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Saturday, 20 December 2014

The Face of a Changing World

Three drivers of change transforming global order

The UN Security Council in Session

























These are transformational times. The dissolution of the Soviet Union in December 1991 left the US as the sole Superpower in world politics, and gave the international system its unipolar structure (a system with a single power centre). In the years following this, the US enjoyed unparalleled freedom – unique for any Great Power in the modern era – to shape global order according to its values and interests. By most accounts, this era of unipolarity is fading. Several powerful trends are eroding its foundations and heralding the onset of a multipolar world. I will focus my remarks on what I believe to be the three most important.

The Rise of New Powers

The leaders of the 5-member BRICS pose for a photo-op for the 2014 summit in Fortaleza, Brazil. (Wikipedia)
 The first is the rise of new economic and geopolitical centres of power; the most consequential of which are the so-called BRIC group of countries (Brazil, Russia, India, and China). Brazil, India and China especially, having posted impressive growth rates for the past few decades, have leapt from the margins of the international system to become significant actors in both the global economy and in global governance institutions, such as the G-20. Russia similarly, coasting on the oil boom of the 2000s and determined to restore its status as a world power, has become increasingly assertive on the diplomatic stage.

In 2003 only China (6th), of the four BRIC countries, ranked amongst the 10 largest economies in the world. 10 years later, from World Bank’s estimates for 2013, not only has China moved up to 2nd place; Brazil now sits in 7th, Russia in 8th, and India in 10th. From most forecasts, by 2050 India will have broken into the top three largest economies, Brazil into the top five, whilst China will have occupied the summit for about a decade. According to projections put out by such firms as the Economist Intelligence Unit and Goldman Sachs, China could actually equal the US in nominal GDP sometime in the 2020s, and thereafter pull ahead. Whereas IMF GDP estimates based on Purchasing Power Parity (a method now increasingly favoured by analysts because it factors in differences in cost of living between countries) shows China surpassed the US as the world’s largest economy in October this year.

Though frequently categorised as a rising power, China however is undeniably a rising Great Power. The National Intelligence Council (NIC), the premier institution for strategic thinking within the US’ intelligence community, reflecting on the remarkable speed of China’s climb up the ladder of world power, commented in its latest report: “China’s power has consistently increased faster than expected”. Indicative of the quickening pace of change, by 2025 the World Bank forecasts the Dollar will lose its solitary dominance of international trade and we will transition to a three currency world – with the Euro and China’s Renminbi joining the Dollar as the world’s principal reserve currencies. China’s growing economic size and the “rapid globalization of its corporations and banks” constitute the main factors driving the internationalization of the Renminbi, notes the World Bank.

Geopolitical Competition and Parallel Institutions

Russian and Chinese Armoured Personnel Carriers prepare for the Shanghai Cooperation Organization’s 2014 annual Peace Mission military exercises. This year’s was the largest in the organization’s history and involved 7000 troops from China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan. (Eurasianet)  
The second major trend is the increased intensity of geopolitical competition amongst the major powers and the growth of parallel global institutions. The four most consequential rising powers – Brazil, Russia, India, and China – have each expressed their preference for a multipolar world order; and are actively taking steps to accelerate its emergence.

Russia, most dramatically, by opting for direct confrontation with the US and its western allies over the fate of the belt of countries along its western border. In the mid-2000s, Russia feeling disappointed and threatened by the continued eastward expansion of NATO despite what it felt had been assurances no such thing would happen, abandoned its western leaning foreign policy and instead has worked since then to re-establish itself as an independent Great Power. It has stepped up its use of the hard and soft power mechanisms at its disposal – coercive diplomacy, economic incentives, energy restrictions, and military force in Georgia in 2008 and now in Ukraine – in a bid to assert its primacy in its “near abroad”; the first step, it believes, in regaining full-fledged Great Power status. Another feature of Russia’s attempts to “organize” its neighbourhood is through the construction of the Eurasian Economic Union, a parallel to the EU, to integrate the economy of its neighbours into its own – and thereby lessen the economic and geopolitical pull of the EU. The country whose efforts are posing the most comprehensive challenge to global order is China.

The “Parallel Structures” promoted by China. Source: Mercator Institute for China Studies
 China has similarly utilized its own coercive mechanisms – such as increased military activism short of force – to assert its claims in its region. It is also using its growing economic and diplomatic clout to construct alternative china-centred international institutions through which it hopes to reposition global order onto a foundation more reflective of the multipolarity it desires. These so called “parallel structures” – such as the Chiang Mai initiative, to parallel the IMF in Southeast Asia; China UnionPay, which aims to rival Visa and MasterCard’s global footprint; or the Shanghai Cooperation Organization, a NATO-like China and Russia co-led regional security institution for Central Asia – whilst intended to complement rather than overturn current institutions, nevertheless highlights the realignment of global order now underway.

The most significant development in this parallel institution building is the establishment of the New Development Bank (NDB) in July this year. The NDB – a BRICS initiative – aims to complement, and eventually counterbalance, the World Bank in development finance. It also aims to serve as an alternative source of credit for member states’ facing short-term balance of payment deficits – a role that parallels the IMF. With a starting capital of $50 billion (to eventually rise to $100 billion), and an aim to lend up to $34 billion per year, primarily to finance long-term infrastructure projects in developing countries, the bank is set to begin lending in 2016.

The Return of Asia

For much of the past 2 thousand years, China and India had, by some distance, the largest share of global GDP. The balance turned in the 1800s as the western countries underwent their industrial revolution. Source: CIA World Fact Book, based on data from Angus Maddison’s The World Economy: Historical Statistics. 






























The third major trend foreshadowing the coming multipolar world is the return of Asia to the centre stage of the world economy. Angus Maddison’s monumental study of world economic growth over the past 2000 years tells us that for the first one thousand eight hundred years of the past 2 millennia, the two Asian titans, China and India, were the largest economies. In the 1800s however, the west – broadly speaking Europe and the US – achieved industrial take-off and vaulted ahead; subsequently spreading its political power and cultural influence to encompass the globe.

By the mid-20th century, the world looked unmistakably western – even after decolonisation brought many non-western states into being. The dominant currents in world politics – economic dynamism and innovation, military and technological pre-eminence, political and cultural influence – all radiated from the west. Two European offshoots, the US and the USSR, stood atop the summit of world power – their globe-girdling rivalry giving the international system its then bipolar structure.

This trend is now being reversed. The rise of new powers is taking place amidst the backdrop of an historic shift of the world’s economic and geopolitical centre of gravity back to Asia. Hence some now speak of a “coming global turn” to describe the eastward shift in wealth and power. The UN Conference on Trade and Development’s table for world manufacturing output in 2012 (the latest figures I could get my hands on) show that of the top 10 countries, 6 were from the west (US, Germany, Italy, UK, France, Mexico) and the other 4 from Asia (China, Japan, South Korea, India). The 6 western countries constituted 39% of world manufacturing output; whereas the 4 Asian nations constituted 34%. A gap that is rapidly closing, soon to be overturned. The NIC report referenced earlier suggests that by 2030 Asia will have surpassed North America and Europe combined in terms of GDP, technological investment and military spending. By 2050, the only western country expected to still enjoy a place in the ranks of the five largest economies will be the US.

The west’s two centuries long material and cultural primacy is irreversibly on the wane. This should not be mistaken for precipitous decline however, as the west will remain a dynamic force in world politics in the 21st century. On the other hand Asia is unquestionably in the ascendance. The region will likely remain the main locomotive of global growth in the 21st century, but this should however not be mistaken for a coming era of unchallenged Asian predominance. Instead what we are witnessing is a diffusion of power to areas much broader than one region alone. The emerging world order now taking shape will be one where the dynamic centres of growth and power will be dispersed across the industrialized world and the newly industrializing one. We stand on the cusp of a multipolar world.