Archive for category Globalization

Ebola and Globalization

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“Close the borders!”  “I’m not going to travel anywhere!”  “Kick any African out of the country!”  These are statements of irrational fear of Ebola. The reality is that the US is probably going to contain the virus this time due to the intense and thorough efforts by the Center for Disease Control (CDC) .  Ebola is not easily transmitted, the biggest threat currently is to care givers, especially those at the end of life.

Yet while a lot of the panic we see in the US is irrational fear, there is reason to fear the spread of Ebola, which could become a global pandemic.  That rational fear is illustrative of the changing nature of global politics.   Diseases like Ebola cannot be contained geographically if it reaches a certain tipping point.  Due to globalization the threat is real and universal.  China does a lot of business on the African continent, one could imagine it hitting that country.  The world is connected.

So what is the proper response?   First, the racist reaction of some needs to be rejected.  The idea that this is an African or “black” disease is simply wrong.  It’s a human disease, and no life is more valuable than another.  Second, irrational fear must give way to rational fear.  That is the fear that the disease could spin out of control in Africa, thereby dramatically increasing the likelihood of a global pandemic.

That rational fear gives us one logical course of action: the countries of the developed world, with wealth and technology, need to do all they can do to combat Ebola in Guinea, Sierra Leone, and Liberia before it spreads further.   We need to recognize that their problem is our problem.  Trying to isolate ourselves from them only increases the chances that we’ll ultimately suffer from a pandemic.   Our best defense is to defeat the virus while it can still be contained.  Rapidly, time is running out.

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It strikes me that Ebola is a perfect example of how our thinking is not yet in sync with the reality of globalization.  We still think in terms of sovereign states, independent, and able to protect ourselves from outside threats.  We’ve not yet internalized the fact that we are so connected with the rest of the world that sovereignty exists more as a legal concept than practical reality.   Instead of calling for a massive influx of aid and support for the fight against Ebola in Africa, we call to close the borders and stop travel.  That’s short sighted and counter productive.

Yet it’s still that way on a plethora of issues.  While neo-liberal orthodoxy keeps us from grasping protectionism in a down economy, on most issues we act like we have the power to go our own way as a country, regardless of what others want.   That is an illusion.

China could in a day destroy our economy.   China won’t, because the consequences for China could be catastrophic.  However, they have the capacity to inflict economic harm at will if we do things that they find contrary to their interest.   That’s just one example.  Globalization has so linked the world economy that we’re all on the same boat, even if we imagine we’re captaining one boat in a vast fleet of individual ships.

Ebola perfectly illustrates the dangers of such anachronistic thinking.  By fearing the disease and thinking we can protect ourselves, we call for things like travel bans, isolation, and an internal focus.  We worry about it spreading here, and follow the small number of US cases with diligence, open to rumor and gossip.

To avoid a real threat from Ebola, we have to fight it where it is now virulent - in Sierra Leone, Liberia and Guinea

To avoid a real threat from Ebola, we have to fight it where it is now virulent – in Sierra Leone, Liberia and Guinea

What we should be doing is following the cases over in Africa, worried about the inability of those states to contain the virus.  We should be clamoring for our government, the UN, and the governments of the industrialized world to do everything possible to contain Ebola now in those countries.   The reality is that if Ebola continues to spread, it will mutate, perhaps become airborne, and ultimately be global.   Nothing we can do will prevent it from hitting our shores if that happens.

We don’t really protect ourselves by focusing on what’s going on now in the US, our best protection is to be proactive in places where Ebola is rapidly spreading.

But we won’t, too many of us are locked in old style thinking.   Meanwhile the clock is ticking on our chance to contain Ebola in West Africa, our best bet to avoid a global pandemic.

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Responding to Kissinger’s Argument

Kissinger with current Secretary of State John Kerry - who led a veterans movement against the Vietnam war while Kissinger was Secretary of State

Kissinger with current Secretary of State John Kerry – who led a veterans movement against the Vietnam war while Kissinger was Secretary of State

In my last post I talked about Henry Kissinger’s world view, using the example of detente as indicating the strengths and weaknesses of his approach.  His focus on power politics to the neglect of emergent issues across the globe helped put us on a path to the myriad of challenges we face.  Russian and American policies helped breed corruption, militarism and dictatorship in newly independent states, thwarting accountability and rule of law.

Countries in Asia, Latin America and Africa were the biggest losers of the Cold War – and suddenly they are relevant.  So how does Kissinger describe what needs to be done?

First he notes the nature of the changes taking place.  The fundamental unit of the international system, the state, is under pressure.   He very correctly notes a major weakness in our international institutions.  The world economy has become global, but the institutions that govern international affairs remain rooted in the state system.  This means we have an institutional structure not suited for 21st Century conditions.   Prosperity can only be achieved with globalization, he notes, but globalization feeds into the forces challenging international stability.

For realists like Kissinger, global poverty is a local issue - great powers are focused on stability.  But in our era they are linked - poverty increasingly is the driver of instability

For realists like Kissinger, global poverty is a local issue – great powers are focused on stability. But in our era they are linked – poverty increasingly is the driver of instability

And, true to his realist principles, he argues that diplomacy is harder now because great powers cannot consult so easily.  In the new multi-polarity there is no equivalent of a Nixon-Brezhnev summit.    Meetings that do happen are less frank and more subject to media scrutiny.  Realists would prefer the public let the experts handle foreign policy, leaders working in back rooms with media blackouts can achieve much more, Kissinger would claim, than a in a public spectacle.

Kissinger is absolutely right that the state is under immense pressure, yet he can’t let go of a vision that is based on the activities of sovereign states.  For a realist the state is the central foundation of the international system.  He sees the EU not as an alternative to the state, but a kind of confederation that has not yet achieved the status of statehood.

I think he misses the way in which the information revolution has rendered the European style sovereign state – created by the Treaty of Westphalia in 1648 – obsolete.   Only institutions that cross borders and ultimately erode or perhaps “pool” sovereignty can handle the challenges ahead.  After all, it’s hard to argue that the European style state functions well in most of the world.  It was a colonial creation based on fake and sometimes absurd borders and has not been able to establish rule of law and accountability in most of the world.   The only reason the realist state-fetish hangs on is that no one has figured out what could possibly replace it.

The Peace of Westphalia, ending the 100 years war created the sovereign state - a kind of new thinking that brought peace to Europe after the information revolution caused by the printing press led the old order to disintegrate

The Peace of Westphalia, ending the 100 years war created the sovereign state – a kind of new thinking that brought peace to Europe after the information revolution caused by the printing press led the old order to disintegrate

Accordingly, he turns to the US role as he discusses the possibility of establishing a new world order.  Kissinger’s words:

To play a responsible role in the evolution of a 21st-century world order, the U.S. must be prepared to answer a number of questions for itself: What do we seek to prevent, no matter how it happens, and if necessary alone? What do we seek to achieve, even if not supported by any multilateral effort? What do we seek to achieve, or prevent, only if supported by an alliance? What should we not engage in, even if urged on by a multilateral group or an alliance? What is the nature of the values that we seek to advance? And how much does the application of these values depend on circumstance?

For the U.S., this will require thinking on two seemingly contradictory levels. The celebration of universal principles needs to be paired with recognition of the reality of other regions’ histories, cultures and views of their security. Even as the lessons of challenging decades are examined, the affirmation of America’s exceptional nature must be sustained. History offers no respite to countries that set aside their sense of identity in favor of a seemingly less arduous course. But nor does it assure success for the most elevated convictions in the absence of a comprehensive geopolitical strategy. – Kissinger 

This conclusion seems vague.   It also is rooted in the notion of states and alliances, and doesn’t creatively think about new ways of political organization.   Moreover, the emphasis remains on putting out fires and trying to create stability via power politics.  One gets the sense that his genius allows him to see the situation pretty accurately, but his world view pushes him to a solution that is vague, and cannot work.  The US trying to create a world order, of working with allies to impose values and stability is bound to fail.   The Metternich system discussed in my last post collapsed into 30 years of war and depression.   This order could suffer a similar fate.

My current work is based on trying to figure out what kind of new political structures and organization can handle the vast area of technological change and the power of new media.   We live in an odd time when the old structures still have life – governments can put down rebels, silence critics, and impose their will.  But cracks are evident – no one thought Mubarak or Qaddafi could be brought down, the Arab spring was a shock.   The world is in motion.

The EU is a fascinating example of a system that has morphed into a new kind of political organization.  The states have given up (or some say pooled) their sovereignty in favor of supranational organization.  Yet they are doing so under the concept of subsidiarity – power should be exercised at the lowest level possible – local, regional, state or supranational.   Theoretically the state could lose both to the EU institutions and to local and regional governance.  Given the power of the new information and technology, local governments can handle problems that used to require national action.

Although some protests call for acceptance, it is easier for demagogues to use fear and hate to rile up the masses

Although some protests call for acceptance, it is easier for demagogues to use fear and hate to rile up the masses

What is needed is new thinking – moving away from ideology, nationalism, parochialism and “them vs us” to a recognition that globalization requires pragmatism, openness to other cultures and ideas, and “us with them,” solving problems.  The forces that oppose such new thinking range from nationalists to groups like ISIS, who want to create an Islamic caliphate that contradicts the forces of globalization and change.   Defeating them may require military action, but also requires a new vision that can speak to young Arabs and address the problems of poverty, disease, and oppression.   These are the problems Kissinger’s world view simply dismisses as secondary to the need for great leaders to craft and maintain an order.

Unfortunately, it’s hard for people in government to give up the idea of state dominance and power.   Cooperation is seen as dangerous, and xenophobes are ready to fight against anything that seems to open a state up to new cultures or people.   Kissinger’s piece thus stands as an example of the old thinking – something insufficient in dealing with a changing world.   Unfortunately the new thinking is still a work in progress – and if it doesn’t emerge and get embraced soon enough the future could get bleaker before it gets better.

 

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An Excursion into Poland

No border checks crossing from Germany into Sublice, Poland

It’s becoming increasingly clear that the world is going through an economic event that is more like the Great Depression than any other economic downturn since WWII.   The system has become unsustainable and there will never be a return to “normalcy” as it was defined before 2007.    Yet glimpses of a solution can be seen in thinking about the changes of the last twenty years, including a Polish border town named Sublice.

On the Frankfurt an der Oder side, ready to cross into Poland

I first visited Sublice in January 1992, accompanying a group of students from St. Olaf College who came to Berlin as part of their “Global Semester” led by Dr. Rod Grubb.   A bus took us to the border, and we crossed the Oder river into Poland. We had to get our passports stamped, answer questions, and then pass through a narrow passageway into Poland.   Along the east bank of the Oder tents spread out for as far as we could see — Poles came to the border, waiting for the chance to swim across and evade the overstretched German security forces.

In Berlin East Europeans were selling cigarettes below market value in every piazza.  Berlin had become the auto theft capital of the world, as cars would be taken the short distance to Poland, repainted and resold on the German market.   Right wing violence was rising in Germany as well.

Article 16 of the German constitution vowed that no one claiming to be fleeing political persecution would be sent back until an investigation of that claim was completed.   This was a response to how Jews were often sent back from countries they escaped to before WWII, only to be killed in the holocaust.   With the fall of the iron curtain East Europeans were rushing to rich Germany in droves, and when caught they claimed political persecution.     That required that the German government give them food and shelter until a hearing on their case could be held.   With the massive influx, the courts were years behind schedule with former East German bases converted to hold all the refugees claiming persecution.

To many East Germans this was absurd — money was spent to feed and house foreigners while East Germans were unemployed and losing out.    Ultimately they changed the law to limit the countries where political persecution existed, but in early 1992 the situation was tense.   The situation in Eastern Europe was dire; Germany was the gateway to the West.

Modern supermarkets and even a shopping mall now define Sublice, which still obviously targets Germans coming over with Euros (Poland still uses the Zloty)

In Sublice  we saw horse drawn carriages and poverty was extreme.    Our Deutschmarks could go far, but there was nothing to buy.   Even the meal we had tasted as if the meat wasn’t exactly fresh.   The roads were potted or unpaved, the houses in disrepair.   When we crossed back to Frankfort an der Oder (not to be confused with the huge western city of Frankfurt am Main) it felt like we were going back to the first world.

This year Frankfort an der Oder was almost indistinguishable from the West.  I could recognize and point out the East German architectural, city layout, and the like, but to the students it was a clean modern little city — nicer than many in the US.

Heading to the “Bazar” – the town’s flea market which has grown from a chaotic mess to a lively, orderly market

Sublice is a step below Frankfurt/Oder still, but so much different than twenty years ago.   It is clearly a border down, with signs in German.   20 years ago when we went to the town flea market it was punctuated by people selling off their possessions in a chaotic maze of stands and sellers.    It’s still there, now with a nice sign labeling it the “Bazar” and clearly defined rows of shops selling quality items and, of course, Spargel.   Spargel (white asperagus) is in season and being sold everywhere during the trip.    As we walked by the people running the stands switched into German to try to get us to purchase fresh ‘just picked’ Spargel.

Although the orderly market place denotes increased prosperity and development, part of me misses the romantic chaos of the market I visited in 1992!

Poland is still obviously behind Germany, and towns far from the border lack the influx of German Euros.   But the success since 1992 hints at the solution to our economic woes today.   After the nationalist reaction to the East European “invasion” after the end of the Cold War, Germany and the EU chose to embrace the East and welcome them into the EU.   To succeed we need to resist knee jerk nationalist reactions and recognize the power of integration and cooperation.

The reason Europe grew after World War II and the reason Poland is growing now is because of openness to trade and cross border investment.   Simply, when humans cooperate peacefully and work together, we succeed.  When we close ourselves off, fear losing what we have and see life as a zero sum game, we end up with war and stagnation.

The EU, despite current problems, is an undeniable success story as countries once at war with each other have achieved new levels of prosperity thanks to trade and integration.   Indeed, Americans skeptical of the EU often don’t get how integrated these economies are; there is no turning back to the obsolete order of fully separate and sovereign independent states.

For all the particulars of the current economic crisis, the big issue is that we have a globalized economy that has outgrown the institutions, rules and norms of a system based on sovereign states.   Big money can evade regulations, democracy is weakened by how the global economy forces states to make particular choices – whether it’s Greek austerity or German tax payers bailing out failing economies.    This is true for China and the US, as interdependence enforces harsh limits on government efficacy, even as people expect governments to provide solutions.

The Oder river, with Germany on the left, Poland on the right

Standing at the Oder river, thinking about the past and trying to glimpse into the future, one thing was clear: we need to look beyond the political institutions of the past era.   Sovereignty based on independent states and the Westphalian order has become obsolete.   Humans need community but they don’t need the state.    Governance is essential, but can come in many forms.    Just as Berlin and Sublice are changing, so is the whole planet.   We need to let go of old thinking and use imagination and logic to think of a way to come together and reconceptualize politics for the future.

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Predictions for 2012!

1.   President Obama will win re-election, albeit narrowly if Mitt Romney is the GOP standard bearer.   He wins handily against Gingrich, Paul or Perry.   Jon Huntsman is the one Republican who could knock off Obama (I mean, the guy speaks Mandarin — we’re not talking oranges here!)

2.   Mitt Romney will win the GOP nomination.    Romney-Thune vs. Obama-Biden.

3.   The economy will improve — unemployment will still be high, but there will be a sense of relief that the great recession is finally giving way (2013 will be the year of inflation, but we’ll not dwell on that now).    This will be enough to help Obama, but isn’t a true ending of the crisis – structural imbalances still exist, very serious ones in fact.

4.  Occupy Wall Street protests will grow again in the summer, but activists will make a concerted effort to be positive and politically engaged, a very stark comparison to the summer of 1968 when protesters stormed the Democratic convention.   This will help focus the election year conversation about relative wealth and the middle class, giving Democrats a boost.

5.   The Democrats will keep the Senate and narrowly take back the House in an election that will have people saying “who’d have thunk this a year ago.”    I’ll e-mail them a link to my blog.

6.   The Democratic majorities will be narrow in each House, and President Obama will call for the “reasonable center” to govern.   It will.

7.   The New England Patriots will win the Super Bowl with Tom Brady – the best QB in the league today – MVP.

8.   Maine will pass a referendum legalizing gay marriage, tbe the first referendum to get popular support for gay marriage, not relying on the courts or a friendly state legislature.  This will mark a turning point for this issue.

9.   Iran’s nuclear controversies notwithstanding, the people will rise up in protest against the clerics that guide the Islamic Republic, leading to a severe crisis.   China, the EU and US will stay out publicly, but privately facilitate a way for change to come to Iran that doesn’t completely drive out the Supreme Leader and Guardian Council.   One result of this will be Iran publicly eschewing nuclear weapons.

10.   North Korea will also undergo a very positive change, this time driven by China.   China will influence, bribe, threaten and cajole the North Korean military to undertake a major change in policy, opening the country.   North Korea will rely on China to help it overcome high debt and poverty, and cede to China control of its nuclear weapons.  Whether North Korea will unify with the South or connect in some way with China remains an open question (not to be decided in 2012).

11.  Angela Merkel will emerge as the “person of the  year” for 2012, thanks to her steering of the EU through crisis and claims that her work with President Obama helped him secure re-election.    A feminine face on German leadership in the EU will help Europeans accept that German leadership is not only required, but no longer something to fear.

12.   Syria’s President Assad will fall, around the same time Iranian protests rachet up.   The tension in the region will escalate, as no clear successor to Assad’s government will emerge.

13.   Iraq will continue to suffer unrest and division, with Iranian and Syrian instability spreading.   Some will say the US should go back, but President Obama will note that the Iraqis have to build their own future.

14.   The unrest will have a surprising side effect — it will lead to a new Israeli-Palestinian peace plan that will surprise a lot of people.   Spooked by what Mossad says the impact of regional instability could mean for Israel, Netanyahu decides that some kind of agreement for a two state solution needs to be reached, and thanks to Wikileaks, he knows Hamas’ bark is worse than its bite.    President Obama will be part of this late summer agreement, enhancing his re-election chances.

15.  Russian President Vladimir Putin will become more openly authoritarian in his bid to win re-election as President.  But the Russian people are not as docile as they were in Soviet times and Russian protests will threaten Putin’s grip on power.   Ultimately Putin will be pushed out by bureaucratic insiders, but that will not satisfy the crowds.

16.  Mideast unrest will cause a spike in oil prices by late summer.    By the end of the year this will show itself in a slowdown of the economic recovery.

17.  After some bad early press, the Chevy Volt and other electric car alternatives will make a comeback due to technological innovations and continued government support for research and development.

18.  The EU and China will reach an agreement that expands Chinese investment in the EU and further links their economies.   In the US some will decry the EU’s “switching sides” and abandoning the US for China.   However, it simply reflects the changing balance of global politics.

The myth is that the Mayans predicted 12-21-12 as the end of the world. It may be at least the end of an era.

19.   A conference will be held near the end of the year to deal with increased threats to global economic stability and on going financial turmoil.    It will take place in Asia with the bold purpose of forging a ‘new global economic order,’ or what some call a ‘new Bretton Woods’ (though much different than the old).   The US will have to accept its diminished role due to high debt and structural economic deficiencies.    China will recognize that it can no longer simply grow as “factory to the world” and needs to shift its economy as other Asian states supply cheaper labor and products.  African states will focus on getting a fair return on resources, and the first major talks on long term energy sustainability will take place in order to avoid future ‘resource wars.’

The conference will begin around December 3rd and not close until near Christmas, the weekend of the 22nd.   Pundits will have a field day comparing this to the Mayan calendar prediction that the world will end on 12-21-12.   “The old world of US dominance and state-centric economics is indeed being pushed aside by these historic agreements; it’s both the end of an era and the beginning of a new one.”

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Dysfunctional Democracy

As I reflect on the last four years of economic crisis and the current stalemate in Washington over the payroll tax, a couple points stand out about democracy and markets.

First,  markets are important, but ideological free market capitalism is deeply flawed.   The core reason is simple: assumptions.

There’s an old joke – a physicist, chemist, and economist are trapped on an island with a crate of canned goods but no can opener.  “I think I can get these cans open,” says the physicist, arguing that coconuts dropped from the top of a tree would be powerful enough to rip the can open.   “That’s too risky, the food could splatter all over,” says the chemist, noting that a few choice chemicals available might help weaken the metal and make it easier to open.   “You guys are making this far too difficult,” laughed the economist.

“OK,” the other two said, “what’s your solution.”

“Easy,” said the economist, “first, assume a can opener….”

The most powerful assumptions in crude ‘ideological’ economic theory involve the distribution of information and the inability of people with resources to game the system, rigging it in their favor.  In any capitalist system those assumptions fall apart.  Some people know more, have access to better information and analysis, and can use their resources to reinforce their position.   This means that class divisions are inevitable and aren’t based primarily on who works harder or shows more initiative.   Ironically the more truly “free” the market is, the more such abuses can become standard, yielding a starkly bifurcated society lacking a true middle class.

Second,  democracy has real flaws.

What keeps democracy viable is the activity of the elites.   Elites have to be able to work behind the scenes to forge compromises based on their understanding of very complex issues, often issues far beyond the understanding of the average voter.  If elites become trapped in ideological combat and lose the capacity to see that their main task is to work together to deal with real problems, democracy can fail.   If the elite focus focus so much on politics over pragmatic problem solving, democracy can fail.

Our system gives the Brits a laugh

One reason Americans tend to overstate the value of democracy is that they are in denial of its need for elite guidance.   Without elite cooperation and problem solving, poor decision making can harm a polity.   Conversely, a non-democratic state can be run very well if the elite are focused on the good of society.

Perhaps the most dangerous  problem a democracy can face is if its elites not only cannot compromise but if the economic elites trump the political elites.   Remember, capitalism produces an elite economic class which can use its clout to reinforce its own position.   When those elites are countered by a political elite who have a sense of what’s best for the state as a whole, the capacity of this economic elite to truly control things is limited.   That’s good, because they operate out of self-interest and distrust even the notion of collective interest.

But when the economic elites eclipse the political elites, democracy becomes a handmaiden for what some have called “crony capitalism” or “government of the corporations, by the corporations and for the corporations.”   In the US where elections have become exceedingly costly, the ability of the economic elite to manipulate and even control the political elite has become profound.    Add to this ideological gridlock, and a downward spiral of dysfunctional government could threaten both prosperity and democratic stability.

That’s at the root of our current dilemmas, and while we may emotionally invest in Presidential and Congressional contests, when the system  is sick, no one person can fix things.   The President is doomed to become a part of the machine.   Add to that the power-mania of Washington — what Lloyd Etheredge called “hard ball politics” — and the US is facing a political crisis of our own making.

Etheredge’s solution to ‘hard ball politics’ was a stronger press to report the truth of what’s happening, and a better informed and educated public.   Back in the 1980s when his book Can Governments Learn (focusing on US foreign policy towards Latin America) appeared, that seemed a pipe dream.   You can reform institutions, but you can’t make people smarter or the press more motivated.

It seems to me, though, he was on the right track.   The information revolution gives us the internet and the capacity to get information from a variety of sources, thereby making a stronger “press” feasible.   The public is using it to organize and learn more — it may not be obvious yet, but in talking to students I realize that on so many levels even “average” students are generally more informed about a variety of issues than was common even among very good students when I was in college.

Ultimately, unless our laws our changed limiting corporate influence on politics, or our political parties forego politics as marketing and start finding ways to both solve problems and focus on the general welfare and not corporate welfare, the only solution to our crisis comes from the people.    We have relied on the elites to make democracy work for two centuries; now we have to actually start relying on the people — we have to save our democracy.

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Energy, Finance, and Geopolitics

As the EU leaders work with the IMF, various central banks around the world and China to figure out a way to prevent a Euro collapse and treat the causes rather than just the symptoms of the crisis, it’s clear that four years into this economic crisis — which would be akin to another Great Depression if not for the capacity of government to intervene more effectively in the economy — the core problems remain unresolved.

The core issues revolve around a triad of energy, finance/debt and geopolitics.   The solution summed up in one sentence:  We must restructure our energy usage so as not to be dependent on oil, restructure debt and the global financial regime so as to return to sustainability, and restructure the world system to give new prominence to rising powers such as China, India, Russia and Brazil, while the US and the EU take important but diminished roles.

Despite all the hoopla around “drill, baby, drill” and oil finds everywhere from North Dakota to off the western shore of Mexico, nothing yet denies the fact that if we are not now at the peak of production, we still will be.   This isn’t as dangerous as some would have you believe.   The traditionalist peak oil school looks at production like a regular normal curve:

This alarmist example posits a quick drop in oil production, leading to crises ever more serious and devastating

The alarmist approach could be a bit early — the peak may still be ten or fifteen years off.  But right now the data does show flat production, even when prices spiked in 2007-08, so there is evidence to support a claim we are now at peak.   The late Matthew Simmons’ book Twilight in the Desert makes a persuasive yet indefinitive case that Saudi Arabia is already peaking and hiding the fact their real reserves are not as plentiful as claimed.   Still, the normal curve shown above is based on how US reserves were depleted — the US peaked in 1973 and production declined dramatically.   The global peak will probably not play itself out in the same way.

The US peaked in an era of cheap oil; with oil expensive and the global economy as dependent as ever on it, the search for new reserves and thorough extraction from existing wells can stretch out the peak potentially quite a while.  The graph could stay around the peak for ten or twenty years and then decline at a much slower pace.  Still, switching from an oil based economy to one that runs on a diverse set of sources ranging from coal to solar, nuclear, geothermal, wind power and others will be difficult.   Waiting for the market to force change will likely assure a period of twenty years of imbalances where real crises and shortages cause political unrest and could yield dangerous movements akin to fascism of the 1930s.    Proactive efforts to actively promote alternative energies alongside efficient exploitation of remaining reserves could help make a safe transition possible; unfortunately it’s hard to find political will to do that when there is still denial that we’re in crisis.

The second issue is global debt.  Thanks in part to cheap energy and seemingly relentless growth, banks grew comfortable making large loans to governments, corporations and individuals without worrying too much about the ability to pay back the money.   The technology revolution helped rationalize this exuberance, technology means you can get more bang for the buck — more growth with fewer resources.  Governments and the private sector got addicted to a debt that could only be maintained so long as growth was rapid, requiring both cheap energy and technological advances.

All of this debt did two things; first it spurred on investment bubbles as lack of regulation (meaning the insiders could rig the game to their benefit) alongside easy credit led to investment for the sake of making “easy money” rather than investing in companies likely to grow the economy.   This created short term jobs in the bubble sectors, but those were unsustainable.  I’ve called this the ‘something for nothing‘ mentality.

What is alarming about this graph is that except for early in the Great Depression when total debt (government and private debt) hit 300%, the average has been about 150% or lower.   Through 2009 it was reaching 380% an amazing debt burden.   Since the debt to GDP ratio of the US government is about 100%, most of it is private or corporate debt.   Much of this run up was during a boom, a sign of an unsustainable economic run up.    The US is doing worse than most in this regard, but Japan, another of the largest economies, is also burdened with high debt.   One can quibble with the statistics used (at least in interpretation) and argue that the graph exaggerates the burden.   Even then the number comes out at near 300% of GDP instead of 380%, still Great Depression levels.   Clearly there is a debt problem, and it’s not limited to governments.

So here’s the deal: how do you pay down the debt without causing a deeper recession?   The only way to do that is through growth.  Spending can be cut, but realistically the best bet is to slow down spending growth.   Moreover, cutting spending during a recession can be disastrous — it does far more harm than raising taxes.  Then if high energy costs return as demand rises economic recoveries can be stopped in their tracks.

The most dangerous issue is the third, however: geopolitics.  It’s also the most promising.   The emerging markets have a lot of under used resources and human talent, and the expansion of Asian and potentially other developing world economies could lead to a global boom.   That could provide the capital to help the developed world restructure its debt.  The problem is that the first world also have to acknowledge relative decline — the balance of power would shift towards countries like Brazil, Russia, India, China and South Africa, the so-called BRICS.

The trouble is that rising powers tend to get over confident and take risks while declining powers choose to fight to try to hold on to what is slipping away.   The so called “power transition theory” may be less viable now when economics dominates and nuclear war is all but unthinkable, but the careless talk in recent Republican debates about policy towards China suggests that many in the US may not get just how vulnerable we are, and how much damage has been done to the economy over the past decades.   The good news is that the BRICS don’t want the West to collapse, economic interdependence is real.  They want to shift towards investment and a greater say in the world economy and, in exchange for helping bail out western states in various ways, influence on our domestic economies.  China is already gaining that through heavy investment in both the EU and the US.   It’s often not noticed, but it results in a real shift of power.

These aren’t the only issues of course — global climate change is still potentially a game changer, and the Mideast could explode and create an oil crisis unrelated to so-called ‘peak oil.’   High energy costs could still undermine the BRICS and thus the world economy.    Still they keys towards the future remain transitioning to new energy sources in a timely manner, turning around the build up in public and private debt in the West likely by a mix of ‘haircuts’ (simply eliminating debt) and capital support from BRICS and other emerging markets.  In exchange control of global financial institutions shift away from western dominance (though maintaining western influence).   Managed right, there is no need for on going crisis, fear of war, or concern that civilization will collapse.   But can we trust the politicians to handle this with any wisdom?

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From Europe to Asia

President Obama announced the expansion of US military ties with Australia

Franklin Delano Roosevelt had a problem.   As much as he wanted to get involved with the war that started in Europe in 1939, there was intense domestic opposition.    Many Americans, especially the “isolationist” Republicans had disdain for Europe.    European states were the world’s great powers, if we focused on them we’d have to play by their rules.   Asia, on the other hand represented an opportunity for the US to expand our influence and in fact counter European power.  Hitler may be a problem, but Tokyo stood most directly in the path of US interests, especially the American desire to develop a strategic partnership with China.

Of course it took a surprise attack from Japan to get the US into World War II, and for most of the war US efforts focused on the Asian theater, leaving it to Russia and Great Britain to try to beat back the Nazis.    When the war ended, the US occupied Japan and imposed a constitution designed to assure that Japan would not be a rival for dominance in the region.   President Truman and Secretary of State Acheson had to exaggerate the danger of Communism to get the Republicans to embrace NATO and the rebuilding of Europe.  Their eyes were still on Asia.

Then in 1949 Mao Zedong’s Communist revolution put an end to US hopes for regional hegemony.   With China “lost,” the region declined in importance, and US interests shifted back towards Europe where they’ve stayed for over sixty years.    To be sure, the US fought in both Korea and Vietnam, but those conflicts were not so much about Asia, they reflected global Cold War dynamics.  Our best troops, technology, and emphasis was on the NATO alliance – Europe and the US were “twin pillars” of the western alliance according to President Kennedy, a “community of common values” said West German Chancellor Adenauer.

NATO became the most successful alliance in history

After the Cold War ended the US started to withdraw troops from Europe.   Russia was not seen as a serious security threat, especially not by the Europeans.   The US wanted to enjoy what President Bush (the Elder) called ‘the peace dividend,’ and Europeans felt they didn’t need the US to defend them.   NATO remained a successful alliance, but it’s necessity was in doubt.    Relations hit a low ebb in 2002-03 when a combination of American refusal to participate in international ventures important to the Europeans (ICC, Kyoto Protocols, etc.) and widespread European opposition to a US war in Iraq created mutual ill will.   Though they’ve patched things up again, it’s clear that relationship is not what it used to be.

With President Obama’s announcement in Australia of a growing US presence in the south Pacific, US policy has come full circle.  The future is no longer in Europe, but Asia.   Europe’s economic and financial mess rivals our own (the problems are, to be sure, different), while Asian countries represent the future, and perhaps a path towards economic stability.

As a Europeanist (that’s my specialty in political science) one might think I’d oppose such a move, but I don’t.   Moreover, I think the EU will also shift it’s priorities from the US to Asia — Asia is the new center of economic power and perhaps the engine for the 21st Century.

From the standpoint of the United States and Australia the move makes sense in realist terms.    The shift of US interests from Europe to Asia, as well as the growing importance of India and China in the region suggests that its important the US care for its alliances in the region, particularly with Australia, Japan and South Korea.   A stable balance of power will prevent China from using its power to extend hegemony and work against US interests.

In neo-liberal theory, the case isn’t clear cut.   China’s reaction was one of annoyance: China’s economic relationship with Australia poses no threat to the country, but its alliance with the US creates a threat to China.    Australia should think about whether or not its worth it to anger a friend with whom it is engaged with a cordial, mutually beneficial relationship.

Chinese-Australian economic ties have been deepening, and benefit Australia

In that sense the US has far less to offer.   The US economy can’t help pick up Australia’s as ours remains mired in recession.   As the regional economic powerhouse, its in Australia’s interest to foster good relations with China — after all, who thinks China is going to invade Australia?

The strongest case against the agreement is based on an analysis of internal Chinese politics.   For years there has been a tug of war between China’s military and civilian leaderships.   The military thinks in realist terms, seeing the US as a potential threat to Chinese power and security.   After all, despite China’s wildly successful economy, they still lag far behind the US in military prowess.   The civilians don’t see war as likely, and recognize that conflict would mess up a very well developed strategy for economic growth and influence.    Up until now they’ve placated the military by allowing them to use a chunk of China’s economic growth to develop their capacity.   Yet the rift is real.   Will this tip the balance of power within China towards the military and yield a more confrontational China?

It shouldn’t.   As much as China protests (and the civilian leadership has to protest loudly or else face a more assertive military leadership), they know that this isn’t really a threat to China.    At best it’s a hedge against China exercising undue influence in regional disputes, it provides the US and its allies a slightly stronger voice in regional politics.   China may not like that, but they can live with it, as long economic and diplomatic efforts are made that take Chinese interests into account.

Rivals more likely to become partners than enemies

Ultimately the pro-Asia lobby before WWII may end up having been prophetic.   The US has a future in Asia, not as the dominant power but in partnership with China.   China’s problems of political transformation, corruption, environmental degradation and adapting to its position in a global economy are more easily solved by working with rather than against the US.   US economic ills are real and structural; China could damage our economy severely without a shot being fired.   Yet they don’t want that because they would be hurt by the resulting economic instability.   They would rather see the US restructure its economy.   They can help  a weakened yet still relevant US adapt to new international realities.

In that sense the shift of emphasis to Asia is part of a global dance.   China and the US are still rivals and the US is dealing with a relative loss of global power while China is on the rise.   There is concern amongst US allies about growing Chinese clout.  The US worries that without the capacity for quick intervention in the region China could fill the power vacuum.    Yet this rivalry can and should turn to partnership over time.   The world is still “realist” enough that the US presence in Australia is needed to remind China of the relevance of American military power.   But globalization is rendering military power ever less important, and over time the Chinese and Americans will see that their destinies are better linked in partnership than broken in conflict.

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Only the Beginning

Defying odds and predictions, Occupy Wall Street continues

When I started this blog in 2008 I had little trouble describing it’s purpose: “Reflections on culture, politics, philosophy and world events during an era of crisis and transformation.”   It was clear to me that the US and indeed the world was on the verge of fundamental change, as the technology and information revolutions made the old order obsolete.

Nearly four years later it’s clear that the world is changing and its caused confusion.   Political partisans continue in their comfortable contentions that the other side is to blame for the problems and their side will get it right.    Some scream the sky is falling, others worry about the rise of China, Brazil, India and newly industrializing states, and others — though surprisingly few — are still mainly concerned about terrorism and Islamic extremism.

All of these views, I think, suffer from a common flaw: extending 20th Century thinking into the 21st Century.   In other words, most people use the categories and theories of the past to extrapolate into the future, trying to figure out how change will impact existing actors and interests.   New thinking is required; the world is changing and old theories, ideologies and strategies are increasingly ineffective and counter productive.

Consider Iceland.  I recall being in on line debates with true free market ideologues who would point to Iceland as proof that the key to success is let markets work (some tried even to claim feudal Iceland success proved pure capitalism could work which is perhaps the most bizarre argument I’ve ever encountered).   They privatized their entire banking structure and opened up the country to virtually unregulated economic speculation.   The result is that the country went bankrupt.

As the article notes, when a bail out plan and series of loans was “offered,” with threats of severe reprisals should Iceland default, the people rose up, wrote a new constitution, sought to arrest and punish those involved in destroying the economy, and essentially took back their sovereign and democratic rights.   This is an amazing story, an example of what groups like “Occupy Wall Street” want: rejection of control over the economy by international finance.

However, I don’t think the story ends there.  Iceland provides one part of what is likely to happen as this transformation continues:  The people will seek to reclaim local power and resist global finance and ‘big business.’    More local authority and control is a necessary component of the change that is coming.   Without it power gets amassed in the hands of a few large economic actors who can control, influence and penetrate state governments and undermine democratic accountability.   It is precisely those economic actors who caused the current crisis and rendered impotent government regulators who tried in vain to put limits on derivative trade, enforce lending standards, and increase capital requirements for big financial institutions.

Yet localization alone is not the answer.   Globalization is real.   Iceland will be punished for not playing along, and while this is likely better for Icelanders than being stuck in a loan/debt/austerity bind, their shift from radical libertarian principles to regulation and localism isn’t the complete path to the future.   Globalization is real, and it is a good thing.   But it’s also new, and political and economic structures built around the notion of sovereignty and the state have to be transformed.

One reason global finance has so much power is that regulatory efforts are by definition state-centric.   Big money has found a way to game the system by playing states off against each other or shopping for the cheapest tax rates, least regulation or most ineffective enforcement — the so-called race to the bottom.   States aren’t impotent and have tried to respond, but usually it ends up with arrangements that cede more power to transnational enterprises and away from states.

States still have the guns, but they just don’t matter as much as they used to, especially for the most advanced economies. The monopoly on the use of force which used to be considered as granting states ultimate power doesn’t work if force isn’t as relevant.  Big business doesn’t worry about the lack of a monopoly on force because such force is irrelevant to them.   Their influence over governments is due to the new ultimate weapon:  capital!   Force is structural and economic, old fashioned violence is less effective and crude.

Money and wealth create the capacity to help or harm a state with just a few economic decisions.   Besides regaining local control a way has to be found to create global accountability; the sovereign Westphalian system has to give way to a kind of post-sovereign structure of governance that recognizes and can cope with the global identity of modern transnational enterprises (or multinational corporations).

We’ve got a long way to go.   The rather dramatic rise in activism globally – and literally out of the blue and unexpected — with the various “occupy” movements is powerful evidence that discontent, anger and desire for change is real and widespread.   What happened in Iceland can happen elsewhere; perhaps not in such extreme form, but the long term impact of today’s new social movements is still unknown.    The fact that they are global means that a network of social organizations can gather and share information on what corporations and banks are doing, and organize responses.  Partnerships between first and third world states through such organization can lead to pressure to use international organizations like the WTO (which has nascent regulatory power) to build a method of holding transnational actors accountable.

We’re not there yet.   Our thinking is still mired in the 20th Century world of sovereignty, states, and ideology.   The new world cannot reflect any one ideological perspective — it should construct new avenues and venues for debating the path forward.  It is not anti-free market to want to limit big money because there is a strong argument that such a powerful position of a few elite companies and institutions is itself a threat to the proper functioning of the market.

So hang on for the ride.   It’s only just beginning, and there will be jumps and starts, gyrations to the left and to the right, emotional manipulation, fear, hope and at times anger.   However, the future should not be feared.   Those who scream gloom and doom lack creativity and an appreciation of what humans can and have accomplished.   Those who give simple answers or promise to “fix” things and make things like they “used to be” are deluded.

It’s an exciting time to live, and it’s within our capacity as humans to use technology and our ability to communicate and interact across the globe to solve problems and build a better future.   Globalization is what we make of it.

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Greece: Sovereignty and Democracy

European leaders reacted in horror, markets were panicked and a crisis brewed in Greece.   Why?  The Prime Minister had the audacity to put the agreed upon EU bailout plan up for a referendum vote.   The Greeks might actually get to vote on the issue, and they might not follow the dictates of big banks, big money and big government.

One “dirty little secret” of globalization is that it erodes state sovereignty and increasingly puts decision making power in the hands of a wealthy elite connected to global finance and the largest corporations in the world.   This has been a relatively recent phenomenon.   Before the 80s when regulations limiting the ability of capital to travel across borders with ease, only a few powerful actors were truly global in their investment and corporate structure.   Moreover, even if they could travel the limits on communication, information and control of distant parts made such ventures both risky and pricey.   Domestic economic activity was its own world.

In those days France and Italy could have expansive and inflation-friendly monetary policies while Germany and the Netherlands could limit inflation with tight monetary policies.   French and Italian capital had little capacity to leave their inflationary home for a more stable German investment.

That also meant that states were in control of their domestic regulatory and taxation regimes.   If a state wanted to enforce tough environmental standards, it could.   If it wanted to require companies offer benefits, or insure greater labor protections, it could do that too.   States didn’t have to, but at least in the advanced industrialized world it was up to the democratic organizations that comprised government.   The people through democracy made those calls.

As capital globalized and the technology revolution made control over distant and remote sites easier and ever cheaper, everything changed.   An embrace of laissez faire economics meant a dramatic reduction in regulations, allowing capital to go wherever a profit was to be made.   That meant pressure on states to downsize their regulatory structure, limit taxes on corporations, and do whatever they could to create a “business and investment friendly” environment.

By the 90s France and Italy had to give up their inflationary policies as capital was fleeing to find more stable currencies.   To get investment, they needed to mimic Germany and the Netherlands.   Absent the capacity for separate monetary policies, the common currency became possible.    This is what Thomas Friedman called ‘the golden straight jacket’ – states have to do things that bring investment and growth, otherwise they sink.

Friedman saw this as good, but it has two side effects.   First, it moves us away from the Westphalian system of sovereign independent states and towards something new — but we have no clue yet as to what it will be.  The idea that sovereignty is being eroded seems less obvious if you’re a big powerful state — but the current crisis is bringing home even to the US and China the limits of what a state can do.   If states are losing sovereignty and new international actors are gaining control — big finance, large corporations and to a lesser extent international organizations (e.g., the WTO) and non-governmental organizations — how will states respond?   How will the diverse power conditions be reflected in a world that is no longer the realist ideal of independent sovereign billiard balls interacting?

Secondly, for democracies this also means a real loss of democratic control.   Publics can demand tougher environmental standards, but governments will see that this will drive away investment and be forced to say no.   People can believe in hope and change, but if power is not really in the hands of the government, all politicians can do is make promises and hope they can persuade “big money” to look kindly upon their interests.   This has been evident for decades in small states (see Peter Katzenstein’s “Small States in World Markets” from the early 80s), but with globalization it increasingly limits large states.

That is a crisis for democratic political theory and democracy in general.   If power no longer resides with the people and if it is exercised by global actors pursuing agendas that are not focused on the general good of particular states, how long will people tolerate that without getting angry?   But even if people get angry, what alternative exists?  How can people impact global actors outside of state reach, lacking transparency and pulling the strings of governments both on the left and on the right?

Enter Greece.   Big money sees a threat.   Big European banks could be threatened by a Greek default.   CDS exposure (credit default swaps) in US banks could create contagion that might bring down the global financial system.   A Greek default makes Italian, Spanish and Portugese defaults thinkable.   Bond yields will rise there, and the crisis will expand (with increased exposure of both European and US banks).   Even China would be hurt badly by such events as it would decrease global demand for their goods.

So “big money” gathers to fix the problem.   Banks take a 50% haircut on bond exposure.   Governments vow to recapitalize the banks and fix Greek debt.   The Greeks are ordered to engage in massive austerity programs likely to enhance the recession that has already dramatically lowered their standard of living.    The Greeks don’t like it, but their government like all governments has to respond to the demands of big money.   The people are irrelevant.

And then, to the shock and dismay of elites everywhere Greek Prime Minister George Papandreou says that the Greek people have a right to vote on this.

Blasphemy!   Sovereignty is being asserted!  The Democratic right of the citizens to say no to global corporate finance and the nexus of big government and big money is proclaimed!   Chaos, panic, how could he do such a thing!   From Wall Street to Geneva to Frankfurt to Athens pressure is exerted, threats are made….how dare the Greeks assert sovereignty and democracy, don’t they know what’s at stake?

Yes, they do.

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Occupy Wall Street and Globalization

Global protests show OWS to be more than a national event

There is immense confusion over the “Occupy Wall Street” movement.   The left embraces it, though they’re not sure where it came from or what it means.   The right ridicules it, though efforts to say it’s a bunch of “lazy losers” who “envy the rich” are laughable.  Those involved don’t make things easier because they tell multiple stories, ranging from professional anti-globalization demonstrators along for the ride and Ron Paul supporting libertarians who want to break the big money big government nexus.

37% have positive reactions to the movement in the US, only 18% actually oppose them.   People are frustrated and the taste of corporate bailouts and shady financial instruments leaves Wall Street one of the least popular set of institutions in the US.    The fragility of the global financial system which over leveraged itself and seemed oblivious to the danger it was creating for the entire system has shocked people from Frankfurt to Beijing.   There is a sense that something has gone wrong and leaders are clueless on how to respond.

Given the surprising rise of this movement and its capacity for quick expansion, I believe that we are not seeing a moment of rage that will pass when the weather gets cold in winter, but the start of a global movement to critique the power of big money and the lack of voice so many people have in an era of globalization.   It will not be a movement of socialism, but of democracy.   It will not have a clear ideological focus but an evolving agenda.  It will persist even after Zuccotti park empties and Manhattan returns to normal.

Globalization is the name that was given to “complex interdepedence” in the late eighties as it became clear that the growing links between economies noted by scholars of international relations in the seventies (most notably Keohane and Nye in their 1976 work Power and Interdependence) were expanding beyond what anyone had anticipated.    The two most important aspects of this was: a) the technology/information revolution; and b) the internationalization of capital.

Up until the 80s most investors were national.   To invest outside ones’ own borders was risky and difficult, and often faced legal obstacles at home.   Between 1980 and 1990 that changed completely.   In 1980 foreign direct investment in the developed world totaled $390 billion, while $302 billion went to the third world.  By 2008 developed world FDI was over $10 trillion, while in the developing world it topped $4 trillion.  Portfolio investment also grew rapidly.

Investors no longer had any reason to be loyal to their home state, corporations expanded to use whatever advantage they could to minimize cost and maximize profit.    In many ways these are good developments, naturally reflecting the way in which the instantaneous exchange of information can allow greater flexibility.   Toyotas now can be made in the US rather than having to be shipped from Japan, consumers can enjoy the fruits of inexpensive goods from countries with low labor costs, and with linkages between states growing, the chance for major war declines.

Yet there is a clear loser: the state.   States no longer have as much control over their economies, have less capacity to create strong social welfare systems and find it harder to create regulations they believe necessary to protect their publics or the environment.   Whether or not one agrees with those policies, the fact of the matter is the state is not as powerful as it used to be.   And, as political leaders become both dependent on financial and business institutions and vulnerable, they listen very closely to what Wall Street or Frankfurt or Tokyo insiders say.   Whether in the World Trade Organization, IMF or US Congress, the influence of big business and big finance has never been greater.

This also means that democracy is weaker in states with democratic traditions.    Law makers no longer have the power to give people what they want if what they want flies in the face of economic realities of the new globalized political economy.    We can’t save the paper mills in rural Maine if foreign competition leads those investors elsewhere; to try we have to make wages low and avoid even almost all regulations.    That’s economic reality.

Beyond that, if politicians listen more to big money in a world where political campaigns are often just marketing campaigns with slogans and focus group tested themes, elections become almost meaningless.   No matter what the candidate says, once in Washington (or Berlin, Paris, etc.) the candidate is limited to a rather constrained set of options.   Thus emotional rhetoric painting the other side as horrid and ignorant hides the real problem.   There isn’t a lot the politicians can do.

As long as the economy was growing, people didn’t care.   They had jobs and their retirement accounts were healthy. Even those middle class who had to have two incomes rather than one and whose high paying factory job was replaced by low wage work at a call center at least had cheaper than ever goods from Walmart.   As wealth inequity grew rapidly to its peak since the 1800s, the rush of new technology and economic bubbles hid the reality:  both the public and even the politicians were not really in control of where this ride was heading.

Meanwhile the financial sector, over leveraged and under regulated, set up the perfect storm that hit in 2008, turning what should have been a normal recession into near economic collapse and a long term slow down as de-leveraging spread.    This crisis came from the same folk who brought us cheap clothes and global connection – the global financial and business elite.

It’s not that they are bad people.   They are doing what they are supposed to do, trying to maximize profit, innovate, and make money.   It’s just that markets are not magic, and without regulation from the state, insiders are able to rig the game and hide the risks, altering what capitalist theory says markets should do.    Moreover, public values that may be different from raw market outcomes become irrelevant – democracy becomes weak and impotent.

That’s the motivation for OWS.   It’s a public effort to stand up and say there has to be a counter balance to big money and its ability to shape the system.    Except for a few on the fringe it’s not an attempt to demonize or destroy big money; for all the faults of the system, globalization is both a good and an inevitable thing.   Rather, it’s a demand that democracy not be sacrificed, since if it is, the only voice that matters will be those with the resources to shape the market.   And while there are market romantics who believe that somehow markets magically gives us what is best, such faith does not stand up to historical scrutiny.

Don’t expect OWS or the core demand for more transparency and democracy to go away.   Now that we’ve seen the damage big finance can do to the economy and the need for regulation, as well as concern for human rights and a sense of justice, these efforts will persist and grow as part of the global civil society.   They may push governments to reach agreements allowing for more political control, they may create local responses to the standardizing influence of globalization.   We don’t yet know where this will lead, or how the emerging global order will function.   We’re living at the dawn of a new era, and OWS reflects a logical response to the weakening of traditional state-centric democracy.

One can’t understand OWS or the changing global order through the lens of twentieth Century perspectives.

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