Asian games are not zero-sum

Financial Mirror (Cyprus) - - FRONT PAGE -

Two so­ci­ety hostesses are ri­vals. Both guard their so­cial stand­ing jeal­ously – and may even pun­ish a guest who at­tends the other’s party by with­hold­ing fu­ture in­vi­ta­tions.

China and the United States seem to re­gard Asia-Pa­cific re­la­tions sim­i­larly: as a zero-sum game. Are coun­tries sign­ing up for China’s Asian In­fra­struc­ture In­vest­ment Bank (AIIB), or for Amer­ica’s Trans-Pa­cific Part­ner­ship (TPP)? Will China be wel­comed, or hu­mil­i­at­ingly re­buffed, in its ef­fort to per­suade the In­ter­na­tional Mon­e­tary Fund to in­clude the ren­minbi in its unit of ac­count, Spe­cial Drawing Rights (SDR)? Is the US still the world’s largest econ­omy, or did China sur­pass it in 2014?

How­ever tempt­ing it may be to fo­cus on such ques­tions, they are the wrong way to think about the global econ­omy. There is no rea­son why some coun­tries should not join both China’s AIIB and Amer­ica’s TPP, or why over­lap­ping mem­ber­ships should not ex­pand over time – or, in­deed, why the hostesses should not even­tu­ally at­tend each other’s par­ties.

Un­for­tu­nately, that is not how cur­rent is­sues of global eco­nomic gov­er­nance are be­ing framed. When the United King­dom, Ger­many, South Korea, Australia, and oth­ers un­ex­pect­edly de­cided in March to join the AIIB, it was widely re­ported (partly be­cause of mis­steps by US pol­i­cy­mak­ers) as a mass de­fec­tion of US al­lies to a ri­val’s party.

But there is noth­ing wrong with join­ing the AIIB. Asia needs more help with in­fra­struc­ture in­vest­ment than the World Bank and the Asian Devel­op­ment Bank can pro­vide; China can play a use­ful lead­er­ship role; and the par­tic­i­pa­tion of coun­tries with high gov­er­nance stan­dards can help pre­vent the crony­ism, cor­rup­tion, and en­vi­ron­men­tal dam­age to which large-scale in­fra­struc­ture projects are prone.

Like­wise, the TPP ne­go­ti­a­tions are some­times characterised as a US at­tempt to iso­late China. But, given the Asia-Pa­cific re­gion’s high trade vol­umes, and its dense set of trad­ing ar­range­ments run­ning in ev­ery di­rec­tion, no one, in­clud­ing China, is about to be iso­lated. And, with World Trade Or­gan­i­sa­tion ne­go­ti­a­tions, in which all coun­tries could par­tic­i­pate, stalled for years, the TPP and other re­gional ini­tia­tives (like Asi­aPa­cific Eco­nomic Co­op­er­a­tion and var­i­ous in­tra-Asia free-trade ar­eas) are bet­ter than noth­ing.

Ex­change rates are an­other area where zero-sum think­ing prevails. On April 9, the US Trea­sury re­leased the bian­nual re­port man­dated by Congress to iden­tify coun­tries en­gag­ing in “cur­rency ma­nip­u­la­tion.” Nei­ther China nor any­one else was found guilty this time. But Trea­sury of­fi­cials be­lieve that they must keep up the pres­sure, lest Congress fol­low through on threats to pun­ish sup­posed cur­rency ma­nip­u­la­tors, de­rail­ing the TPP and other trade agree­ments.

Then there is the SDR. Ev­ery five years, the IMF re­con­sid­ers its com­po­si­tion, which cur­rently is de­fined in terms of the dollar, euro, yen, and pound. China’s ren­minbi is un­likely to be in­cluded in the bas­ket now, be­cause it is not “freely us­able.” And, though this will likely be re­ported as a de­feat for China, it should not be. The is­sue is of lit­tle im­por­tance.

It might seem that all of this could be shrugged off as a harm­less me­dia spec­ta­tor sport. But, to the ex­tent that a mis­placed fo­cus on coun­try rank­ings be­comes a bar­rier to sen­si­ble pol­icy, it can do real dam­age.

Such is the case with the stalled IMF quota re­form, an is­sue where the rank­ings in fact are of some im­por­tance, but not in a zero-sum way. By any mea­sure of eco­nomic im­por­tance, China and other ma­jor emerg­ing economies have long since mer­ited much larger IMF quota shares, im­ply­ing greater fi­nan­cial con­tri­bu­tions and greater vot­ing weights.

But their in­crease in shares need not come at the ex­pense of the US. It is the Euro­pean coun­tries that are greatly over­rep­re­sented. De­spite Euro­pean re­luc­tance to cede ground, US Pres­i­dent Barack Obama suc­ceeded in bro­ker­ing such a re­al­lo­ca­tion of IMF quota shares at the G-20 sum­mit in Seoul in Novem­ber 2010. Five years later, the US Congress is still hold­ing up IMF quota re­form – not be­cause it would im­ply any loss of power or cost to US tax­pay­ers, but be­cause many mem­bers do not want to give Obama any­thing he asks for.

Thirty years ago, the West wanted noth­ing more than for China to be­come a cap­i­tal­ist econ­omy. It has done so, with spec­tac­u­lar suc­cess. The rules of the game now re­quire that China be given a big­ger share in the gov­er­nance of in­ter­na­tional in­sti­tu­tions.

Mak­ing room at the ta­ble will help the rest of us in the “game” that mat­ters most: world peace and pros­per­ity. If the Congress does not pass the IMF quota re­form, the US can hardly blame the Chi­nese for un­der­tak­ing ini­tia­tives such as the AIIB on their own.

We of­ten hear about hard power (mil­i­tary) and soft power (the at­trac­tive­ness of a coun­try’s ideas, cul­ture, eco­nomic sys­tem, and so forth). But there is an­other kind of power. Ever since Bret­ton Woods, the US has had the power of global lead­er­ship. Dur­ing the in­ter­war pe­riod (1919-1939), Amer­i­cans were un­pre­pared to as­sume that man­tle; but World War II taught them the cost of iso­la­tion­ism, and they rose to the chal­lenge in 1944.

Seventy years later, even af­ter Amer­ica’s mas­sive for­eign-pol­icy mis­takes in Iraq and else­where, and even af­ter Chi­nese GDP has sup­pos­edly caught up with Amer­ica’s (at least in terms of pur­chas­ing power par­ity), the world re­mains ready to be led by the US, in­clud­ing on the cru­cial sub­jects of trade and IMF re­form. If those who in­sist on score­keep­ing have their way, the US will be un­able to ex­er­cise the lead­er­ship that the world needs. And the world will look else­where.

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