Washington summit: Expect
major showdown between US and world powers
it is the ASEM summit in Beijing or the G-20 meeting convened
by President George W. Bush in his last weeks in office, it
is obvious that the present global financial turmoil is recognised
as being an international problem that needs to be handled
globally in a cooperative manner. It is difficult to find
a precedent for such a cooperative approach towards finding
a global solution.
should demonstrate beyond all doubt the globalised character
of the international economy and the degree of economic interdependency
that has developed among nations of the world. The last comparable
crisis of similar global magnitude was the Great Depression
of early thirties of the last century, though it was not tackled
globally in a cooperative way. That too called for a massive
intervention by the state in the US. On that account, there
was a significant amount of opposition to the New Deal policies
of President Franklin D. Roosevelt from the devotees of free
market. But the opposition did not prevail then, just as it
has not in the case of the present crisis.
we are missing today is leadership of Rooseveltian calibre.
In his inaugural speech, Roosevelt proclaimed that what people
had to fear was fear itself. That sentiment will apply to
the situation today also.
Rooseveltian era was the beginning of the rise of the US as
the hegemonic power in the world. The Second World War and
the Cold War which lined up Western Europe, Japan and, after
1971, China too, behind the US made the second half of 20th
century an American century. The Soviet Union collapsed in
1991 and communism as an ideology was abandoned in most of
the world, including China and Russia.
the international system got globalised. The European Union
evolved with a GDP close to that of the US. Russia, China,
Brazil and India emerged as trillion-dollar economies. Increasingly,
the centre of gravity of international economy was shifting
to Asia. A significant proportion of American GDP was generated
from financial services. Going in for several layers of mortgages
and derivatives was considered innovative and a smart trade
practice and crony capitalism ensured that regulation though
prescribed by law was not enforced with necessary vigour.
At one point of time the irrational exuberance of the market
was commented upon in the US but was not followed up with
greater vigilance by the regulating agency. In the last few
years, the possibility of likely retrenchment in the US economy
had been forecast in international intelligence assessment
documents, though not the magnitude and rapidity of decline.
The net result of all these developments is, to quote Manmohan
Singh, "when the capital development of a country becomes
the by-product of the activities of a casino, the job is likely
to be ill-done."
there are proposals for radical overhaul of the Bretton Woods
institutions and to develop a global polity to provide effective
governance and supervision of globalisation of economy. In
1945 the victorious US had its way in fashioning the global
economic order and shaping the World Bank and the International
Today, the US is not a victorious power but in need of global
assistance for its economic recovery. There is clear realization
within the US that days in which the Americans could sustain
an extravagant consumerist lifestyle based on the savings
of the rest of the world and financed by massive trade deficits
and foreign investments are over.
this crisis, foreign investors will be very careful in accepting
the ratings offered by US credit rating firms and exposing
their investments to US financial institutions without extraordinary
checks. The US will be the world's largest debtor country
and will have deficit budgets for many years to come. Against
this background, the US will face major problems in financing
its expanding social security and medicare. It is therefore
natural to expect the impact of these factors on the US foreign
policy and exertion of sobering influence on the possibilities
of adventurism resorted to by American power.
US is no doubt the pre-eminent military power of the world.
But in today's balance of power system the military power
of the US is not likely to play the role it did during the
Cold War period. After this debilitating financial crisis
the US will no longer be looked upon as a pre-eminent economic
power as it has been in the last six decades. If there is
to be a new international economic supervisory and regulatory
regime for the globalised economy it is bound to make the
US less untethered than it has been so far. While the US has
been the engine of global economic growth till now, the International
Monetary Fund predicts that this time economic recovery of
the industrial world will depend on the fast growing emergent
economies of China, India, Brazil and Russia, which will act
as engines of growth.
these circumstances the international order in the post- financial
crisis era is bound to undergo radical changes, though it
is difficult to predict the scope and nature of the changes.
In all likelihood the US may lose part of its economic pre-eminence.
The emerging economies will play a more significant role in
international economy with necessary political impact on international
politics. Yet one cannot rule out the possibility of the US
remaining the number one economic power in the world. When
there is a major economic recovery after a major recession,
the scope and nature of recovery will be influenced to a large
extent by technological progress that takes place during that
non-polluting automobiles, nanotechnology, biotechnology,
energy conservation, technology and further advances in information
and communication technology are all expected to develop in
the near future. The pecking order in the new economic hierarchy
will to a considerable extent be determined by the success
of the various major powers in tapping these emerging technologies
and harnessing them for their recovery and advancement. There
is vast scope for both cooperation and competition among the
major industrial powers and emerging powers in this respect
for mutual benefit.
European countries appear to favour a more rigorous supervisory
and regulatory mechanism as a solution to the present crisis.
India and other developing countries, including China, may
press for more expenditure in infrastructure projects, financed
partly by international financial institutions and partly
by developed countries. This will be a classical Keynesian
approach of spending large sums as a "counter-cyclical
device". They are likely to go along with Europe on the
creation of an effective supervisory and regulatory mechanism.
the US go along with these approaches in the G-20 summit to
be held in Washington Nov 15? Unlike in the days of the Great
Depression when the focus was on the recreation of jobs through
massive investments in infrastructural projects, this time
the US focus will also be on safeguarding the economic and
technological pre-eminence of itself in the international
system. The US is also less likely to be amenable to an international
supervisory and regulatory regime.
should expect a major confrontation between the US and the
rest of the major powers of the world on how far the US is
prepared to come into a rule-bound international financial
Subrahmanyam is India's pre-eminent analyst on strategic and
international affairs. He can be contacted at email@example.com)