Russia might want to re-create in a new form its own periphery that would be based on common security and energy cooperation with its immediate neighbors. It will be a complex task, however, as Russia has lost during the last twenty years a significant portion of its industrial base and thus is not as attractive partner as China or India.
Globalization, as we have known it, is over.
Some countries are deciding to protect themselves first before protecting global markets. It seems that protectionism – both overt and mostly hidden - is slowly regaining favour as the policy of the day despite public assurances to the contrary. Centers of power and wealth are on the move, making the usual, Keynesian “market uncertainty” contagious to social and political processes.
Three processes are dominating current macro-economic trends: uneven speed and depths of economic recovery, sharpening “new poles of growth” and application of regionally differentiated economic policies aiming at recovery.
Thus the key questions are: What patterns of international development are emerging in the world system? and How can we sketch out how these will shape the next three to four years? In answering these questions at least four processes (intertwining politics and economic) seems to shape the immediate future of the world markets.
The first is the uneven performance of global markets in 2010 followed by disparity in the speed and depth of different states’ economic recovery. Generally speaking, the global economy did quite well in 2010, as global output rose by almost 5%, more than most forecasters expected. The darkest predictions did not materialize. Recovery, however, is taking different shapes. The Chinese economy did not suffer any serious setbacks and the Indian and Brazilian economies, despite quite a high level of inflation and rising food prices, are booming with 7-8% GDP growth. They are accompanied by most emerging economies. This is not the case in America. Compounded economic and political problems have seen the world’s largest economic and military power become less certain of itself and vulnerable to external challenges, neither of which has gone unnoticed by outsiders and rising powers.
Europe, for all its efforts, cannot be considered as a whole, with its healthy German core surrounded by the cancer-prone economies of Ireland, Greece, Portugal and Italy. In other words, the world economy is on its way to becoming divided into three macro-economic zones: surging emerging markets (most of the BRIC included), a fragmented EU and a lagging North America (with Canada however in better shape than its US neighbor). These three macro-regions are heading in different directions, divided not only by “traditional” engines and barriers of growth (such as level of human and financial capital, institutional capacity etc.), but also by the combined inheritance of the economic crisis and different policy prescriptions for their futures.
Secondly, in each of these three “zones of post crisis recovery” (for the lack of better term) there are their own internal “cores and peripheries.” So far intra-regional cooperation is still quite smooth (see EU and NAFTA), but tensions are openly visible (see the ongoing debate on the future of the euro) and the run for survival (both economic and political) is taking a more dramatic turn in a form of sharpening “egoistic” and protectionist policies. It is, for instance, quite legitimate to ask for how long Germany will be willing to protect other EU economies with its taxpayers’ money and when and how the Merkel government’s spending cuts and high taxes will be diverted from helping Greece to supporting its own shrinking social programs. In other words, within the global economy the “centers of recovery” are emerging with inevitable effect of influencing and potentially consolidating their power over the close “neighborhood”.
This emerging trend will likely continue at least for two reasons; one being simply “nationally egoistic” in maintaining higher speed of recovery that others, second is that those “centers” also taking less nationally “egoistic” task of helping to maintain regional economic and political stability (Germany is the good example ).
Thirdly, these “zones” of post crisis recovery will likely apply different policies to foster renewed growth and regain stability (economic and otherwise). These policies are starting to be quite amazingly differentiated from each other, thus creating even more uncertainty and suggesting the possibility of a “policy conflicts” among key world market players. In fact some of those conflicts are already quite visible. What is good today for China to maintain its level of growth is not necessarily the best for the US or EU (or even China’s close neighbors such as India or Vietnam). The same applies to the EU and Latin America or the US and EU or even within North America between US and Canada. The point is that diverging economic policies may create additional global tensions (for instance on approaches to exchange rates or level of state intervention). In short, the US along with the strongest EU countries and a few leading emerging market economies will most likely pursue differing economic paths, focusing their attention primarily on national and regional issues. For instance, Germany seems to be set to continue applying strong austerity measures while the US is going in a very different direction by pursuing further tax cuts and supplying the economy with more money; at the same time, emerging economies are focusing more on taming growing inflation and rising trade imbalances and mitigating the consequences of poverty.
Unsurprisingly however, some intervening variables are likely to play a role in the scenario outlined above. Despite the fact that macro-economic imbalances will likely create new geopolitical imbalances and thus would create a more plural distribution of power and resources, the US may demand “special arrangements” within a process of global power arrangements and distribution of wealth. As US will (for some time) remain a leading world power, I agree with Robert Skidelsky’s observation that “its natural evolution is towards it becoming the fifth wheel on every coach, rather than the driver of the whole team. “One of the big questions is whether China (and other key players) will continue to accept as necessity to have such a “fifth wheel”.
Where is Russia in this picture? Russia might want to re-create in a new form its own periphery that would be based on common security and energy cooperation with its immediate neighbors. It will be a complex task, however, as Russia has lost during the last twenty years a significant portion of its industrial base and thus is not as attractive partner as China or India (except its energy sector). Even a short analysis of BRIC data show that Russia is lagging on many key indicators but still remain a powerful international actor; but as US interest in the Russia’s neighborhood is diminishing the above scenario of Russia re-shaping its neighborhood becoming quite viable.
Instead of a summary – linking economy to politics
Let’s try to extract most likely consequences from the above (economics) for the global politics At least three routes are looking as most plausible to propose. First, as new “ centers of growth” will likely be so absorbed by their own problems and , as a result , that they will spend less time and energy on international cooperation and “global issues” (such as, for instance, the environment and global food crisis, global migration etc.). The quite obvious result might be that this would become a pre-cursor to the end of an era: the final retreat of full spectrum liberalization and deep globalization. For financial governance, we are about to see the renaissance of the nation-state as the unambiguous hub of regulatory authority. Secondly, while “going inward” may not lead to direct confrontations, diverging interests (followed by diverging policies) will create more tensions and greater unpredictability followed by political instability on a global scale.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.