Global interdependence under stress

Tags: Op-ed
Global interdependence under stress
UNDER PRESSURE: Christine Lagarde (R) the managing director of International Monetary Fund, attends the plenary session during the G20 finance ministers and central bank governors’ meeting in Moscow on July 19, 2013
The start of every year provides a good opportunity to reflect on the previous 12 months and look forward to the next. However, this year, there is an added twist -- 2014 marks the centenary of the start of the First World War, the first of two massive conflagrations that cost millions of lives and irrevocably altered the course of many nations. A stream of books have been published on events that will — to so many — seem so far in the distant past. But are they?

On occasion, it is not so much the lessons of the past that are revealing, but what contemporary discussions about the past reveal about how we view the world today. Analysts point to the rivalry between the then rising, aggressive power (Germany) and then declining hegemon (the United Kingdom) and see parallels between China and the US. Those parallels have been made all the more acute by recent Chinese steps to assert control over territories claimed by several neighbouring nations. That Washington sprung so quickly to the defence of its Korean and Japanese allies rounds out the analogy or so the argument goes.

Such parallels are never exact, however, not least because Beijing has no desire to meet Berlin’s fate. Studying history is, after all, among the many things the Chinese do well! Moreover, while the US economy may only now be putting the economic crisis behind it, American military spending still dwarfs that of any rival. Plus, according to experts, American military technology is unsurpassed. Who betide anyone foolish to take on the US in a straight fight?

Still, in much recent commentary there is an evident nervousness. Gone are the bold assertions that prosperity and trade would lead to more democracies and fewer wars. You may recall the leading US newspaper columnist Thomas Friedman asserted that “people in McDonald’s countries don’t like to fight wars; they like to wait in line for burgers.” Once countries reached a certain threshold, they would turn their back on conflict, he asserted. Now, this theory was always a bit suspect. When asked, a McDonald’s spokesman argued that they didn’t really invest in risky locations, so it may be that peace leads to foreign investment, not the other way round. Yet, such claims were part and parcel of the times —a confident, if not outright faith, in the permanence of globalisation and peace.

What is striking about the commentary on the anniversary of World War I is the loss of nerve about globalisation and its effects. There’s much talk about complacency of the elites in 1993 and in 2013. No one’s arguing that the world is on the brink of another terrible war, yet the unease among (only western?) commentators is palpable. What could be driving this shift in perspective?

First and foremost, despite the reassuring purr of the leading international organisations and the recurring farce of G20 summits, deep down analysts know that the past decade has been terrible for international cooperation. A thin veneer barely masks the geopolitical rivalries, the failed summits on matters of global importance such as climate change, the botched reactions to the global economic crisis, and growing protectionism.

The naked pursuit of national self-interest has become all too obvious. The loss of nerve reflects the growing realisation that there is little self- or mutual restraint being applied in national, regional, and global decision-making. What matters to most governments, it seems, is not limiting harm to other countries, but appearing to do so. In such a world, analysts are right to wonder what could hold back a tyrant determined to cause mischief?

It doesn’t help that more and more matters are seen in zero-sum terms. For some matters, this is inevitable. After all, if my country controls some islands in the East China Sea, then your country doesn’t. But so many more economic matters are now seen in zero-sum terms. When global economy was growing much faster than it is today, that wasn’t so. Now governments are trying to reserve more of domestic markets for local firms. Others seek to segment world markets through bilateral and regional trade deals that disadvantage non-signatories. Financial regulations are rewritten to benefit banks at home at the expense of those abroad. Firms are discouraged from outsourcing, exchange rates manipulated and monetary policy conducted as if in a national vacuum, among others. How long can the current degree of global interdependence survive as more and more stress builds up in the system?

These developments will become ever more apparent in 2014, giving supporters of multilateral solutions precious little to “look forward” to. Perhaps, the lesson of 1914 is not the ultimate terrible outcome but that the interdependence of that era, as now, can create vicious cycles and that the system-wide breakers built into the international system after the Second World War should not be taken for granted.

(The writer is a professor of international trade and economic development at University of St Gallen, Switzerland)

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