We are witnessing the crumbling of the world order and we have grown accustomed to it. Surprisingly, it is not an ascending power that is rocking the status quo but the global leader, i.e. the United States, itself. And, if the very country that had been its main pillar is now willing to let that order collapse, the rest can only join in to avoid becoming the ‘last man out’.
Political figures at every level and of every scale act as agents of this transformation. Russia put an end to the West’s monopoly on power, and now a greater volatility in power relations is gradually replacing it. With great effort, the US is transforming the system of relations in the world economy and its individual sectors. China is altering the playing field, carrying out a global expansion by offering states far and near an alternative path to development. Germany is effectively contributing to the deformation of the European political system that was previously based on the principle of sovereign equality. A rising India is completely reconfiguring the geopolitics of Asia, and by extension, the world. And so on. One after another, newly empowered states will gradually alter the international community’s customary ties and practices, leading to a total transformation of the political landscape within 20–30 years. We cannot reverse this process, but we must analyse and strive to understand it. Very important individual elements of the previous order will remain. For example, we could restrict freedom of movement by administrative means, but the world cannot return to the first half of the 20th century when tourism was a privilege that only bored millionaires or naturalists could enjoy. The changes now underway, however, will lead to a very different world by mid-century. Experts and politicians must put aside the usual dogmas. They must carefully study and attempt to predict the repercussions that current and future actions can have in each sphere of the international community’s life.
The single most important process is the nationalization of decisions that affect the way the world’s most vital systems function. It became clear in the wake of the global financial crisis a full decade ago that the primary challenge to the international order, that is, the ability of states to cooperate judiciously, was the fact that problems had become global, whereas the responses to them remained national. This dichotomy will remain one of the determining factors in international politics, economic affairs, technology and society. Although, until recently, it was believed that the solution would come through improving elements of global governance, the spirit of the current age is pushing events in the opposite direction. And national rather than global-based decision-making has received a further boost from the growing diversification of the world’s leading economies, and the transformation of other countries into their respective zones of resource supply. As the world’s political life becomes increasingly diverse, its social dimension is becoming progressively more unbalanced.
States will, therefore, feel increasingly compelled to take measures to advance their national interests and aim at maintaining maximum autonomy and freedom of action. Again, when the most powerful and influential country in the global system adopts the principle of ‘me first’, the rest have no choice but to do the same. However, it is no longer possible to make truly autonomous decisions. Any nominally ‘autonomous’ action by a major power has immediate economic and political repercussions for the rest of the world. Each escalation of the economic war forces another readjustment, incrementally shifting the tectonic plates of the old world order.
States will increasingly aim their foreign political and economic policies at accomplishing tactical objectives, rather than at forming a stable alliance or regional subsystems. The relative importance of medium-sized regional powers such as Iran, Turkey, Pakistan, SaudiArabia, etc. is increasing, thereby eroding the stability of alliances and international relations. At the same time, the importance of countries bound by rigid institutional constraints is diminishing, with the EU member states foremost among them.
The non-material component of international relations is also crumbling. So far, this is most evident in those places where it is least natural – where so-called ‘universal values and norms’ have begun encroaching upon the internal life of states, effectively limiting their sovereignty. At the same time, the stronger powers are able to protect their sovereignty and consistently do so – China and the US being the most obvious examples.
The rivalry between states vying to wind up ‘on the right side of history’ – that is, espousing the policy most in demand by the international community – is losing its meaning. Soon, there will be no ‘right side’ – or more precisely, it will be in a constant state of flux. The most important feature of the emerging order will be the lack of a universal ethical understanding of the justice or ‘correctness’ of the structure of individual states and the legitimacy of their rulers. In one form or another, these universal concepts have been part of the international discourse for the past 200 years, and the military superiority of the states professing these values has maintained their pre-eminence.
These values arose after the assertion of monarchical legitimacy following the defeat of Napoleonic France and its reintegration into the ‘normal’ European powers at the Congress of Vienna. The principle by which the major powers recognized each other’s legitimacy served as the universal ethic throughout the 19th century. The competing ethical systems of Marxism and liberalism emerged during the Cold War that followed the conclusion of the ‘second Thirty Years’ War’ in 1914–1945. Their proponents were the Soviet Union and the United States, military superpowers whose might surpassed other countries’ might several times over.
If it was difficult before, it will be all but impossible in the new and extremely diverse world that is unfolding to lay claim to a common understanding of what is ‘good’ or ‘bad’ for each individual state. Unsurprisingly, it is difficult to reconcile a traditional concept of ethics with the words and actions of the politicians who have come to power in recent years. In fact, ethics have now entirely ceased to serve as a criterion in political decision-making.
As far as it concerns the internal life of the state, the disavowal of all pretence of adhering to some universal ethic might even prove beneficial. Ethics cannot be universal and detached from the culture and tradition of each individual society. They remain important, however, to relations between states. At risk, therefore, are the international institutions that came into being through the fiery ordeals of the 20th century, that represent the crowning achievement of the liberal doctrine and the acme of humanity’s political history. We will probably see the United Nation undergo a transformation as the universal platform for making the most important decisions. The effective paralysis of its Security Council on issues that affect its permanent members has turned the UN into little more than an enormous edifice – one that was erected in the mid-20th century, but that is now devoid of effective governance.
The evolution of the United Nations is a process central to world politics, one that will require close monitoring over the coming years. The leading powers are increasingly doubtful that the UN is capable of harmonizing their divergent interests and serving as a body of global governance. If the situation does not change fundamentally in the next 15–30 years, the UN could devolve into a set of functional agencies charged with dealing with problems with which the states themselves do not want to bother. In fact, our most perspicacious colleagues suggest that international institutions will come to function as little more than ‘service companies’ for states.
They could accomplish a great deal in this capacity, but they could not achieve the goal for which the UN was created – maintaining peace and civilized relations between the stronger and weaker states. What’s more, as the international community’s very concept of ethics ‘shrivels’, the number of ethics-based issues will also dwindle. Already, humanity no longer concerns itself with the fate of the hungry or simply disadvantaged populations of Africa. It has become, instead, a national security issue of the countries concerned – which must deal with it accordingly.
It is unlikely the UN can function as an instrument of global governance, at least in the way that many since the Cold War had assumed it could. The UN Security Council, however, continues to carry out the central function of the international institution – that of preventing the outbreak of a major war. After all, despite the assumption that ‘peace will prevail’, the need to prevent a direct military conflict between the great powers has become relevant once again. This makes it vital that all parties exercise extreme caution in responding to calls to change the procedures for the functioning of the Security Council – such as the recurring idea of abolishing the veto, the main tool for avoiding military conflicts between its permanent members.
Also, we cannot rule out the possibility of radical scenarios. For example, the UN as we know it could be replaced by a set of unstable regional associations of interest grouped primarily around China and the US, and to a lesser extent, Russia or India. It is unlikely, however, that such a configuration would be capable of maintaining a single system of rules and ethical norms governing interactions between all states, and would, therefore, prove even more dangerous than the current system. It would effectively return the international community to its pre-Westphalian level of development.
At the conclusion of the First World War 100 years ago, the international players posed the wrong questions. This led to wrong answers, for which humanity ended up paying an extraordinarily high price. And if we go back another 300 years, to 1618, we find that a set of cultural, religious, social, political and technological changes gave rise to a tangle of animosities that culminated in the Thirty Years’ War. That conflict can rightfully be called the first of the world wars – in terms of the number of victims it claimed as well as the convulsions it caused and changes that resulted from them.
Now is the most opportune time to spur a conversation about the future of the world order and identify what are the most important areas and directions, as well as the calibre of these changes. This is imperative because no viable prescriptions or even recommendations for going forward exist. It is impossible to restore the world order that emerged after 1945. This is by no means to suggest that the crumbling building should be razed this instant (an action that has typically triggered major wars): it is still capable of carrying out a host of necessary functions. It can never be fully repaired, however, and the best we can hope for is that it does not collapse completely. In this diverse and highly interconnected world, it is unlikely that states will manage to construct a viable new world order as long as they pursue narrow self-interest at the expense of the common good.
Today marks the beginning of the world in which we – and more importantly, our children and grandchildren – will live. To understand what type of world it could become, it is time to study deeply and impartially how the categories of international relations that are important to states and individuals will change. For thousands of years, such concepts as power, morality and justice have structured relations between social organizations and states – the highest form of human organization. Every large-scale, earth-shaking convulsion in human affairs prompted politicians and experts to re-examine these categories. These three basic categories will, indubitably, take their rightful place in that future world – the outline of which remains inscrutable in the wake of humanity’s failure to construct a new order. However, now is the time for questions, not answers.
IMBALANCES IN THE GLOBAL FINANCIAL SYSTEM
The global financial system is rife with imbalances that have remained largely unresolved since the crisis in 2008–2009. The key factors contributing to global financial instability include:
global imbalances: the high trade surplus in Asia versus the trade deficit in the US – an imbalance that has played a major role in trade tensions in recent years;
the Lucas paradox: relatively little investment flows from developed countries into underdeveloped countries, despite the fact that, according to theoretical models, the lower capital-to-labour ratio in poorer countries should provide a greater return on foreign investment;
the high level of debt in the largest countries: in the US, the public debt now exceeds GDP, and in China, private sector debt remains a major concern;
banking sector instability, especially in Europe;
the increased volatility of capital flows; periodic ‘currency wars’ resulting from competitive currency devaluations.
Indeed, the fact that some countries frequently resort to competitive devaluations of their currencies has become a growing problem for the global economy in recent years. After the peak of the financial crisis in 2008, quantitative easing policies in the US set off a chain reaction of similar policies in both developed and developing countries. The fall of the rouble has sparked a wave of quantitative easing in the countries of ‘near abroad’. This year, the world financial market is most concerned about a possible depreciation of the Chinese currency, which could spark competitive devaluations among other players in the world economy.
The paradigm of cooperation and mutual economic openness in the modern global economy has now shifted to protectionist policies reminiscent of the Great Depression of the 1930s. But, whereas high import duties were the main protectionist measure of the 20th century, they are now augmented by competitive currency devaluations. The practice of mutual currency devaluations has reduced demand, thereby contributing to the global slowdown and the so-called ‘new normal’ – a protracted period of slow growth. With signs emerging of currency parity adjustments, the International Monetary Fund is calling on countries to coordinate their financial policies more closely to avoid causing even greater harm to trade and investment.
The floating exchange rate system also increases volatility in financial markets and deprives them of reliable instruments. High exchange rate volatility can lead to fluctuations in capital flows, especially where speculative capital dominates and long-term capital is lacking – and uncertainty in financial markets can adversely affect trade and investment growth. What’s more, unrestrained depreciation of the exchange rate can cause inflation to spike, and this primarily hits the most vulnerable segments of the population hardest. The poor are less able than the wealthy to adapt to a highly volatile exchange rate.
Today’s world economy seems more than ever to be in search of a new system, much as the recovery from the Great Depression eventually led to the creation of the Bretton Woods system. Whether it will be a revival of the gold standard, a new Bretton Woods system, or something else remains unclear. It is likely, however, that the post-crisis arrangement will include changes to the world exchange rate system.