Every January, political leaders from all over the world gather in a Swiss mountain valley. At the World Economic Forum in Davos, the assembled politicians agree to set aside their differences and to speak a common language. Closeted together in a ski resort, they restate their commitment to a single, global economy. They mingle cheerfully with the same multinational executives and investment bankers. They campaign to attract foreign investment and trade. For five days, the world’s leaders seem to agree on a narrative about how the world works. At Davos, even the most intractable political differences are temporarily smothered by the globalization consensus.
But at the Davos forum in 2009, it was clear that something had gone badly wrong. The meeting took place just four months after the collapse of Lehman Brothers had tipped the world into the biggest financial crisis since 1929. The international bankers who normally strutted proudly around the Davos cocktail circuit were in hiding as their institutions reeled and public opprobrium mounted. The Obama administration—locked in desperate economic negotiations at home—was conspicuous by its absence. With the Americans out of the way, Wen Jiabao, the prime minister of China, was the star of the Davos show.
One late afternoon, an audience of the world’s leading businessmen crowded into a seminar room to hear his views on the gathering economic storm. With China now the world’s largest exporter and the biggest single buyer of American government debt, the audience had every reason to listen intently. There was nothing overtly charismatic about Wen. A slight man in a suit and spectacles, his style was that of a senior manager reporting to the board. Toward the end of his talk, the Chinese premier dropped his bureaucratic manner and grew philosophical. In an effort to understand the crisis better, he said, he had been “rereading Adam Smith.” Perhaps showing off a little, Wen made the point that the book he was consulting was the eighteenth-century economist’s Theory of Moral Sentiments, rather than the much better known Wealth of Nations. For anyone with a sense of history, it was a bizarre moment. A leader of the Chinese Communist Party was openly turning to the founding father of free-market economics for guidance.
But while a communist leader was coming to the support of capitalism in Davos, some of the leaders of the major capitalist powers seemed to be flirting with communism. In the immediate aftermath of the collapse of Lehman, Nicolas Sarkozy, the president of France, had allowed himself to be photographed reading Marx’s Das Kapital, while Peer Steinbrück, Germany’s finance minister, observed that “certain parts of Marx’s thinking are not so bad.”1
This political and ideological confusion was understandable. The financial and economic crisis unleashed by the Wall Street crash of September 2008 threatened the globalization consensus that the leaders of the world’s major powers had all accepted. It created something close to panic in prime ministers’ offices and presidential palaces across the world.
Faced with the most serious economic upheaval since the 1930s, politicians fearfully looked back to the politics of the interwar period. Ed Balls, a British cabinet minister and the closest ally of Gordon Brown, the country’s then prime minister, observed gloomily just after the Davos meeting of 2009 that the world was facing a financial crisis that was even more serious than that of the 1930s, adding “we all remember how the politics of that era were shaped by the economy.”2
Over the next twelve months the world suffered its deepest recession since the Great Depression. Yet fears of a return to a 1930s world of bread lines, political extremism, and fascist marches did not materialize.
So was it all a bad dream? A scare story? Might it be possible to go back to international business, as it was conducted before the crash of 2008?
It would be a mistake to believe that. It is the argument of this book that the international political system has indeed entered a period of dangerous instability and profound change.
Over the past thirty years the world’s major powers have all embraced “globalization”—an economic system that promised rising living standards across the world and that created common interests between the world’s most powerful nations. In the aftermath of the cold war, America was obviously the dominant global power, which added to the stability of the international system by discouraging challenges from other nations.
But the economic crisis that struck the world in 2008 has changed the logic of international relations. It is no longer obvious that globalization benefits all the world’s major powers. It is no longer clear that the United States faces no serious international rivals. And it is increasingly apparent that the world is facing an array of truly global problems—such as climate change and nuclear proliferation—that are causing rivalry and division between nations. After a long period of international cooperation, competition and rivalry are returning to the international system. A win-win world is giving way to a zero-sum world.
Both as individuals and as a nation, Americans have begun to question whether the “new world order” that emerged after the cold war still favors the United States. The rise of Asia is increasingly associated with job losses for ordinary Americans and with a challenge to American power from an increasingly confident China. The crash has heightened awareness of American economic vulnerability and the country’s reliance on continued Chinese and Middle Eastern lending. Of course, even after the crash, the United States remains the most powerful country in the world—with its largest economy, its most powerful military, and its leading universities. But the United States will never recover the unchallenged superiority of the “unipolar moment” that began with the collapse of the Soviet Union in 1991.
Meanwhile, the European Union, the other main pillar of the Western world, is going through its most serious crisis since it began life as the European Economic Community in 1957. The steady progress toward “ever closer union” in Europe over the past fifty years was built on a win-win logic. The nations of Europe felt that they were growing stronger and more prosperous by merging their fates. The creation of a single currency and the doubling in the size of the Union between 1995 and 2007 fitted perfectly with the logic of globalization. Economic and political barriers between nations were being torn down. But the threat of contagious debt crises across Europe has provoked bitter recriminations within the Union, as countries like Germany worry that they will be dragged down by their neighbors. The process of European integration is threatening to unravel.
Zero-sum logic, in which one country’s gain looks like another’s loss, has led to a sharp rise in tensions between China and the United States. Zero-sum logic is threatening the future of the European Union as countries squabble over the costs of managing a single currency. Zero-sum logic has prevented the world from reaching a meaningful agreement to combat global warming. The United States, China, the EU, and the major developing economies all hesitate to move first—for fear of crippling their domestic economies, and so boosting the relative power and wealth of rivals. A similar competitive rivalry blocks the world’s ability to find cooperative solutions to nuclear proliferation, with the major powers maneuvering for advantage rather than acting decisively to combat a common threat. Zero-sum logic hovers over other big international challenges, such as shortages of energy, food, and water as the world’s biggest powers struggle to secure resources.
The emergence of a zero-sum world undermines the key assumptions of U.S. foreign policy since the end of the cold war. Both Bill Clinton and George W. Bush believed that it was in America’s interests to encourage the rise of major new powers, such as China, because globalization was bending history in America’s direction. In 1999 Bush captured the conventional wisdom of the age when he observed, “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy. … Trade freely with the Chinese and time is on our side.”3 Clinton even came to believe that globalization was changing one of the oldest rules of international relations, the notion that rising and established powers would clash with each other as they jostled for power. His aide James Steinberg later recalled that the president “didn’t see that there had to be inherent competition among nations. The success of some was not threatening to others. It was their failure that was threatening.”4
Clinton’s belief in the possibility of a win-win world was not a personal eccentricity. One of the most influential political ideas of the thirty years between 1978 and 2008 was the theory of the “democratic peace.” The idea was that capitalism, democracy, and technology would advance simultaneously—and global peace would be the end product. In a world in which all the major powers embraced democracy and market economics—and globalization and high technology drew people together—war might become a thing of the past. Consumerism and connectivity would trump conflict. People would visit McDonald’s rather than fight each other. They would surf the Internet rather than riot in the streets.
The notion of a win-win world did not seem incredible in the heyday of globalization, for this was also an Age of Optimism in much of Asia and in the European Union. Predictions that the Chinese miracle would be ended by the Tiananmen Square massacre of 1989 proved wide of the mark. Instead Chinese growth was relaunched at an even faster pace, after Deng Xiaoping’s “southern tour” of the country’s manufacturing heartlands in 1992. Almost two more decades of rapid economic growth led the Chinese cheerfully to embrace the idea of a win-win world. Hu Jintao, China’s president, even used the phrase when he toured a Boeing plant near Seattle in 2006, saying that “Boeing’s co-operation with China is a vivid example of mutually beneficial co-operation and a win-win outcome.”5
By the mid-1990s it was clear that India too was growing rapidly, and the rise of the Indian information technology (IT) industry became one of the clichés of globalization. Even the Asian economic crisis of 1997–98, which temporarily devastated the economies of Thailand, Indonesia, and South Korea, could not alter the sense that the rise of Asia was inexorable. The emerging Asian middle classes had reason to feel optimistic on a personal level, for as Kishore Mahbubani, a Singaporean intellectual, put it, Asia’s rise involved “the empowerment of hundreds of millions of individuals who previously had felt a total sense of powerlessness in their lives.”6
The years from 1991 until 2008 were also years of hope in Europe. The stability and prosperity of the EU proved a magnetic attraction to its neighbors. Between 1994 and 2007, the Union more than doubled in size, going from twelve to twenty-seven members as it incorporated most of the countries of the old Soviet bloc as well as some that had remained neutral during the cold war. By the time of the crash of 2008, the European Union had almost 500 million citizens and—taken as a whole—was the largest economy in the world.
In 2007, the year before the crisis struck, optimism about the global economy hit new heights among the Davos crowd. Steve Forbes, a publisher and former U.S. presidential candidate, exulted, “This is the richest year in human history. The best way to create wealth is to have free markets and free people, and more and more of the world is realizing it.”7 That same year, David Hale, an international economist (and, like Forbes, a fixture on the Davos circuit), wrote that “the world economy is currently experiencing a level of growth unsurpassed in human history.” Better still, as Hale pointed out, this new global boom was far more inclusive than previous long expansions, because “during the past 20 years, China, India, the former Soviet Union, Eastern Europe, and Africa have rejoined the global economy.”8
The global economic crisis unleashed in 2008 ended this period of heady optimism. During the heyday of globalization—from 1978 until 2008—successive American administrations were committed to the idea that globalization was good for America, good for China, and good for the world in general. But when American unemployment rose sharply in the wake of the Great Recession, that belief began to crumble in the United States. By the beginning of 2010, the basic rate of American unemployment stood at around 10 percent—but it rose to 17 percent once “discouraged” workers and part-timers who would prefer full-time work were included. At the Davos meeting in January 2010, Larry Summers, President Obama’s chief economic adviser, told the assembled plutocrats that one in five American male workers between ages twenty-five and fifty-five was now unemployed. In the 1960s, 95 percent of the same group had been in work. Summers strongly implied that Chinese trade policies were partly to blame—and he was not alone in his diagnosis.9 Even mainstream American economists were beginning to blame Chinese “mercantilism” for financial instability and job losses in America.
The return of economic growth to the United States in 2010 could not take the edge off these fears. It had been bought at the expense of a huge and unsustainable increase in deficit spending by the government. The surge in America’s national debt sharpened fears about the future even as it softened the immediate economic crisis.
Rising economic tensions between America and China may well lead to a serious increase in trade protectionism in America. That in turn would feed Beijing’s paranoid fear that America is ultimately intent on blocking China’s rise—poisoning political relations between the world’s two most important powers, and so destabilizing the global system.
Europeans are also questioning the merits of the new world order ushered in by globalization. Leaders such as President Nicolas Sarkozy of France call for the EU to protect Europeans from “unfair competition” from Asia. The European Union, as an institution, is losing confidence. The whole construction of the EU was based on an effort to replace the ruinous and bloody rivalries of European history with a win-win logic based around mutual economic interests. But in the aftermath of the crash of 2008, rising public debts in such countries as Greece and Spain have cast doubt on the future of one of a united Europe’s proudest achievements—the single European currency that came into being at the beginning of the twenty-first century. Greek leaders, under pressure from Germany to cut spending, made dark references to the Nazis’ occupation of Greece during the Second World War—precisely the sort of terrible memories that European unity was meant to banish.10
Europe’s leaders have also taken to agonizing publicly about the continent’s declining importance in a world that looks set to be dominated by Asia and the Americas. European voters are reflecting this defensive new mood. They have turned against further enlargement of the Union and are increasingly voting for radical, anti-immigration parties.
The risks of new international tensions and conflict are heightened by the emergence of a new set of dangerous global political and economic problems that, if they remain unsolved, could provoke wars, environmental disaster, and debilitating new economic shocks.
What are these dangers? President Barack Obama gave a succinct summary in his first major address to the United Nations, in September 2009: “Extremists sowing terror in pockets of the world. Prolonged conflicts that drag on and on. Genocide and mass atrocities. More and more nations with nuclear weapons. Melting ice caps and ravaged populations. Persistent poverty and pandemic disease.”11 President Obama’s list was alarming—but by no means comprehensive. To his list can be added a further set of perplexing global problems: the threat of new trade wars and the international political tensions they will foster; a rising number of failing states and the cross-border problems they spawn; the struggle between nations to gain control of natural resources, in particular oil and food; the renewed strength of authoritarian regimes and ideologies that threaten to clash with the democratic world; cross-border flows of refugees and illegal immigrants; and the growing power of international organized crime in places such as Mexico and the Balkans.
Even if tensions between a wounded West and a rising Asia can be contained, the relative weakening of the United States makes it significantly less likely that the world will be able to find solutions to these festering international problems. In the aftermath of the financial crisis, there was much talk of the need for a “new Bretton Woods”—a reference to the conference in 1944 that laid the foundations for the international architecture of the postwar period. But in the aftermath of World War II, America was powerful enough to design the world’s new institutions—and then to ensure that they were accepted. In today’s world, the United States does not have the power to impose solutions to international political problems. Without a dominant power, multipolar, multinational forums for negotiation and debate are liable to get bogged down and to fail—as the international climate-change talks have amply demonstrated. In this new world, the international problems referred to by President Obama are more likely to worsen than to be solved.
Phrases like “global economic imbalances,” “failed states,” and even “nuclear proliferation” can sound abstract and even a little dull. But failure to deal with these problems effectively over the next decade could cause global political turmoil. Among the biggest risks is the danger of a major new war in the Middle East, provoked by a failure to rein in Iran’s nuclear program. The debt crisis in Europe or trade wars, triggered by American anger at Chinese mercantilism, could plunge the world economy into a severe new downturn. The inability to stabilize failing states could see countries such as Afghanistan and Pakistan slipping further into violent anarchy, with dangerous consequences for the rest of the world. Over the longer term, a failure to deal with climate change could provoke the most serious international crises of all—leading to flooding, famine, mass migration, and even war.
Crises such as these ultimately threaten the future of the whole world. Yet the world’s major powers are unable to deal with them cooperatively. That is because a damaged and dysfunctional world economy and the growth of new international rivalries—in particular between the United States and China—are increasingly trapping the world in a zero-sum logic, in which one country’s gain looks like another’s loss.
This dark new international mood contrasts sharply with the liberal dream of the past thirty years of a more prosperous and peaceful world, pulled together by the ineluctable forces of globalization and regulated by markets and American power.
To understand the dilemmas facing today’s world’s leaders you need to understand this recent past. That is why the first two sections of this book are devoted to the international and intellectual history of the past thirty years.
Starting the narrative in 1978 may not seem obvious to all readers. Americans, in particular, have tended to regard the defining moments of recent history as the end of the cold war and the al-Qaeda attacks on the United States on September 11, 2001. One of the best recent histories of U.S. foreign policy is subtitled “From 11/9 to 9/11”—the two dates in question marking the fall of the Berlin Wall and the terrorist attack on the United States.12 But the collapse of the Soviet system and 9/11 were part of an even bigger story—the creation of a globalized world economic and political system. The two key events framing that story were the opening of China in 1978 and the 2008 crash.
I have divided this thirty-year epoch into two distinct periods. The first section of this book deals with the Age of Transformation, which began in 1978, and explains how and why the world’s major powers all embraced globalization—and how this sparked the rise of China and India. Section two is about the Age of Optimism, from the collapse of the Soviet Union in 1991, through to the near collapse of the international financial system in 2008. This explains how globalization created a win-win world that stabilized relations between the world’s most powerful nations. The final section of the book focuses on the Age of Anxiety. It explains why international politics are about to get more dangerous and unstable—and what can be done to break away from the dangerous logic of a zero-sum world.
© 2011 Gideon Rachman
American Power in an Age of Anxiety
American Power in an Age of Anxiety
Successive presidents have welcomed globalization and the rise of China. But with American unemployment stubbornly high and US power facing new challenges, the stage is set for growing rivalry between America and China. The European Union is also ripping itself apart. The win-win logic of globalization is giving way to a zero-sum logic of political and economic struggle.
The new world we now live in, an age of anxiety, is a less prosperous, less stable world, with old ideas overthrown and new ideologies and powers on the rise. Gideon Rachman, chief foreign affairs columnist for the Financial Times, shows how zero-sum logic is thwarting efforts to deal with global problems from Afghanistan to unemployment, climate change to nuclear proliferation.
This timely and important book details why international politics is now more dangerous and volatile—and suggests what can be done to break away from the crippling logic of a zero-sum world.