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World Order in Peril

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Faced with economic and social instability, countries are beginning to wind back the globalization clock. However, the international framework built after 1945 may well endure if policymakers take the right steps.

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© REUTERS/Neil Hall

This year may be remembered as a turning point. The world appears to be pivoting away from a process of ever deepening integration and toward one characterized more by fragmentation and confrontation, both between and within states. We may even be witnessing a return to the anarchic society of nation states that followed their rise to prominence on the European continent in the 18th and 19th centuries. If so, the international institutions that provided the framework for “win-win” international relations after World War II will have proven only marginally more durable than their predecessors, which failed the tests of the 1930s.

A key question, therefore, is how the profound changes of the past half century – from advances in technology and communications to rising global wage levels and widespread urbanization – will interact with the re-emergence of these nationalist pressures.

Is the benign period of Western-led economic globalization coming to an end? What is driving the new era of populist, identity-led politics? How might these dynamics affect geopolitics? Finally, are existing international institutions capable of preventing a return to the violence and zero-sum thinking of the past – and if not, what are the alternatives?

The Global Economy: End of the Rope?

In the fifty years after 1945, citizens of the Western world grew accustomed to a slow but gradual improvement in their welfare and prosperity. The process began after the United States emerged as a victor from World War II and chose to extend a security umbrella under which its allies were able to rebuild their economies in a safe and rules-based environment. With US protection, all signed up to the notion that opening markets to trade and foreign investment was generally preferable to protection under state control.

This process of market opening has continued ever since. Multilateral trade rounds were shadowed by deeper regional initiatives, the most advanced being the EU’s 1992 single market, which removed regulatory barriers to trade. There are exceptions: agricultural markets remain highly protected, and all states retain sectoral restrictions on foreign direct investment. But overall, free markets became the norm.

After 1992 the European Union began its process of enlargement to the east, bringing workers with GDPs per capita far lower than those of their Western European counterparts into the EU. Investment flowed east, while workers from Central Europe traveled west. In Latin America, governments overcame their historical suspicions and sought opportunities to integrate with the US – Mexico joined the North American Free Trade Area (NAFTA) in 1994. Most significantly, China decided to open up its manufacturing markets to foreign trade and investment as a central lever to modernize its domestic economy. Its entry into the WTO in 2001, with US support, brought several hundred million well-educated, efficient, and low-paid Chinese workers into the global labor market.

The impact of these developments has been dramatic. The size of the global economy and, gradually, the global middle class grew. Cheap imports from China and other developing economies eased price inflationary pressures and helped raise living standards in the West.

But they also undercut the competitive dominance of many of their Western counterparts. This process was exacerbated by the high social costs of the Western welfare state, which had been affordable so long as Western countries were at the top of the value-added chain of global production, but looked increasingly unsustainable as these societies aged and others countries made the same products – or better – at far cheaper prices.

This decline in relative wealth across much of the West was disguised by a growing reliance on credit in the 1990s and early 2000s, as individuals borrowed against rising property prices and governments built up debt rather than reform welfare systems or raise taxes. In the end, this approach proved unsustainable, and collapsed in the global financial crisis of 2008. The good news was that governments in the West had learned the lessons of the 1930s and provided financial stimulus to ease the impacts of the crisis rather than raising protectionist barriers. But while economies stabilized, the political damage to the Western model that has served as the anchor of international prosperity and stability was immense.

The Rise of Identity Politics

When combined with the bad decisions and failed policies of the Afghanistan, Iraq, and Libya interventions, and the lack of preparedness for subsequent waves of migrants and refugees, levels of popular trust in governments and elites across the West have plummeted in the past five years. Established political parties had already gravitated away from their ideological roots on the right and left toward the technocratic center in an effort to cope with the pressures of globalization. They have since proven themselves incapable of providing a convincing narrative that offers hope for the future or can explain how to cope with these challenges to large segments of their societies.

As was the case in times of previous major socio-economic disruptions, identity politics are stepping into the vacuum. The evidence is ubiquitous, with the rise of populist and nationalist parties in both the relatively wealthy North and more economically stressed South of Europe, as well as a virulent brand of populism among supporters of US presidential candidate Donald Trump. Each leader evokes the nostalgia of a more stable past, appealing to popular fears about an increasingly uncertain future. The Brexit victory in the United Kingdom’s referendum on EU membership was won by voters who wanted both to “take back control” of their national destiny and protest against the destructive personal impacts of globalization, including the ways that immigration appeared to be capping earning power while stressing public services.

The West has witnessed major socio-economic disruptions in the past, especially during the oil shock recessions of the 1970s. Are current generations being overly pessimistic when they now expect their children to be worse off in the future? There are two principal reasons for concern.

First, digital innovation appears to be on the brink of a new acceleration which could have a major disruptive impact on the employment prospects of the millions working in domestic service sectors and in white collar clerical work, people who were not affected by the changes in manufacturing employment brought about by the rise of industrial robotics and global supply chains.

Second, emerging economies appear to be struggling to transition from export-dependent, high investment, manufacturing-led economies to service-led, middle income economies. From China to Brazil and Indonesia to Turkey, the recent decline in growth rates may presage a politically disruptive period, especially as inequalities of wealth and opportunity widen. And emerging markets may not have the political resilience of the developed world.

There are two additional sources of concern. People across the world are now gathered in ever-growing urban agglomerations, many with the increased expectations of urban middle classes, others living on the edge of destitution. Both groups have ready access to information, making the work of governments in managing expectations far harder. Similarly, sub-Saharan and North African countries may not be able to cope with their enormous demographic youth bulges, leading to large new waves of migrants.

Under these pressures, the risk is that the leaders of emerging powers will nurture their own brands of identity politics, as Narendra Modi in India and Recep Tayyip Erdogan in Turkey already have.

The Return of Geopolitics

Despite the deep changes that have taken place in the global economy over the past 70 years, the building blocks of geopolitics are remarkably unchanged. States remain the dominant actors in the international system, and the same three states – the United States, Russia, and China – sit at the top of the geopolitical order. The UK and France remain in their roles as the principal reserve military powers, given their capabilities and positions as permanent members of the UN Security Council. Brazil, Germany, India, and Japan have become key players in their regions, but not yet at an international level.

The principal global institutions mirror this remarkable continuity. The permanent membership of the UN Security Council appears impervious to change, as does its governance structure. The roles of the IMF and World Bank have been called into question, and – with the arrival of the Asia Infrastructure Investment Bank – challenged regionally, but there are as yet no challengers to their primacy at a global level. NATO and the EU continue to represent the interests of the West in and around Europe, while Russia now seeks to re-assert its sphere of influence around its neighborhood. Other regional organizations, from ASEAN to the Gulf Cooperation Council, continue to operate on an intergovernmental basis, more as forums for debate and coordination than for action.

The question is whether this continuity is now deceptive, and whether the political and geo-economic disruption described above is feeding into a more turbulent period geopolitically. The signs certainly seem to be pointing toward growing disconnection between the dynamics of 21st century economic integration and the persistence of 20th century geopolitics. As the disruptive aspects of global economic integration come to the fore, domestic identity politics are starting to morph into identity-based international politics. If expectations cannot be met domestically, leaders around the world will return to the tried and tested approach of finding distractions and enemies abroad. The positive dimension of identity politics is that it can be a unifying and motivating impulse domestically; but it generally means identifying yourself divisively against an “other”.

The most visible sign of this phenomenon is the re-emergence of “strongmen” leaders who express their determination to make their countries “great again.” Trump has been most explicit in his arguments, seeking to link the decline in living standards of working class Americans with the perceived decline in the status of the United States as a world power. But America’s return to “greatness” would be meaningless without a nation against which to measure the reversal of this perceived decline. Thus, Trump rails against China for undercutting the American worker, while making more positive comments about Russia’s leader Vladimir Putin, who embodies the sort of zero-sum outlook that his identity politics encourage.

For Putin, however, the US is both the principal obstacle to and greatest argument for Russia’s becoming great again. Creating a sphere of influence around Russia’s borders has the double benefit of insulating Putin’s domestic political power from external intrusion, while underpinning that power with a popular political pride, despite Russia’s continuing economic decline. As a number of Russia analysts have recently noted, Putin is slowly shifting his population into a defensive mobilization mentality that will make their integration into the global economy even more difficult.

The evolving situation in China is no less worrying. President Xi Jinping is in the midst of a drive to centralize political power, the scale of which has not been seen since the Mao era. There are many reasons for this drive, but high among them is the fear that the current difficult domestic economic transition will leave the Chinese Communist Party vulnerable to internal challenge and external pressure. One way for Xi to justify this process of centralization has been to launch a widespread, public campaign to root out “Western” influences in China, alongside a protracted anti-corruption purge. Escalating tensions with the US in the South China Sea have provided another impetus for solidifying popular support around the Party.

Even in Europe, domestic identity politics are blending with external considerations. Implicit in the UK Brexit campaign was the idea of escaping the cold embrace of the EU in order to make Britain great again on the world stage. And a subtext to the strongmen leadership styles of Viktor Orban in Hungary and Jaroslaw Kaczynski in Poland has been a need for these once great countries to stand up to the German leadership of the EU.

Finding Forces of Stability

Governments across the world are struggling to cope with the dizzyingly fast pace of economic, social, and technological change. Over the past sixty to seventy years, they have been able to turn to the institutions they built after the World War II and their successors – from the UN and IMF to the EU, WTO, and G20 – to help manage economic disruption and leverage positive change to create “absolute gains.”

Today, however, multilateral political and economic institutions appear to be incapable of managing the end of a period of historically unprecedented global economic growth. The problem is that the global economic integration of the past decades has led to changes in the balance of political power (including a decline in the acceptability of US leadership without a corresponding rise in the willingness of others to lead) that are not reflected in existing multilateral institutions. Reforming those institutions, absent a major global crisis like World War II, seems to be a forlorn hope.

Two positive avenues lie ahead as alternatives to a drift into greater instability. One is to reinforce those existing security institutions that can best play a deterrent role against the possible rise of conflict over the next decade. In Europe, the deterrent role of NATO against conflict escalation is once again central. US bilateral security alliances in Asia and the Middle East may also be of increasing importance. Equal effort must be put into reinforcing institutions such as the Nuclear Non-Proliferation Treaty, which, however anachronistic its governance structure, at least provides a framework for controlling the spread of nuclear weapons.

The second, more difficult avenue is for governments across the world to focus on improving the quality of their own national governance. Administrative excellence, including effective tax collection, the use of e-government, and a focus on anticorruption; the modernization and disaggregation of energy infrastructure; preventing growing divergences between rural and urban development; investing in education and work apprenticeships; universal access to healthcare; better partnerships with business and civil society organizations – these should all be critical objectives today for developed, emerging, and developing countries alike. Trends that could pose disruptive risks could, with good governance, just as easily become parts of the solution. Building digitally-integrated urban areas, for example, could help manage mass populations, generate jobs, and sustain welfare systems for aged and young alike far more efficiently than today.

Delivering quality national governance will be essential if political leaders are to cope with the disruptive pace of change in the 21st century and avoid a return to the identity-led conflicts of the recent past. But to do so, popular majorities must demand professionalism from their leaders, rather than indulging in the short-term panacea of identity politics that so many of their leaders are peddling today.

Read more in the Berlin Policy Journal App – September/October 2016 issue.

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