We are in the throes of that rare seminal change that is caused by the collapse of a World Order. The transition period turns order into disorder, particularly economic and political. The catalyst is almost always acute financial strain caused by military misadventures that throw up internal contradictions long hidden beneath the surface. Stability returns only when a new order has been painfully forged with regional or global power shifting wholly or partially elsewhere, only to go again with the next great flux. Such is the ebb and flow of world power.
Today’s flux is greater than the one caused by the two World Wars with the Great Depression thrown in between, when power shifted from Europe to the United States and the late unlamented Soviet Union. It led to that ‘Great Rivalry’ between the two, famously known as the ‘Cold War’, and the raising of the so-called ‘Iran Curtain’ by the Soviets. The US became a new kind of superpower, largely without conquest and direct control but acquiring hegemony through, as far as possible, consensual rather than coercive domination. Instead of conquering and occupying territory (until Afghanistan and Iraq) like the European colonizers did, it won world market shares and influence mostly via economic domination and the threat of being left out in the cold (sanctions) – the redoubtable Carrot and Stick policy rather than the European Divide and Rule doctrine.
The Cold War was also a World War, with the world largely divided between the US and the Soviet Blocs. And just as WWI became a new kind of war with the use of aerial power for the first time and WWII with the ultimate use of nuclear bombs, the Cold War was a new kind of war fought neither by conventional nor nuclear weapons but by the threat of the use of them. Like all wars, it too was about the control of world market shares and access to cheap labour, raw materials and markets, largely Third World, made captive by systematic dependence and the seduction of interest bearing loans with often inhuman conditions attached masquerading as ‘aid’. Proof lies in the fact that not one developing country has come out of the pejorative Third World category because of the Bretton Woods institutions or any other form of ‘aid’. Instead, most have got more dependent. The Cold War ended with the demise of the Soviet Union and the US acquiring the mantle of sole superpower.
From 1990, we saw the dawn of a unipolar world. It had to be brief. Now it’s over. It couldn’t last. Why? The US has yet to learn to function outside an adversarial framework. When there was no adversary left, it made enemies where there were none instead of becoming honest broker. Now with another acute economic downturn the short-lived unipolar world gives way to a multi-polar world and power shifts from West to East, from the US to China. The US was unable to consolidate its unipolar position because only by giving benefit without conditions and strings attached can it be done. Instead, it chose to act like the global bully led for eight years by the global idiot – not unlike a village idiot. Having failed, it is now giving way to sharing global power with China, and in the not-too-distant future with Russia and perhaps with Germany as well.
Only one country remained outside the two main superpower blocs during the Cold War, its strength coming from its strong ideology. That was China. And it is China and only China that is emerging as the new superpower, to share global power and influence with a diminished United States. Whether it leads to another US-China Cold War remains to be seen, but if it does it will be a war America cannot win. Thus I believe (hope?) that America realizes that it can extract greater mileage if it works with China. That will require an extraordinary of leap of maturity on its part, something that has been lacking since it acquired superpower status. It may be forced to learn now, since I find it difficult to accept that it won’t realize that in an adversarial relationship with China it will be the ultimate loser. It will have to have a cooperative relationship with China, because right now both are dangerously dependent on the other. Andreas Lorenz calls this new possible relationship ‘The Rise of Chimerica’. Let’s see.
Essentially, the rousing plank of world wars is ideology by exploiting the lowest common denominator to get public support – fascism versus democracy, secularism versus religion, capitalism versus communism – all to do with dominance and maximizing economic advantage. They bubble and boil in the cauldron of power unseen for long. Then one day some incident leads to the lethal brew spilling over the world war becomes hot. Just as the assassination of Franz Ferdinand (Archduke of Austria-Este, Austro-Hungarian and Royal Prince of Hungary and of Bohemia and Heir Presumptive to the Austro-Hungarian throne) in Sarajevo on June 28, 1914, triggered off World War I; the bombing of Pearl Harbor turned Hitler’s European war into World War II; the US-Soviet standoff of the Cold War was World War III (fought mostly by intelligence and, when unavoidable, by proxy), and the Soviet defeat in Afghanistan triggered off its demise and the advent of the unipolar world; the tragic events of September 11, 2001, triggered off World War IV, popularly known as the ‘War Against Terror’, fought again with a new and most potent kind of weapon yet – the human bomb – and against a new kind of enemy – ‘Shadows’ cast, not by the British music group of the Sixties but Frankenstein’s monsters of America’s own creation – Non-State Actors. What next?
The defeat of the US and its allies, particularly in Afghanistan, and the huge amount of money borrowed and wasted in Iraq and Afghanistan triggered the demise of the unipolar and the advent of a multi-polar world, even if it doesn’t signal the end of World War IV just yet. For that we will have to wait for the second great economic downturn, which may be upon us faster than we imagine. Because World War IV it is led by the US on one side and non-Muslim militants on the other, some believe it to be a war between secularism and Islam or even the recent Judeo-Christian Combine versus Islam. Yet others would like to believe that it is the coming of Armageddon, when Christians and Jews will fight the forces of the anti-Christ (which Christian fascists consider Islam to be) until the latter are decimated and Israel truly comes into being, unchallenged and unbothered. As you can see, the world may have changed many a time but the high incidence of fruitcakes in it remains undiminished. It is a war that America is losing. And it is a war that has triggered off its economic collapse because it brought its economic contradictions to the fore.
The US brought this upon itself by getting involved in two unnecessary wars, one contrived. It exposed the structural weaknesses in its economy, its sorry economic condition brought on by reckless borrowing and the acute state of bankruptcy of its financial institutions due to reckless management and weak regulation driven by greed and avarice. While we blame greedy bankers for taking huge salaries and even bigger bonuses, we forget that what they did was entirely legal, though immoral. The laws and the system allowed them to be both greedy and immoral. It was this same greed and immorality, duality and megalomania driven by the hegemony drive that informed America’s relations with other states, especially of the Third World. It could not last. It had to implode. It did.
All claims of having “got over the hump”, “green shoots”, “turnaround” and “recovery” are so much poppycock. They just cannot help misleading their own people and the world, like its genetic, underlining the amorality of capitalism. They have done nothing to correct the acute fundamental and structural flaws in their economy and their financial institutions. All their bailouts were throwing bad money after worse. America’s total indebtedness is even worse than it was in October 2008, when the downslide started. Many of its states, particularly its richest, California, are bankrupt. The dollar has lost value and is continuing to lose value. Unemployment is at a long-time high. Manufacturing is receding. Banks are not lending and people are not borrowing. This does not portend well for a consumption-based economy. Credit Default Swaps of between $50-60 trillion overhang, like dark, ominous clouds threatening a mega storm. The commercial real estate bust is neigh. No, the fundamentals, already terrible, have got worse.
The only thing that has saved the American economy so far from utter collapse is China, because it too would suffer woefully were America to go belly up. America is its biggest customer. How people with the wisdom of the Chinese could put most of their eggs in one basket and make their economy so dependent on the health of someone else’s economy mystifies me. They should have started boosting domestic consumption years ago in order to weather just such an eventuality. They could easily have done this since their domestic consumption is very low and savings very high, and thus gradually reduced their dependence on exporting to America, which they are beginning to do now. I can only put it down to the rapid drive for economic development. It has been so rapid that it has left the world breathless. Perhaps it was high-speed economic progress that caused a temporary suspension of the fabled Chinese wisdom and their genetic long-term thinking. The backlash had to come.
This does not mean that China will not wrest maximum advantage out of this flux, but at a pace that doesn’t adversely impact its economy. As you see the Yuan revalue you will also see the mighty dollar recede. Soon, oil will not be traded in US dollars alone and new oil bourses will start coming up, ending the dollar’s monopoly in oil. As to the over $4 trillion debt the US owes China, plus some of the Chinese surplus of $2 trillion lying in dollars, the only way out that I can see is debt-equity swaps, which means that China will end up owning a lot of America’s prime family silver. That’s the way the cookie crumbles. That’s the swing of the pendulum.
But don’t simply write America off so fast. Whatever happens, it will retain the most precious asset of all that makes a country primus inter pares. It has the world’s largest and most advanced knowledge bank. No one else comes close in comparison. As long as they have that and they start seeing sense – which can only come with the end of juvenile recklessness and the advent of some wisdom – America will remain a power to contend with. Wisdom is not new to America. Its founding fathers had it by the bucketful, more than collectively seen at any one time. It was this wisdom that led America to become the world’s first (largely) consensual hegemon rather than the usual coercive hegemon, as the European colonialists had been.
Actually, we are a very lucky people, living in times that are fast changing with history being made by the minute. I am following the growing tensions between China and India, China and America’s cyber wars, China and the US… I might be wrong, but I see another, bigger, financial setback for the US economy this year when commercial real estate loans default. This will be much bigger than the home loans, which led to the Crash of 2008. This one will be too big to bail out. Already you can see that the US Congress regards the two bailouts of AIG and the favoritism shown to Goldman Sachs as mistakes. I followed the questioning of the US Treasury Secretary in the Senate Committee and he was most unconvincing.
The Euro could collapse too, for it is highly overvalued. However, it is a currency without a father – or many fathers, to be precise. They need to devalue but if they do, it could accelerate the economic collapse of Spain, Greece, the UK and Portugal, to name but four hidden ‘giants’, not to mention ‘Bankrupt Britain’. We mind find the Euro inch further towards the drain, along with the dollar, before the end of this year. The British Pound has already become marginalized.