Deep Currents

Many intelligent commentators on today’s global financial crisis have argued that the long-term implications are that the geopolitical dominance of the West is finally coming to an end. Small Precautions noted this quote from an FT column by back on the 10th, which nicely sums up the point:

Owning up to the geopolitical implications will be as painful for the rich nations as paying the domestic price for the profligacy. The erosion of the west’s moral authority that began with the Iraq war has been greatly accelerated. The west’s debtors cannot any longer expect their creditors to listen to their lectures. Here lies the broader lesson. The shift eastwards in global economic power has become a commonplace of political discourse. Almost everyone in the west now speaks with awe of the pace of China’s rise, of India’s emergence as a geopolitical player, of the growing roles in international relations of Brazil and South Africa.

Yet the rich nations have yet to face up properly to the implications. They can imagine sharing power, but they assume the bargain will be struck on their terms: that the emerging nations will be absorbed – at a pace, mind you, of the west’s choosing – into familiar international forums and institutions.

When American and European diplomats talk about the rising powers becoming responsible stakeholders in the global system, what they really mean is that China, India and the rest must not be allowed to challenge existing standards and norms.

This is the frame of mind that sees the Benelux countries still holding a bigger share than China of the votes at the IMF; and the Group of Seven leading industrialised nations presuming this weekend that it remains the right forum to redesign the global financial system.

I have no inhibitions about promoting the values of the west – of preaching the virtues of the rule of law, pluralist politics and fundamental human rights. Nor of asserting that, for all the financial storms, a liberal market system is the worst option except for all the others. The case for global rules – that open markets need multilateral governance – could not have been made more forcefully than by the present crisis.

Yet the big lesson is that the west can no longer assume the global order will be remade in its own image. For more than two centuries, the US and Europe have exercised an effortless economic, political and cultural hegemony. That era is ending.

I think it’s a sound argument that we in the West are watching our hegemony slip between our fingers. I wonder: what will we lose, and what could change? Let’s do a quick off-the-cuff brainstorm.

We certainly will no longer have solid footing from which to argue, with any intellectual honesty, that we have the best-managed financial system. That means any leaders will take note who are wondering whether they should take a deregulatory approach to finance, allowing hedge funds and investment banks to do as they please. That will also probably extend somewhat to intellectual arguments about our general management of the economy. For example, we can no longer argue that a hands-off, laissez-faire approach is the best, because we’ve opted to avoid the bloodbath of a frozen credit system and tens of millions of evictions for a more socialist model that uses taxpayer dollars as the leverage to use in an attempt to kickstart lending and bail out insolvent banks.

We will also suffer a depression that could last for some time. That depression may affect the rest of the world but it will hit hardest here at home. While the Western economies limp, the emerging economies may find themselves with heavy feet but will still continue their sprint. That will only increase the speed at which they catch up in size and capture dominant positions in today’s growth sectors.

Then there is the loss of face. Geopolitics may be played (mostly) by rational actors, but leaders are creatures of the emotion-driven crowds they control. It has always been easy to complain about how the West conducts its leadership of the world, but one had to accept that the Western way to do things — anything — was still probably the best. That assumption can now be challenged by anyone and it will require Westerners to re-prove their worth in many international activities. Perhaps more importantly, it will allow foreign leaders to justify charting their own course rather than accepting any Western standard they find bothersome.

Perhaps that is where it will end. Today, the West still runs the world’s largest economies. It still has the best universities. It remains the headquarters of the world’s largest companies. The U.S. still funds a military that is larger than all the rest in the world combined and uses it to police the seas. Perhaps those will remain. Then again, in 10 years, or 20, perhaps not…

Written: October 24th, 2008