Collaboration not competition required as globalization at a crossroads

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Collaboration not competition required as globalization at a crossroads

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Whether or not one realizes it, 2018 may have been a historic turning point. Poorly managed globalization has led to nationalist “take back control” movements and a rising wave of protectionism that is undermining the 70-year-old US-led international order. The stage is set for China to develop its own parallel international institutions, auguring a world divided between two competing global governance systems.

Whatever happens in the next few years, it is already clear that the decade to 2018 marked an epochal shift in the balance of economic power. When I chaired the G20 London summit at the height of the global financial crisis, North America and Europe comprised around 15 percent of the world’s population, but accounted for 57 percent of total economic activity, 61 percent of investment, around 50 percent of manufacturing, and 61 percent of global consumer spending.

But the world’s economic center of gravity has shifted since then. Whereas around 40 percent of production, manufacturing, trade and investment was located outside the West in 2008, more than 60 percent is today. Some analysts predict that Asia will account for 50 percent of global economic output by 2050. True, China’s per capita income might still be less than half that of the US in 2050, but the sheer size of the Chinese economy will nonetheless raise new questions about global governance and geopolitics.

Dom Mckenzie for Arab News

For decades after its formation in the 1970s, the G7 — Canada, France, Germany, Italy, Japan, the UK and the US — essentially presided over the entire world economy. But, by 2008, I and others had begun to discern a changing of the guard. Behind the scenes, North American and European leaders were debating whether it was time to create a new premier forum for economic cooperation that would include emerging economies.

These debates were often heated. On one side were those who wanted to keep the group small (one early US proposal envisioned a G7+5); while on the other side were those who wanted the group to be as inclusive as possible. To this day, the results of those earlier negotiations are not fully understood. When the G20 met in London in April 2009, it actually included 23 countries — with Ethiopia representing Africa, Thailand representing Southeast Asia, and the Netherlands and Spain joining the original European list — as well as the EU. Nonetheless, even that de facto G24 did not fully reflect how fast the world was changing. Today, Nigeria, Thailand, Iran, and the UAE’s economies are each larger than the smallest G20 economy (South Africa), yet none of these countries is a member.

Likewise, the ground is also shifting beneath the International Monetary Fund (IMF). When the original IMF Articles of Agreement were being negotiated in 1944, there was some disagreement over whether the new body should be headquartered in Europe or the US. Eventually, it was decided that it should be based in the capital city of the country with the largest share of voting rights (which tracks a country’s share of the global economy). This means that, within a decade or two, China could demand that the IMF be headquartered in Beijing.

The world is experiencing an epochal rebalancing that is not just economic, but also geopolitical.

Gordon Brown

To be sure, the IMF most likely will not relocate from Washington (the US would leave the IMF before the IMF leaves America). But the point remains: The world is experiencing an epochal rebalancing that is not just economic, but also geopolitical. Unless the West can find a way to uphold multilateralism in an increasingly multipolar world, China will continue to develop alternative financial and governance institutions, as it has with the establishment of the Asian Infrastructure Investment Bank (AIIB) and the Shanghai Cooperation Organization.

The current trade conflict between the US and China is symptomatic of a larger transition in global financial power. On the surface, the Trump administration’s confrontation with China is about trade, with disputes over currency manipulation thrown in for good measure. But, from Donald Trump’s speeches, one gathers that the real battle is about something bigger: The future of technological dominance and global economic power.

While Trump at least detects the growing threat to American supremacy, he has ignored the most obvious strategy for responding to it: Namely, a united front with US allies and partners around the world. Instead, Trump has asserted a prerogative to act unilaterally, as if America still rules over a unipolar world. As a result, a trail of geopolitical ruin already lies in his wake.

Among other things, Trump has pulled out of the Iran nuclear deal and the Paris climate agreement, and announced that the US is withdrawing from the 31-year-old Intermediate-Range Nuclear Forces Treaty with Russia. Moreover, his administration has blocked the appointment of judges to the World Trade Organization’s dispute settlement body; reduced the G7 and G20 to near-irrelevance; and ditched the Trans-Pacific Partnership, opening the door for China to assert its economic dominance in the Asia-Pacific region.

There is deep irony here. When the US actually did preside over a unipolar world, it generally preferred to act through multilateral institutions. But, now that the world is becoming more multipolar, the Trump administration is going it alone. The question is whether this effort to reclaim an undiluted form of 19th century sovereignty could ever work.

With respect to trade, the Trump administration’s “America first” policies might initially appear to reduce imports. But they are also affecting imported inputs for US exports, which will not be spared from the damaging effects of higher trade barriers. Making matters worse, the current wave of protectionism may be creating new fiscal pressures, as US manufacturing workers and struggling farmers demand compensation through subsidies or tax relief.

For an even starker illustration of the dangers posed by protectionism and expansionary US fiscal policies, consider what would happen in the event of another global economic downturn. In 2008, governments around the world were able to cut interest rates, introduce unconventional monetary policies, and pursue fiscal stimuli. Moreover, these efforts were coordinated globally to maximize their effect. Central banks worked closely together and, with the G20 leaders’ summit in 2009, there was unparalleled cooperation between global heads of state and finance ministries.

Now, look ahead to the 2020s, when there will be far less monetary and fiscal room for maneuver. Interest rates will almost certainly be too low for monetary policymakers to provide an effective stimulus; and the massive balance sheets inherited from the last crisis will have made central bankers wary of further quantitative easing.

Fiscal policy will be similarly constrained. As of 2018, the EU’s average government debt-to-GDP ratio stands above 80 percent; the US federal deficit is on track to exceed 5 percent of GDP; and China is dealing with mounting public and private debt. Under these conditions, providing fiscal stimuli will be even more difficult than in the years following the last crisis, and cross-border coordination will be even more necessary. Sadly, current trends suggest that governments will be more likely to blame one another than to cooperate to put things right.

We are thus faced with a paradox. Discontent over globalization has brought a new wave of protectionism and unilateralism, but addressing the sources of that discontent can only be accomplished through cooperation. No one country can solve problems such as rising inequality, wage stagnation, financial instability, tax avoidance and evasion, climate change, and refugee and migration crises. A retreat to 19th century great power politics could decisively set back the prosperity that we have achieved in the 21st century.

Far from representing a clear strategic view of the future, though, “America first” is more like a spasm of self-harm by a once-hegemonic power still clinging to the past. To hark back to the nationalism expressed in the Treaty of Versailles is to ignore the indispensable difference that enhanced intergovernmental action can make.

As the US turns away from multilateralism, China is reshaping global geopolitics on its own through the AIIB, the New Development Bank, the Belt and Road Initiative, and other means. But, though China’s current policies will have long-term implications for the Asia-Pacific region and the world, most of us have yet to consider these consequences with appropriate care.

Still, great power confrontations need not be the new order of the day. The failed launch in October of a rocket carrying a US astronaut and a Russian cosmonaut to the International Space Station (ISS) was a fitting metaphor for the state of geopolitical relations today. Nonetheless, it also served as a reminder of a deeper history of multilateral cooperation and what it has accomplished. All told, 18 countries have participated in voyages to the ISS, which is currently home to a team of American, Russian and German astronauts working together.

Though the space race began as a zero-sum contest at the height of the Cold War, it became an area of sustained international collaboration. Today, the Russian and US space programs are so mutually dependent that American astronauts cannot fly to the ISS without Russian rocket launchers, and Russian cosmonauts cannot survive aboard the station without American technology.

Of course, this longstanding partnership could well end. And a 2011 US law already bars China from accessing the ISS, or from working with NASA. Still, if otherwise hostile powers such as the US and Russia can find ways to cooperate in space, then surely something similar can be achieved here on Earth.

We must hold out hope. The Cold War lasted four agonizing decades, not least because the Soviet Union refused to acknowledge the value of markets and private property, and eschewed contact with the West. The same cannot be said for China. More than 600,000 Chinese students study abroad every year, and 450,000 of them do so in the US and Europe, where they form lasting social and professional networks.

As we prepare for global conflicts in the years ahead, we must work for a future shaped by collaboration. Whether the issue is financial stability, climate change or tax havens, there is a strong case to be made that national interests are best served through international cooperation. Yet, with supply chains being reorganized, bilateral and regional trade agreements being negotiated and regional governments — not least that of California — pursuing their own deals at the global level, we will have to expand the scope of that cooperation.

Globalization is at a crossroads. One way or another, international organizations and multilateral frameworks will need to accommodate the new “poles” of geopolitical power that are emerging. The decisions that we are contemplating today will have significant and far-reaching implications for our planet’s future. The only question is whether they will be made unilaterally or collaboratively. We must summon the will of our post-war predecessors, so that we too can be “present at the creation” of an order that is fit for our moment in history.

  • Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education and Chair of the International Commission on Financing Global Education Opportunity. He chairs the Advisory Board of the Catalyst Foundation
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