By Armando Aliu
Monday, March 5th, 2012
The Grand Strategy of the United States has been shaped between of Isolationism / Parochialism and Hegemony / Unilateralism. However, the USA has transformed its grand strategy after leaving the position of leading the world as merely a superpower, particularly after 2008 – the year in which the global financial crisis occurred. Many scholars are calling this post-financial crisis era, the post-American World Era. In this world, the United States will not use dicta or hegemon power to shape or control the world order. Instead, the United States has a more humble role with a soft-power advantage, and hence the superpower will not be at the center of global issues. In this scenario, the responsibility for dealing with various global issues will be shared with other global actors, such as the EU and BRIC countries.
From American Hegemony to BRIC Hegemony
‘Wherever the American flag was planted, there tyranny must disappear’ (Lippmann, 1943, p.viii). Quoting Lippmann means remembering the classical ‘American Hegemony’ thought. This foreign policy and grand strategy covered the elements of hard power and the sacred role of the United States for ensuring democracy, liberty, freedom and strengthening the rule of law to the countries in need of them. George W. Bush declared in his second inaugural that it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in the world. These strategies are the basic principles of ‘Bush Doctrine’.
In the past, direct military intervention by the United States was viewed as the best choice to transform states ideologically, politically or economically. However, the world has changed since 2008 as the superpower has left the classical grand strategy approach and created a new grand strategy approach. If I restate Lippmann’s assertion in other words — with taking into account the post-American World Era and the new grand strategy approach — I would say that wherever American Companies enter the market, there the state must be decentralized.
Behind the economic expansion of world market capacity lays the force of American Multinational Corporations (MNCs). If so, why did the international financial crisis occur with such great internal and external damages? Fareed Zakaria, says in his book “The Post-American World2” that the U.S. has faced the financial crisis because of several reasons; hedge funds, mortgage crisis, rise of debt and so on. In fact, the main reason was, as Zakaria has perfectly expressed, the United States succeeded in its great and historic mission (i.e. globalized the world), however, the US forgot to globalize itself.
To a certain extend, the reasons of global financial crisis and the bankruptcy of banks like Lehman Brothers in America are understandable and obvious. At this point the question of why it has been exaggerated — as if the United States has unofficially bankrupted– raises speculation regarding this part of the new grand strategy of the United States.
Great Speculation: What will occur if the US leaves the global leading role as transnational actor to other powerful alliances such as the BRICs – Brazil, Russia, India and China? The Global Financial Crisis in 2008 was a threat for the superpower. However, the US transformed this threat into a huge opportunity. Actually, the US will start loosing its power after 2050 as predicted by the respectful research institutions. In this context, exaggerations and skeptic opinions regarding the global financial crisis have illustrated some facts and opened future debates. For instance, how will the world order might be shaped by equivalent (regional) powers in the future? Which actors may emerge as opposites to the west? What will be the attitude of emerging future powers toward future global threats (i.e. terrorism, nuclear issues, immigration, environmental pollution and so forth)?
The last decade saw the BRICs make their mark on the global economic landscape. Over the past 10 years they have contributed over a third of world GDP growth and grown from one-sixth of the world economy to almost a quarter (in PPP terms). Looking forward to the coming decade, Goldman Sachs expects that this trend will continue and become even more pronounced (Wilson, Kelston and Ahmed, 2010, p.1).
Goldman Sachs projections envisage the BRICs, as an aggregate, overtaking the US by 2018. In terms of size, Brazil’s economy will be larger than Italy’s by 2020; India and Russia will individually be larger than Spain, Canada or Italy. In the coming decade, the more striking story will be the rise of the new BRICs middle class. In the last decade alone, the number of people with incomes greater than $6,000 and less than $30,000 has grown by hundreds of millions, and this number is set to rise even further in the next 10 years. These trends imply an acceleration in demand potential that will affect the types of products the BRICs import—the import share of low value added goods is likely to fall and imports of high value added goods, such as cars, office equipment and technology, will rise. By 2020, Goldman Sachs expect the BRICs to account for a third of the global economy (in PPP terms) and contribute about 49.0% of global GDP growth.
The BRICs continue to advance up the ladder of global economic prominence. Their strong growth performance during the global economic crisis has accelerated this trend. All of the BRICs have now reached, or are rapidly approaching, the range of the G7 countries in terms of the total size of their economies. However, living standards in the BRICs continue to lag far behind the developed world (Wilson, Burgi and Carlson, 2011, p.1).
In 2010, China moved past Japan and became the world’s second-largest economy, with an annual GDP of just under $6 trillion. Only the US, whose aggregate output was around $14.5 trillion in 2010, remains larger than China. Brazil passed first Spain in 2009 and then Italy in 2010 became the seventh-largest economy in the world, and is now fast approaching the UK. India jumped over Canada in 2009 and Spain in 2010 to move to the ninth position. While Russia saw a notable slide in 2009 due to its poor performance and massive depreciation during the crisis, it managed to surpass Spain in 2010 (see Table 1). The crisis also provoked a minor reshuffling among the BRICs themselves, as Russia slid from being the second-ranked BRIC in 2008, behind China, to the lowest-ranked by 2010. In aggregate, the BRICs’ GDP is now worth over $11.2 trillion, or over 75% of that of the US. Perhaps more importantly, the BRICs’ (with the exception of Russia) continued strength in the recent period, despite weakness in the developed world, means that they have also become the dominant drivers of global growth. The BRICs have contributed over 50% of global growth (measured in USD terms) over the past three years, compared with an average of 27% in 2000-07.
In 2010, the developed market (DM) average per capita income stood at $38,100 in PPP-adjusted dollars ($39,500 in USD). Russia recorded GDP per capita of $15,900 ($10,400), just 40% (26%) of the DM average. Brazil’s per capita income was $11,200 ($10,700) in 2010, while China and India lagged even further behind, with GDP per capita of just $7,500 ($4,400) and $3,300 ($1,400) respectively. Encouragingly, we expect the BRICs, particularly China and India, to continue to experience among the fastest GDP per capita growth rates in the world, but their low starting bases means that convergence to DM levels is still a long way off.
Goldman Sachs long-term future predictions regarding the total absolute GDP (US$ bn) for BRICs and G6 over time are indicated as below. In 2020, the BRICs economics will achieve almost half as large as the G6. In addition, the BRICs will overtake the G6 by 2035.
As the G3 countries face a slow and difficult recovery, final demand will need to rise in the rest of the world to sustain global growth in the future. The world can look to the BRICs to increase their contribution to global domestic demand through higher consumption. This month we examine this possibility through consumption trends in the BRICs (Yamakawa, Ahmed and Kelston, 2009, p.1).
The demand-supply and production-consumption depend on inter-regional or trans-regional power relations, rather than inter-states relations. There is a fact that multinational corporations and capitalists forces are very effective in BRICs, and in fact these economic powers are strengthening the BRICs in favour of their self-interests. This point is very crucial and is to be distinguished. The BRICs will never attempt to create a different world order with another economic system because state actors have no direct effect on non-state actors’ purposes and vital interests. A possible intervention to non-state actors’ purposes and vital interests by BRICs authority with a social-oriented objective will bring catastrophic outcomes.
The Rise of Multinational Corporations and Transnational Networks: The Issue of Legitimacy
Many scholars argued the legitimacy issue which emerges during the shift of tasks, responsibilities and purposes from state actors to non-state actors (Wuthnow, 1979; Zürn, 2004; Hettne, 2005; Dingwerth and Pattberg, 2006; Menon and Weatherill, 2008; Mückenberger, 2008; Jakobeit, Kappel and Mückenberger, 2010).
Multinational Corporations and Transnational Norm-building Networks (TNNs) have direct effects at the power of political, economic and social structures of the global order. The post-global financial crisis era indicates that non-state actors understood the huge multi-dimensional changes in the world. It ought to be noted that the economic decline of a state does not mean that private sector may decline as well. Transnational relations should be explained to emphasize this assumption. Transnational relations involves private sector such as multinational corporations and networks in decision-making in order to provide common goods and non-hierarchical means of guidance. In this context, three advantages for private actor involvement in multi-level governance are: know-how provided by experts from associations and enterprises; interest aggregation by associations, on a functional as well as territorial level, allowing for negotiations, reliability of achieved agreements, and homogeneisation of interests across levels, compensation for the loss of democratic legitimacy, by governments.
World trade flows and economic relations among the triangle which is composed of the USA, the European Union and the East Asian Countries (China, India, Japan) have created regional powers and raised the number of transnational actors. In this context, Transnational Norm-building Networks (such as; Epistemic Communities, NGOs, Civil Society Organisations, Lobby Groups, Non-profit Public Policy Organisations or Private Non-profit Organisations and so forth) are becoming more and more stronger. Networking multinational corportions with transnational norm-building networks is the core element of globalization and expansion of global markets. Shifting responsibilities, roles and even duties between state and non-state actors cause a huge issue – i.e. legitimacy issue. If multinational corporations and transnational networks enhance their legitimacy toward states, that means they will be more effective at shaping global order. Kagan stated that ‘the question of legitimacy divides Americans and Europeans today – not the legitimacy of each other’s political institutions, perhaps, but the legitimacy of their perspective visions of world order’ (Kagan, 2004, p.66). Kagan perfectly clarified the core point of world order and legitimacy nexus, however the missing link in his study was how legitimacy appears as a fundamental issue not only analyzing inter-states relations and state actors but also indicating non-state influences over inter-states relations and state actors at transnational level. Today, decentralisation (de-nationalisation) of the state authority has caused that nations’ strategic self-interests depend on purposes and/or objectives of their national capitalist powers. As power becomes diversified and diffuse, legitimacy becomes even more important because it is the only way to appeal to all the disparate actors on the world stage. Actually, states are surprisingly facing a patriotic, nationalist capitalism model as a result of the competition among their capitalist powers. The Goldman Sachs case below is a perfect indicator of this new model.
Goldman Sachs Case: Warren Buffet’s Investment in Goldman Sachs
Warren Buffett’s ride to the rescue of Goldman Sachs with a $5 billion cash infusion at the height of the Wall Street panic is an opportunity to examine what the terms of his deal might tell us about the future of capital in the financial sector. Buffett didn’t buy Goldman common stock. Instead, he privately negotiated a very special preferred stock deal that made the capital very expensive for Goldman. He took taking $5 billion worth of perpetual preferred stock that promised him a 10% dividend and warrants to buy $5 billion of common stock with a strike price of $115 a share. In many ways, Goldman operates for Buffett the way a profitable hedge fund does for its limited partners. The general partner of a hedge fund usually makes very little unless the firm’s earnings cross a specified hurdle. Similarly, Buffett’s 10% dividend means he gets the first cut of Goldman’s revenues, before the Goldman partnership itself. If they don’t earn enough to pay Buffett, there’s nothing left to pay the partnership. Perhaps surprisingly, the perpetual preferred shares mean that Buffett’s interests are very closely aligned with those of the Goldman partnership. He has a concentrated interest in Goldman and little interest in having the firm pursue short term gains. Similarly, the Goldman partners have their fortunes tied to the profits of a single firm, both through their interests in the firm continuing to pay them and their large holdings of its stock. Both have an interest in the firm being cautiously “long-term greedy”.
Compare that to an ordinary investor in Goldman’s common stock. Those folks are happy if just 20 percent of the firm’s revenue goes to equity. They stand behind Goldman’s partners, employees and overhead when it comes to seeing a cut of the revenues. Their capital is in a far riskier position. What’s more, ordinary shareholders tend to hold Goldman as part of a diversified portfolio and don’t much care about the fate of a single firm. They want more risk than Goldman’s partners want. The structure of Buffett’s investment also resolves some of the dangers of Goldman’s partners becoming too cautious if they are forced to lower their leverage. Ordinarily, a combination of debt load and stock options helps encourage the management of corporations to overcome the excessive risk aversion that comes from their undiversified interest in their company. Their interests become aligned with their shareholders since they need to achieve enough returns to be profitable after the fixed costs of debt payments. In short, the guys in charge need to make sure the firm makes enough money that they can get paid after the lenders get paid. As firms lower their debt, the barrier between revenue and the bosses paycheck lowers. This lowers the appetite for risk. But Buffett’s guaranteed 10% puts that barrier back in place, re-creating the role of debt to incentivize risk taking. As firms and regulators attempt to reduce leverage and risk in the financial sector, we wouldn’t be surprised if the capital structure of many Wall Street firms began to shift in this direction. The problem of excessive risk is solved by a fixed return, and the problem of excessive risk aversion is addressed by forcing managers to make distributions.
Source: Gear et al., 2009, p.22-23
As we can easily understand from the case above, the backbone of the financial market’s future is the patriotic-nationalist capitalist power.
Economic Expansion at Transnational Level
Over the last two decades, about two billion people have entered the world of markets and trade. The expansion was spurred by the movement of Western capital to Asia and across the globe. As a result, between 1990 and 2007, the global economy grew from $22.8 trillion to $53.3 trillion, and global trade increased 133% (Zakaria, 2008). The so-called emerging markets have accounted for over half of this global growth, and they now account for over 40% of the world economy measured at purchasing power parity. Income per person across the globe would rise at a faster rate (approximately 3.2%) than in any other period in history.
In the light of these considerations, multinational corporations and the richest capitalists analyze the size of market and return of investment rate before taking the final decision. In this context, 2.5 billion approximate population of China and India and increasing purchase power have made the multinational corporations invest to these countries. Actually, the real beneficiaries of this enormous potential are foreign investitors. Of course, states have tax regulations, and investment law regulations however the real purpose behind investments is gaining great amount of wealth and interest in a short term. This is the comprehensive framework of global economic growth. Furthermore, global growth explains the rise of liquidity, the ever-growing piles of money moving around the world, that has kept credit cheap and assets including real estate, stocks, and bonds expensive. The free movement of capital in a globalized world has provided the huge amount of cash, currency traders swap about $2 trillion a day, that sloshes around the globe, rewarding some countries and punishing others. This situation has created a labor order in which the labor follows the capital and the capital follows highest interest rate.
McKinsey Global Institute did a study of the emerging global labor market and found that a sample of 28 low-wage countries had approximately 33 million young professionals at their disposal, compared with just 15 million in a sample of 8 higher-wage nations – i.e. the United States, United Kingdom, Germany, Japan, Australia, Canada, Ireland, and South Korea. The research has a strategic depth, i.e. young professionals and future entrepreneurs are real potentials of states, and hence human resource policy and management has become a top priority for companies, firms and investors. In addition, the emerging of new economic alliances have a significant effect at extending labor market capacity and economic relations. Strong cooperation and transnational relations among BRICs are becoming more stronger. On the other hand, each day BRICs are becoming more decentralized and globalized. This is a dilemma in an uncertain future.
Top 170 Project and Natural Sources – Preventing International Conflicts
The industry continues to add new resources. The average project size is 1.7 bnboe with an investment of US$7.2 bn per project. The average project delivers a 15.7% IRR and 1.51x profit/investment ratio (at US$42/bl Brent oil price) and requires less than US$30/bl to deliver a cost of capital return, on our estimates. The average project delay for the original 50 projects has been around six months and the average cost inflation is around 50% over the same period. Goldman Sachs expects that top projects will bring prosperity to the regions in terms of natural source supply and will decrease possible risk of international conflicts. The prevention of future threats is the fundamental goal of top projects.
Iran’s take from oil in 2006 amounted to $50 billion – enough to dispense patronage to interest groups, bribe the army, and stay in power while still having piles left over to foment trouble abroad. Saudi Arabia plans to invest $70 billion in new petrochemical projects, aiming to become a leading petrochemical producer by 2015. The Gulf states have made $1 trillion in capital investments over the last five years, and McKinsey and Company estimates that they could invest another $2 trillion over the next decade. From oil demand-supply point of view, Organization for Economic Co-operation and Development (OECD) produces 24% of all oil, or 21 million barrels per day. The USA is the biggest single producer in OECD but Mexico, Canada and the UK are also major suppliers.
In the past, prices rose because oil producers – OPEC – artificially restricted supply and thus forced up the cost of gasoline. In recent years, by contrast, prices have risen because of demand from China, India, and other emerging markets, as well as the continuing, massive demand in the developed world. In addition, There is a significant nexus among natural sources demand-supply side and natural sources reserves and political risks. Figure 2 illustrates that countries which have huge natural sources reserves are more likely to face internal or international conflicts because of emerging political disagreements.
The addition of new legacy asset projects into the oil industry’s production profile will lead to a sharp increase in risk. The political risk of existing production for the coverage universe had been gradually declining until the middle of the 1990s, but the addition of the Top 170 projects, with 25% higher political risk on average based on the Goldman Sachs ESG political risk scores, will take the industry back to levels not seen since the 1970s. At the same time, Goldman Sachs have seen delays, cost increases and fiscal pressures reducing oil supply and keeping oil prices high. Most importantly, over 40% of the oil & gas industry’s new legacy assets are located in very high-risk countries. Interestingly, the BRICs are seen as future risks and they are likely to face serious conflicts and disagreements in the future.
Euro Sovereign Debt Crisis and the Future of the US Economy
Goldman Sachs forecasts have confirmed the softening in the US economy and seen more weakness in European Monetary Union. The forecasts illustrate that Euro-zone GDP growth of 1.9% and 1.4% (from 2.1% and 1.7%). The latest Euro-zone surveys point to more softening in activity in the near term. In addition, the spread of sovereign stresses to Italy mean that the growth picture is at greater risk there. Goldman Sachs forecasts show a modest recovery in growth through 2012 on the assumption that those stresses are alleviated by policy action and global demand picks up a little. The intensification of the Euro-zone sovereign crisis, and particularly its spread to Italy, has also had a sharper impact both on markets there and now on the likely growth trajectory. The latest European package went further than expected, and the ECB’s decision to restart its bond purchase program is also likely to help. But the tightening in financial conditions (especially in Italy) is unlikely to be reversed soon (Hatzius and Wilson, 2011, p.2). Will European policymakers respond sufficiently to stem sovereign pressures? It seems increasingly likely that pressure on weaker European sovereigns will not stop without more concerted policy action. In particular, the ECB purchases of Italian and Spanish bonds are a necessary part of the solution to reducing stresses there. If that does not come quickly enough, a larger financial shock may then be felt across many Eurozone economies. Even without that, the task of restoring growth in these economies will be important in convincing the markets of sustainability.
Will the rest of the world remain resilient in a US slowdown? The way asset markets respond in the months ahead will depend significantly on whether more sluggish US and European growth is accompanied by greater resilience elsewhere, or whether the slowdown is perceived to be more global in nature. A broader global slowing would be more challenging for cyclical assets, and for equities in particular, and would complicate the USD story (Hatzius and Wilson, 2011, p.5).
Globally, Goldman Sachs new forecasts have more of the flavour of the first than the second. This is less a feature of the DM forecasts. Instead, it rests on the assumption that some slowing in the US will be helpful in reducing EM overheating and that the pressures on demand growth will be less intense there. If EM policymakers are slow to react, or if the pressure on their own demand intensifies more quickly (and PMIs in some places have suggested this is a risk), EM resilience may be challenged. That would put a bigger dent in global growth than Goldman Sachs forecasts. Of course, one of the negative effects of slowing the US economic growth is the increase at unemployment rate.
It has been a disappointing economic recovery since the end of the financial crisis in mid-2009, with US gross domestic product (GDP) growing by only about 2% in real terms. The main result of this disappointing growth has been the persistently high number of unemployed in the US (Tilton, 2011, p.1). The current rate of GDP growth is insufficient to dent the huge pool of long-term unemployed.
Rockefeller Foundation has supported a crucial research regarding the US economic security index. Economic insecurity has increased over the last quarter century and is likely to have increased dramatically in the last few years. In 2009, projections suggest, approximately one in five Americans experienced a decline in income of 25% or greater (Hacker et al., 2010, p.ii). Furthermore, in a Rockefeller Foundation-sponsored poll in February 2007, before the onset of the current recession, two-thirds of respondents declared the economy had become less secure in the last decade. The majority also expected the economy to get less secure over the next 20 years.
Tripolar World (West, East and Middle-East) and Power Relations
Joseph S. Nye, Harvard University distinguished professor, argued that power today is distributed in a pattern that resembles a complex three-dimensional chess game. ‘On the top chessboard, military power is largely unipolar, and the United States is likely to retain primacy for quite some time. On the middle chessboard, economic power has been multipolar for more than a decade, with the United States, Europe, Japan, and China as the major players and others gaining in importance. The bottom chessboard is the realm of transnational relations. It includes nonstate actors as diverse as bankers who electronically transfer funds, terrorists who traffic weapons, hackers who threaten cybersecurity, and challenges such as pandemics and climate change’. On this bottom board, power is widely diffused, and it makes no sense to speak of unipolarity, multipolarity, or hegemony (2010, p.1).
Why a tripolar world? Huntington (1996) predicted a multipolar world with multi-civilizations. However, he argued that a dominance of three strongest civilizations (the west, middle-east and east) will shape world order in the future. Balancing against a rising power would be a dangerous, destabilizing, and potentially self-fulfilling policy. Therefore, I was inspired by Huntington’s argument and my assertion is that it is better to create alternative complex systems rather than following balance strategy for country(-ies).
For instance, tripolar universe shaped by three opposite civilizations3 can push the deterrence of the BRICs global hegemony. The US might create micro-strategies for each civilization in order to create complexity and put cultural power relations over economic power relations. Then, how the international system will be shaped without considering the BRICs together as global superpower? The international system is more accurately described by Samuel Huntington’s term ‘uni-multipolarity’ which means many powers and one superpower. The United States will remain being the merely superpower of the world even after 2050. However, tripolar world will create a hybrid international system dominated by cultural values rather than economic or military powers. Hybrid international system, more democratic, more dynamic, more open, more connected, is one we are likely to live with because the world order will remain without being changed.
The rise of Chinese power in Asia is contested by both India and Japan (as well as other states), and that provides a major power advantage to the United States. From that position of strength, the United States, Japan, India, Australia, and others can engage China and provide incentives for it to play a responsible role, while hedging against the possibility of aggressive behavior as China’s power grows. Then, let say China will be a superpower under the control of the West in the tripolar world.
Why Iran ought to be seen as superpower of Arabic civilization? First of all, Iran has nostalgia for Persian Empire and wants to use its power for creating bridges with its past. As an imperial power Iran might be seen as a threat by its neighbors according to deterrence theory. In a tripolar world, Iran will never achieve to attack the US or China because of several reasons. First, the distance is very long. Second, the GDP of Iran is 1/68 that of the United States, its military spending 1/110 that of the Pentagon. Meanwhile, dealing with conflicts in Arab world and providing assistance to the states that have a lot of problems in the middle east will put a great pressure on Iran. Iran should care about these people and carry all these issues on its shoulder because of being a superpower of the Arabic world. Moreover, in order to achieve the superpower of Arabic world status, Iran must sign the Nuclear Zero Treaty and liberalize its economy. This will be the key of decentralization process of Iran.
Future Challenges and Global Issues
Terrorism, nuclear proliferation, disease, environmental degradation, economic crisis, oil or water scarcity, population growth, all of these issue can not be addressed without significant coordination and cooperation among many countries. In this context, the central challenge of the rise of the rest is to stop the forces of global growth from turning into the forces of global disorder and disintegration.
Global population growth is the basic future concern. The US population will increase by 65 million by 2030, while Europe’s will remain virtually stagnant. The political reality is that Europe is moving toward taking in fewer immigrants. America, on the other hand, is creating the first universal nation, made up of all colors, races, and creeds, living and working together in considerable harmony.
Population growth is expected to slow in the BRICs over the next few decades, pushing down their aggregate share of the global population. The age structure of the BRICs will also continue to shift progressively towards older populations (Wilson, Burgi and Carlson, 2011b, p.1). The BRICs have seen a rapid expansion in population over the past half century. Over 2.9bn people currently reside in the BRIC nations, more than double the number in 1960 and representing approximately 42% of the world’s total population. Over the next 50 years, only India’s population will continue to expand, reaching nearly 1.7bn people by 2060. Brazil’s population is expected to stabilise in the next 25-35 years, while China’s population is forecast to start to decline within the next two decades. The number of people in Russia has been shrinking for nearly two decades already, and the pace of decline is expected to accelerate to nearly 0.5% per year over the next few years (Wilson, Burgi and Carlson, 2011b, p.2). As a result, India is projected to overtake China as the most populous nation in the world in 2021, a position China has held since the UN data begins in 1950. India also is expected to be the only BRIC to maintain its share of the global population. China will see a significant drop in its share from nearly 20% currently to 13% in 2060, and Russia will see its already small share cut in half.
Key priorities for solving global issues are natural source management, solidarity, dignity, controlling population growth, sustainable development, sharing responsibilities, enhancing quantity of scientific projects and researches. Above all, a platform where states can discuss these issues is needed. These issues should be addressed to G20 summits.
The Role of G20 and Epistemic Communities
The G20 has replaced the G7/G8 as the major focal group for solving global economic and financial issues; such as monetary policy, fiscal policy, environmental economic policy, imbalances, transparency, risk warning system to monitor market accounting, credit agencies, regulators, capital of banks, bank capital through cycles, bank compensation, non-executive directors, legitimacy of G6/G8, IMF reform, IMF funding, IMF surveillance, World Bank’s purpose, WTO, FX regimes and rates, industrial policies, tariff and trade barriers and bank deleverage (O”Neill, 2009, p.3).
More expansionary fiscal policies are desirable outside the US in the developed world, especially in countries with high domestic savings rates. The G20 agreed to more funding for the IMF, and specific plans to improve its legitimacy, its voice and, therefore, its effectiveness. Ultimately, the G20 itself (which in reality embraces at least 22 nations) will need to be consolidated into a smaller group. For systematic, globally-critical issues of economics and finance, a new G4 should be the goal, consisting of China, the EU, Japan and the US4. This G4 would operate within a broader G14 (the current G7 countries plus the four BRIC nations, Mexico, Saudi Arabia and South Africa). G20 leaders state their opposition to protectionist economic policies, and express their support for free trade.
Instead of addressing issues to the trans-governmental summits, epistemic communities should be more active at responding to issues and providing guidiance.
Problems should be considered as potentials or even opportunities. A McKinsey&Company research shows that it invests on entrepreneurship and creative projects in order to transform problems as beneficial opportunities. Some key statistics are listed as below (2011, p.2-3):
- 319 million people (12% of the working age population) are engaged in early-stage entrepreneurial activity across the G20, with a vast majority in the BRIC countries.
- The US would have 1.8 million more jobs today if businesses had continued to be launched at the 2007 rate
- 49% of people have a favorable opinion of entrepreneurs (sample of nine G20 countries)
- Small-Medium size Enterprises (SMEs) account for 52% of GDP and 64% of employment on average (sample of nine G20 countries, 2007)
- Within 20 years, the supply of capital might fall short of demand by up to $2.4 trillion
- 36% of the variation in economic growth can be explained by variations in start-up rates (sample of ten economies)
- The conversion rate between those who consider entrepreneurship as a good career choice and those who actually embark on ventures varies in a 1 to 7 ratio ranging from 3% in Italy to 22% in Brazil
- Firms less than 5 years old make up 36% of all patenting firms in Japan.
Judith Rodin, the President of the Rockefeller Foundation, attaches considerable importance to scenario planning that helps creating narratives about the future based on factors likely to affect a particular set of challenges and opportunities. In addition, Peter Schwartz, Co-founder and Chairman of the Global Business Network, has determined a new strategic conversation among the key public, private, and philanthropic stakeholders about technology and development at the policy, program, and human levels. It may help decentralize the state authority and transform the energy of the civil society in favour of private sector and capitalist powers.
The Rockefeller Foundation and GBN began the scenario process by surfacing a host of driving forces that would affect the future of technology and international development. The driving forces create a matrix of four very different futures – Lock Step5, Clever Together6, Hack Attack7, Smart Scramble8 (The Rockefeller Foundation and the Global Business Network, 2010, p.16).
J.P.Morgan Global Equity Research analyzed the scarcity of clean, fresh water sources and possible future conflicts. A scarcity of clean, fresh water presents increasing risks to companies in many countries and many economic sectors. JPMorgan Global Environmental, Social, and Governance Research offers investors a framework for evaluating the impact of water scarcity and water pollution on individual sectors and companies (Levinson et al., 2008, p.3).
The world has plenty of water, but 97.5% of it is saltwater9. Globally, there are increasing pressures on water supply. As a rule of thumb, a river system drawn upon to provide 1,700 cubic meters of water per person per year can be considered stressed. Stress on water supplies is occurring around the world. In 2025, on recent trends, river basins important to major economies, including the US, Mexico, Western Europe, and China, will likely experience significant water problems as consumption outpaces supply replenishment. The projected shortfalls in South Africa, northwestern India, and North China are particularly severe. The worsening of the supply/demand imbalance in many parts of the world is attributable to three principal factors: population growth, urbanization and rising incomes and climate change. Therefore, the threats should be analyzed with taking into account triple-win (state sector, private sector and civil society) solutions in order to protect the world order.
Strategies and Guidelines for a Humble America
In the nineteenth century, US grand strategy was unilateral: avoid entanglement in the European balance of power, dominate the Western Hemisphere, and keep an open door for trade in Asia. As the twentieth century dawned, however, the industrial power of the United States overtook that of Germany and the United Kingdom, and the transportation revolution effectively brought the New World nearer to the Old. These conditions led six presidents to attempt major transformations of US grand strategy over the next hundred years. Theodore Roosevelt sought to transform US foreign policy to match the United States’ new position in world politics by combining the use of hard power (expanding the US Navy and enforcing the Monroe Doctrine) with that of soft power10 (mediating great-power disputes and supporting the creation of the Permanent Court of Arbitration in The Hague). Roosevelt laid the foundation for global economic stability by helping to set up the World Bank and International Monetary Fund at Bretton Woods. Roosevelt was adept at combining hard and soft power and his vision of the postwar world showed his understanding that power is far easier to maintain when it’s there by consent instead of coercion.
Using Roosevelt’s strategy as a jumping-off point, Harry Truman introduced transformational elements as containment and permanent alliances. Subsequent Cold War presidents worked within the framework Roosevelt and Truman had established and made incremental changes to it: Richard Nixon tilted toward China, Jimmy Carter emphasized human rights, and Ronald Reagan rejected détente. Even the successful foreign policy of George H. W. Bush was more a matter of brilliant intuition and management of rapid change on the ground than an attempt to change the world. Bush’s ambitions to transform US grand strategy developed only after 9/11. Bush Doctrine was Fukuyama plus force and was designed to make terrorism obsolete by spreading democracy everywhere. Afghanistan was the obvious first target of the policy, and Iraq was the most feasible place to strike the next blow (Nye, 2006, p.142). Instead of creating an Obama Doctrine, the US president Barack Obama has followed the Bush Doctrine with minor transformations. Obama has used the soft power potential of the US as well as cultural power of Hollywood.
Slaughter (2009) argued that the emerging networked world in a post-American World Era will be defined by connections – who is connected to whom and for what purposes. In a networked world, the US has the potential to be the most connected country. If it pursues the right policies, the US has the capacity and the cultural capital to reinvent itself. The United State’s exceptional capacity for connection, rather than splendid isolation or hegemonic domination, will renew its power and restore its global purpose.
Do nothing politics is a strategy means shifting the elements (tasks, responsibilities, future targets) of state actors to non-state independent institutions. From this perspective, non-state actors are becoming more active and offensive, whereas state actors are becoming more passive and humble. Being humble is a new image of America. The case study below illustrates the new role much more better with focusing how a humble America can act toward serious issues in post-American World Era.
The Case of Parsley Crisis
In July 2002, the government of Morocco sent twelve soldiers to a tiny island called Leila, a few hundred feet off its coast, in the Straits of Gibraltar, and planted its flag there. The island’s sovereignty had long been contested by Morocco and Spain, and the Spanish government reacted forcefully to the Moroccan “aggression.” Within a couple of weeks, seventy-five Spanish soldiers had been airlifted onto the island. They pulled down the Moroccan flag, hoisted two Spanish flags, and sent the Moroccans home.
Someone was going to have to talk the two countries down. That role fell to the United States. Colin Powell, the former Secretary of State, told that “I decided that I had to push for a compromise fast because otherwise pride takes over, positions harden, and people get stubborn”. “It was getting to be evening in the Mediterranean. And my grandkids were going to come over soon for a swim!” So Powell drafted an agreement on his home computer, got both sides to accept it, then signed for each side himself, and faxed it over to Spain and Morocco. The countries agreed to leave the island unoccupied and begin talks, in Rabat, about its future status. The two governments issued statements thanking the United States for helping to resolve the crisis. And Colin Powell got to go swimming with his grandkids.
Source: Zakaria, 2008, p.215-216
In the interests of the humble leadership to which President Bush rightly aspires, it would be useful for some of his aides to try to get in to their own offices for a meeting with themselves some time. A humble America will better listen the voice of minorities around the world. The crucial point is that many states will request assistance and advices in order to deal with minority issues.
The new role of the US involves consultation, cooperation, and even compromise. It derives its power by setting the agenda, defining the issues, and mobilizing coalitions. in a world with many players, setting the agenda and organizing coalitions become primary forms of power. Those who have figured out how best to thrive in a post-American world are America’s great multinationals. They are conquering new markets by changing their old ways (Zakaria, 2008).
Zakaria outlined six simple guidelines for the post-American World and role of the US in the new world order: choosing priorities, building broad rules, being Bismarck (engage with all the great powers, maximizing its ability to shape a peaceful and stable world), ordering à la carte, thinking asymmetrically, enhancing legitimacy. Europe will help the US to enhance legitimacy power.
The problem is that rising powers do not have an obvious and immediate incentive to solve the common problems that this new system generates. National frictions, climate change, trade disputes, environmental degradation, and infectious disease might all fester until a crisis hits – and then it might be too late. Solving such problems and providing global public goods requires a moderator, organizer, or leader – i.e. the United States.
Nye concludes that the United States will remain important in global affairs, but the twentieth-century narrative about an American century and American primacy as well as narratives of American decline is misleading when it is used as a guide to the type of strategy that will be necessary in the 21st century. The coming decades are not likely to see a post-American world, but the United States will need a smart strategy that combines hard and soft power resources and that emphasizes alliances and networks that are responsive to the new context of a global information age (Nye, 2010; Nye 2002).
Eventually, America has transformed the world with its power but also with its ideals. Particularly, Hollywood is shaping ideal types. America has kept itself open to the world, to goods and services, to ideas and inventions, and, above all, to people and cultures. This openness has allowed America to respond quickly and flexibly to new economic times, to manage change and diversity with remarkable ease, and to push forward the boundaries of individual freedom and autonomy.
Last but not least the world is moving from anger to indifference, from anti-Americanism to post-Americanism. The post-American World Era will bring a new role to the US. World will become more decentralized in terms of shifting responsibilities, purposes, tasks and interests. Decentralization, global economic expansion and globalization cause a more liberal and more extensive world order. In this context, power relations among alliances, such as BRICs and North Atlantic World (the USA and the EU) will become more competitive and multilateral. Therefore, it is better to accumulate powers at three centers that will shape a tripolar world and these three civilizations (the US, China and Iran), on the one hand, will accelerate the decentralization process through putting their political and economical pressures to their neighbor countries. On the other hand, the superpowers or hegemon powers of these civilizations will be able to use their soft power influence within their civilizations more effectively.
Future challenges and global issues such as environmental pollution, climate change, irregular population growth, oil and water scarcity and many others can be dealt with significant coordination and cooperation among transnational actors and global powers. Therefore, transgovernmental summits (G2/G7/G8/G20) have strategic importance because this is a platform to which common voice of communities, civil society organizations and individuals is referred and global common problems are addressed.
Generally, the US is the leader of these summits and hence most of expectations are tightly bound on the position of the superpower. A humble America can respond to the peaceful rise of other powers with creating a peaceful decline image and at the same time enhancing its legitimacy with attracting other states’ attention and appreciation. On the other hand, more dynamic American non-state actors may act more offensive and create active networks to achieve their ultimate objectives. Multinational corporations and transnational networks will set strategies and guidelines not only to achieve their self-interest-oriented objectives but also transforming problems to opportunities in favour of states’ sustainable development and incremental growth.
1. Armando Aliu is a strategy expert, columnist at Eurasia Review, and DAAD Scholar at Heidelberg University – Institute for Political Sciences. His research interests are International Affairs, Strategy Research, Grand Strategy and Scenario Analyses, International Security and International Law, Migration Issues and International Migration. Contact Details: Heidelberg University – Institute for Political Sciences, Campus Bergheim, Bergheimer Straße 58, 69115, Heidelberg, e-mail: [email protected] [email protected] and/or [email protected]
2. Fareed Zakaria, examined at his book “The Post-American World” the great transformation that the world is facing. With the word “transformation” Zakaria pointed out the power shift in a new era – i.e. the decline of America and the rise of the rest. Zakaria was a student of Huntington at Harvard University.
3. The United States (superpower of western civilization), China (superpower of asian civilization) and Iran (superpower of arabic civilization). Only these civilizations will use their soft power advantage more effectively.
4. Garrett stated that the world will be characterized by a de facto China–US G2 after the financial crisis. Nesting the de facto G2 in the de jure G20 is the best hope for managing China–US tensions (2010, p.29). The G20 should be institutionalized as the board of directors for overseeing the Bretton Woods system, not as a replacement for it.
5. A world of tighter top-down government control and more authoritarian leadership, with limited innovation and growing citizen resistance.
6. A world in which highly coordinated and successful strategies emerge for addressing both urgent and entrenched worldwide issues.
7. An economically unstable and shock-prone world in which governments weaken, criminals thrive, and dangerous innovations emerge.
8. An economically depressed world in which individuals and communities develop localized, makeshift solutions to a growing set of problems.
9. Mankind depends on the remaining 2.5% – of which only a fraction is accessible surface or groundwater – to serve a variety of functions: sustaining life, growing food, supporting various economic processes, and transporting and assimilating waste.
10. Soft power is the ability to get what you want through attraction rather than coercion or payments. When you can get others to want what you want, you do not have to spend as much on sticks and carrots to move them in your direction. Soft power arises from the attractiveness of a country’s culture, political ideals, and policies. When our policies are seen as legitimate in the eyes of others, our soft power is enhanced (Nye, 2004).
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