By Kumar David –
Mao Zedong mischievously quipped that “there is great disorder under the heavens and the situation is excellent”; the date is uncertain, may be the early 1950s. This essay is a survey of recent events and I have attempted to keep abreast of developments by, for example, following the world’s premier English language TV Networks; BBC, CNN, Al Jazeera, CGTN (China’s premier English channel), Euro-News (Private channel headquartered in Lyon, France), DW/Deutch-TV (German, state owned), RT (Russia), NHK (Japan), France-24 (state owned) and NHK News (Japan). Magazine articles, research papers and the US, Chinese, Russian and African governments and agencies Reuters, Bloomberg also reflect a range of views. Without swallowing everything from the aforementioned TV sources, publications and researchers uncritically I have filtered-in only what I believe are the primary issues at this time.
I have borrowed the term Edible Economics from South Korean economist Ha Joon Chang currently attached to the University of London’s School of Oriental and African Studies (SOAS). The stand-off between Capitalism/Neoliberalism and Edible Economics (rice, parippu and jobs for the masses) has become critical in countries like Sri Lanka. The dollar is in retreat and new alignments BRICS (+ Iran and Saudi?). China’s confidence (the Sino-American Thucydides Trap), its worldwide investments and New Silk Road, and its non-dollar currency alternatives are setting an economic and strategic scenario for years to come.
The virtue of everyday liberalism is that it cuts a path for regular changes of government and hence defuses confrontation; street battles give way to ballot-box battles. In my view any leader, whether of the left or right, who retains power for more than two terms is, de facto, a dictator. The worst are the military regimes; for example, the greed for power of leaders of the factions in Sudan’s army is tearing the country to shreds. Conversely, “Edible Economics” as a contract with liberalism and or social-democracy facilitates transition of governments but undermines the directive role of the state. The dichotomy has been debated for ever so long.
What is new is that the contradiction has become overlaid with an international dimension. The IMF, belt-tightening, debt sustainability, foreign trade and need for a national development plan on one side, but compounded by Sino-American strategic tension in East and South Asia, the Taiwan straits and the Indian Ocean on the other side. One must not underestimate either dimension.
Global banking is facing a rout. In the US Silicon Valley Bank, Signature Bank and First Bank among others and in Europe banking giants Deutsche Bank and Credit Suisse are up to their necks in trouble. But do not underestimate the albeit declining economic importance of the USA. America still accounts for 20 percent of global GDP, down from two-thirds after World War II and down one-third since year 2000. US trade is 10% of world total, a little smaller than China; 60% of world monetary reserves are in dollars and 40% of its currency is in foreign hands (that is only 40% of dollars circulate at home). Ninety countries peg their currency to the dollar and 90% of currency exchange transactions are in dollars. Half of cross-border loans and deposits are in dollars: half of the world’s private debt is dollar-denominated; thirty five percent of world trade is invoiced in dollars (about the same in Euros).
There is still no safe haven from the US$. The world is dependent on the dollar which is grossly overextended. The global financial restructuring that American political and economic problems have set in motion threaten tectonic shifts in the world’s financial system. Do not to underestimate potential disruption as uncontrolled change proceeds. There is little chance that the American republic will soon return to orderly government. The US even prepared to halt payments of both interest and principal on the huge amounts of money it had borrowed in the past. Accumulated US debt stands at about $33 trillion compared to its current GDP of about $30 trillion. Short-term interest rates on U.S. government debt spiked as risk of default grew. The US government budget deficit is 5.5% of GDP (revenue $8.4 trillion, expenditure $9.4 trillion). Gross external dept is about $25 trillion and gross public debt about $31 trillion or 125% of GDP). These are the most up to date 2023 estimates that I could find and, in any case, different sources (IMF, World Bank, Statistica, Wikipedia etc give different numbers). I provide them here as a compact source of reliable information for the layman reader.
Who might replace America people ask? The answer, despite a lot of ill-founded speculation about China doing so, is that no one can. America dominates global finance in ways no one has since Spain in the 16th century. But we can no longer afford not to think about America’s eventual displacement from its seven-decade-old financial domination. This could happen in many ways but, one way or another, it’s going to happen. The world was teetering on the edge of a financial cliff.
Let’s move on. Chile accounts for 26% of world’s current lithium production and the Atacama holds the world’s largest reserves of 9.3 million tonnes, 8 million in Bolivia and Chile. Chile has nationalised its lithium reserves and there is nothing the West can do except mount a coup, if it dares, as in the Anglo-American other throw of Mossadegh in 1953. Saudi Arabia, Iran, Iraq, Kuwait, Russia and the UAE together hold about 80% of world oil deposits. These countries are defying the dominance of the Petrodollar and trading in other currencies. Two weeks ago, the world looked on in horror as its cornerstone economy – the United States – prepared to halt payments on the huge national debt of $30 trillion it has borrowed to keep itself in business. Foreign ownership of U.S. Treasuries spiked at $7 trillion ($1 trillion each owned by Japan and China) and the perception of default has grown. The world is a far cry from 1953.
Whether the transition to a new world financial order that has been set in motion is catastrophic or manageable depends in large measure on how the US responds. Some elements of change can be managed, some will likely prove unmanageable. The US is unlikely to gracefully give up privilege it has long occupied at the apex of the international finance. If global bodies cannot be made “democratic” to share power between America and China, an enforced plurilateral order will supplant the status quo. This has already happened in negotiations over trade and investment issues since the Doha Round went into a coma. In recent decades liberalisation of trade between the world’s nations has proceeded through regional and bilateral talks rather than at the multilateral level. The same trend away from American-dominated multilateralism now promises to appear in the financial sector.
The ebbing of American global political leadership over the past two decades have also had the effect of distributing power to the world’s regions. Increasingly, in the Middle East, Europe, Latin America, Africa, and Asia, regional affairs are driven mainly by regional actors, not external powers. U.S. military prowess remains without peer at the global level, but most problems are not amenable to military solutions. All political decisions are local. Fewer and fewer countries still defer to American interests or strategies.
In addition to declining prestige abroad, America suffers from an accumulation of serious domestic problems and impairments. These include decaying physical infrastructure and school systems that no longer produce workers with the competence needed to compete with their peers in nations like Germany, Japan, Singapore, Finland, or even China without significant remedial training. The U.S. tax system badly misallocates investment, exacerbates the maldistribution of income, and impedes social mobility. The country now ranks well below other industrial democracies in terms of equality of opportunity. It has acquired a permanent proletariat in its cities. By most metrics, standards of public health in America are now among the lowest in the developed world.
Post-crisis financial regulations and banking practices are choking off the flow of capital to small and medium-sized enterprises. Participation in the labour force has dropped to historically low levels. Innovation, once a remarkably robust feature of the American economy, is beginning to slip. The United States continues to live beyond its means, pampering its military by pyramiding debt while disinvesting in its civilian economy and running persistent global trade and balance of payments deficits.
There are also great disparities when it comes to natural resources. The United States uses 12.5 percent of the world’s arable land and about 10 percent of its water to feed and clothe a mere 4.5 percent of its people before exporting a huge food surplus. China must sustain 19.5 percent of the world’s people on about 7.5 percent of its arable land, with less than 7 percent of its water. It is the world’s largest importer of oil seeds and other food crops. America has never had to be concerned about starvation. It has a vast, if financially wasteful, system of public health to protect it against disease. China, where many pandemics originate, cannot help but worry constantly about the possibility of mass disorder from famine and pestilence.
The US has been the global leader in science and technology for over half a century. English is the lingua franca of international commerce, engineering, and the internet. It commands a network of alliances that enable it to aggregate the capabilities of most of the world’s great powers to its own when the need arises. It has comprehensive military capabilities that no other country aspires to match
In the meantime, China is doing very well despite having far fewer natural advantages than the United States. Assets denominated in renminbi yuan are likely to be more secure than most. But China has too many domestic and foreign policy distractions to wish to replace America as the manager and mainstay of the global political economy or to be able to do so. China will react defensively, as it must, to the problems posed by the collapse of the American-led world order but it will not take the lead in resolving them. Nor will other rising powers, none of which is up to the task of replacing America in the roles it has played in global governance over the past seventy years.
We are entering an era in which there is no alternative to global power-sharing. The world will have to get used to crafting collective solutions to problems rather than looking to American presidents to imagine, invent, announce, and impose them. This is true in foreign policy, where it is now universally recognized that there is no made-in-America solution to the problems of the Middle East, the territorial disputes in East Asia, and many other issues. It is also true for much-needed changes in the global monetary and financial systems.