "civilizations die from suicide, not by murder."
End of Empire
Commentators seek newsworthy bold predictions, clear timetables and markers. But poet TS Eliot, who sensed history's 'cunning passages', 'contrived corridors' and 'supple confusions', may provide better guidance to what lies ahead. Large systems do not fail quickly. British power has been falling for a century. The roots of the demise of the USSR can be traced back Stalin committing the Soviet Union, at the end of World War 2, to an unwinnable direct competition with an economically superior US.
But the signs are that a critical point is approaching. Structures are unravelling. Economic growth is stagnating. Resource scarcity, climate problems and resultant inflationary pressures are rising. High debt levels may prove difficult to sustain. The financial system is fragile. Global political, business and cultural elites are increasingly detached from the concerns of ordinary people. Geo-political tensions are high and the American-dominated unipolar world is under threat from within and without.
The internal contradictions of the existing order make change inevitable. The outcomes may be positive or negative. At the edge of chaos, the exact shape of any transformation is unpredictable and rarely simple. Great powers can undertake reforms, such as those America undertook during the Great Depression, to reemerge.
Writing in his 1930 Prison Notebooks, Anton Gramsci elliptically observed that "the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear." Whatever the epigram means, the contest between the West and its opponents, which is well under way, will shape the world for some time to come.
Satyajit Das is a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), A Banquet of Consequences RELOADED (2021) and Fortune’s Fool: Australia’s Choices (2022). His columns have appeared in the Financial Times, Bloomberg,WSJ Marketwatch, The Guardian, The Independent,Nikkei Asia and other publications. This is part of the web-only series of columns on newindianexpress.com.
© 2022 Satyajit Das All Rights Reserved