Global disarray as institutions falter
The international system as we know it is unravelling. Rules and institutions that were set up seven decades ago no longer hold the same weight and authority as they used to. As we grapple with an exacerbating global disorder, established powers and players and old rules and institutions need to be revamped and reinvented to accommodate new realities. Otherwise global tensions will mount, most probably accompanied by confrontation and conflict.
To be sure, the world has never been peaceful and smooth. It has always had problems because we don’t have a world government that can govern member states and ensure that they abide by the same set of rules. We have a system of nation states which is organised by the principle of “every state for itself”. It has been like that for a long time going back to the mid-17th Century. So with the world being fundamentally unruly, how do we know we have disorder?
Past global order came from empire and hegemony, often after cleansing conflicts. My favourite military general is Hannibal, an ingenious commander and strategist who took the battle to Rome. But Hannibal ultimately lost. After the Second Punic War in 201 BC, Rome’s success took off. Carthage was later razed to the ground, and Rome’s authority was unchallenged for several hundred years. The Romans imposed a socio-economic and political order with authority and rules that their dominions obeyed.
From 1588 onwards, Great Britain ruled the world through control of the seas. As the saying went, “the sun never set on British soil”. So the British had a certain kind of system that provided order and peace. Then we have, of course, the Americans. The American era began at the end of the Spanish-American War in 1898, but maybe could have spanned as far back as the 1840s when it took over parts of Mexico. They came up very fast, and after World War II, they were the top dog. They had a certain kind of hegemonic stability that gave us some peace and order. That now is unravelling. It is being contested. We are seeing early signs of the disorder as a consequence.
The contemporary world order in the 20th Century hinged on international rules and institutions that were established at Bretton Woods around the end of World War II, and became operational throughout the Cold War. We no longer know what to expect after the Cold War. What will happen in the next 20-30 years will determine the shape of things to come thereafter. We may now just be in year 3. If we live long enough we might be able to see how things unfold, but otherwise we will just have to guess with some guiding intuition.
How do we know that we have disorder?
Let’s looks at the global trading system. It is in disarray. We have had eight multilateral trade negotiation rounds. These rounds are becoming less frequent and taking longer to complete. From Dillon to Kennedy to Tokyo to Uruguay, each has taken longer to finalise. Doha after 15 years has been empty, and it may be finished. So the global trading system based on multilateral trade negotiations in different rounds has run its course. Issues are also becoming more complicated in the world trading system. Non-tariff barriers (NTBs), intellectual property, rules of origin, data protection on patents, and market access, among others have emerged as the thorniest. It has been two decades since we have had a completed round and Doha is not going to complete.
As a result, we have seen a proliferation of preferential trade agreements. There have been myriad bilateral FTAs. Now there is the Trans Pacific Partnership (TPP), a 12-member liberalising free trade vehicle that many in Southeast Asia would say has been hijacked by the Americans. It is not what it started out as a small free-trade scheme among four small economies, namely Chile, New Zealand, Brunei and Singapore. It has not become the main arm of US trade policy. These samples suggest that the global trading system is not what it used to be.
Let’s look at finance. Global finance is like a casino. I once studied with a teacher who had written a book in the 1980s called “Casino Capitalism”. She was ahead of her time. We are really making bets on the international financial system. Hedge funds and various other funds are really ungovernable. We are now seeing more frequent global financial crises. The International Monetary Fund (IMF) is no longer universally accepted as the lender of last resort. When we become delinquent and bankrupt, someone ultimately has to lend us the money; otherwise we’re not going to make it. We can reduce spending, try to earn more, postpone repayment or issue more money, but in the end someone needs to bail us out.
The IMF is not seen as the acceptable vehicle anymore because there have been so many double standards. We can see it in America’s Global Financial Crisis when they propped up their financial sector through quantitative easing, pumping money into the system and keeping the dollar weak. The European Union is in a similar patch, as the Eurozone Crisis is being bailed out by the European Central Bank, IMF and the EU itself. And the Europeans are also engaging in QEs. Viewed from Asia, this seems like a double standard.
We had a ravaging, devastating financial crisis in 1997-1998 which really blew up into an economic crisis, but we weren’t able to use the same strategies to get out of it as Europe and America have. It doesn’t seem fair. There are, unsurprisingly, some other competing vehicles that have now come up because the established and existing institutions are no longer accepted, such as the Asian Infrastructure Investment Bank (AIIB), which China has spearheaded, as well as the BRICS Bank, a new development bank among Brazil, Russia, India, China and South Africa. So in global finance, the world is not what it used to be after WWII; the rules and institutions are no longer accepted. We need new, recalibrated institutions, but we haven’t quite got them yet.
Let’s look at other areas. We can have a different lecture on the UN system, its costly and unaccountable bureaucracy, and the structure of the UNSC with its five permanent and 10 rotational countries. The five permanent members with veto power are the countries who got there first. They were the early movers at the outset, and they have the ability to block any outcome. Russia did so recently against a resolution on the Malaysian Airlines flight MH17, which was most certainly shot down by Ukrainian rebels with Russian assistance. The UN system does not reflect real world realities anymore; we have Brazil, Indonesia, India, Germany and Japan which are worthy of a Permanent Five membership. The UN system has run its course, but it will probably take us another 20 years to find that out.
RACIAL TENSIONS Let’s look at the established states in distress. First, the United States. It is in relative decline. We don’t want to go into that too much because there is a whole lot of literature we can read and can go into long debates about what the decline means. But compared to its own past and former global role, reach and resources, it is no longer the same. The Americans are heavily indebted. Their biggest creditor is China.
They have no internal peace, wrecked by intractable racial tensions. There are regular shootings, while the Constitution and Bill of Rights mandate the freedom to bear guns and thereby enable a gun culture which feeds the violence and economic problems. There is structural gridlock making it very difficult to get anything done. Granted, the US is still second-to-none when it comes to military prowess, but in other areas they are weighed down by debt and dysfunction. The military arm, their aircraft carriers and technology still have a lot to command, but overall the US is not what it used to be.
The European Union has really peaked and plateaued since the Maastricht Treaty in 1993. I think Maastricht was a good ending for them. Beyond Maastricht they have come to this complete Union with a single currency, which has only been done successfully by one other country in modern times, namely the US. If we look at the US before the Civil War, the southern and northern states had different currencies and different governments, and they fought and killed each other in the 1860s, with a higher death toll than other US-related wars combined, to see which system would prevail. It took such a catharsis for them to have a complete political-economic community, with some state rights and autonomy and an overarching federal government.
Now, the Europeans are in between. They haven’t gone all the way. I think, however, that they went a step too far with the euro. It shows the perils of a monetary union with fiscal sovereignty. When we have a monetary union. we cede monetary sovereignty to the ECB. Yet the Eurozone members have the ability to run their own budgets. The incompatibility we’re seeing through Greece — unless it is lucky by receiving generous debt relief — may be just the tip of the iceberg. There is a problematic imbalance between welfare, democracy and capitalism, broadly defined.
Maybe New Zealand is a good example. There is good relationship with and recognition of the Maori culture. There is a sensible pension system, which is not means tested and assumes that a citizen needs self-responsibility if he or she wants a comfortable life after retirement. But if a person has not looked after himself during work years, he or she can still have just enough money to subsist. That kind of state-citizen balance is fair and easier to sustain.
In some Eurozone countries, on the other hand, you can retire at 57. Welfare is easy to overspend on because once we introduce something it is very difficult to withdraw. If we don’t tax enough and don’t find enough income, we’re going to have a gap. Inevitably there will be a deficit and if it’s not addressed it will stack up!
The Euro debate can be convoluted but also simple. If we spend more than we earn, we will be in deficit. Sure, we have to take care of people and create a safety net but some of the spending has to be for productivity gains and longer-term investment for some value. Otherwise we will go into debt and the system will not work. I think this will afflict the Europeans for some time. We will see some regression of European integration.
Normally for the Europeans, when they have a problem, their solution is “more integration”. This time I don’t think that will happen because it means that across countries they will have to subsidise others, and they don’t have enough of a common bond and identity to do so. The Americans can do it, but I don’t think the Europeans can do it. They have come a very long way but they have peaked and we are likely to see some reversal.
The Middle East also has run a course over a century of the Sykes-Picot Agreement. In 1916 the British and French drew straight lines across a map of the region after the Ottoman Empire fell, and it worked for a long while. They also gave the Jewish people in the Balfour Declaration some promises which eventually became Israel. So what we’re seeing in the Middle East now is a spectacular but also a nasty, brutish, unravelling of what used to constitute the Sykes-Picot Agreement. The culmination of the breakdown of Sykes-Picot was the Arab Spring and its continuing manifestations.
The future will likely be a reversion to the pre-Ottoman past. We will see more tribal outcomes. The modern Middle East was an imperial European imposition of tribal fiefdoms. We have got the Hashemites in Jordan and the Alawites in Syria, for example.
But that composition and configuration are no longer tenable. So we will see lasting, protracted war and conflict with intensifying Islamist yearnings for the return of a glorious caliphate that they had a thousand years ago. The Middle East is a big mess demanding our vigilance.
CRITICAL CHALLENGES In Asia, China and India are on the rise and a revanchist Russia poses critical challenges for the global system. Southeast Asia is also up-and-coming, while Japan remains in the thick of things. Asia in the 1950s-70s was not like it is today. Now it is more contested, there are territorial disputes in the East China Sea and in the South China Sea.
The resurgence of ethno-nationalism is very conspicuous. There are also a host of ethno-nationalist insurgencies in the Philippines, Myanmar, southern Thailand, and parts of Indonesia.
We are also seeing domestic polarisation from economic development, income disparity, democratisation and globalisation (Thailand, Myanmar and Malaysia for example). Asia is also messier than it used to be.
Looking at different regions and the global trade and financial systems, they’re all changing and unravelling. What does this mean? When there is tension and contest, the status quo no longer holds. There are peoples and states, even non-states, that want to change the status quo. For them that status quo is no longer acceptable. So disorder prevails.
Some revisionism emerges; some people say that the Chinese are revisionist and want to change the status quo in their own eyes, maybe Russia as well. We are seeing a system that is degenerating increasingly into a kind of ”self-help”.
When we have order and peace, there is collaboration, coordination, cooperation and adherence to common rules and institutions. When it becomes unilateral and driven by self-help, we have more disorder. To restore order short of a cathartic war, the older and more established peoples and states have to make more space for others who are coming up.
The up-and-coming also must realise that rules and realities cannot be imposed but must be worked out collectively. Otherwise it will be in no one’s interest to have more tension and conflict around the globe.