One of the amazing new phenomena of the rapidly changing past few decades is the change in power configuration of today’s world compared to 20-30 years ago. The fall of the Berlin Wall not only ended the Cold War, but also, or even more significantly, combined the “two world markets” into one.
The enlarged world market enabled the free movement of many things, including capital and products, and the significant improvement in transportation and telecommunications made human beings and information more flow rapidly. The reallocation of wealth in a large context enables new accumulations of wealth, which is, however, unevenly spread out, and countries receive and use opportunities differently based on their mode of development.
As the developed world continues to develop at a slower pace and the emerging economies catch up, the economic power of the two in relative terms keeps changing. According to current U.S. dollar indicators, the United States’ share of global nominal GDP declined from about 26 percent of the global total in the post-Cold War period to about 24 percent today, while that of the big emerging economies, like China, India and Brazil, rose from 5 percent in 1990 to about 13.5 percent in 2009. China has made the highest jump, from less than 2 percent to more than 8 percent.
The European Union’s enlargement from 12 to 27 countries, however, has helped it maintain roughly the same percentage of the world economy today as it did 20 years ago.
GDP share is no longer the only source of power. “Soft power,” seen as the ability to make rules and to influence, often generates more fundamental and long-lasting effects on international relations. In many cases, soft power can accomplish what hard power cannot. Military strength used to be seen as the compound of all powers of a country. But it does not reflect the entire strength of a political entity any more. The EU holds very limited military power compared to the U.S., yet it does not fight shy of claiming “civilian power,” playing a key role in making international rules and standards.
Sixty-five years ago, a handful of financial ministers met in Bretton Woods to discuss the basic rules for a new world. Bretton Woods collapsed long ago, yet those rules, particularly their spirit characterized by “free business” as the foundation of the world economic governance and “subsidiarity” as the political philosophy, have prevailed, especially favoring those rule-makers.
The international financial system established in Bretton Woods continues to prevail too. It started with the gold standard, followed by the dollar standard after the weakening of the U.S.’ economic competitiveness. Even during the current global financial crisis, they are still protecting the U.S. by allowing it to serve its national interests with the hegemonic status that it acquired thanks to Bretton Woods’ rules.
The growth of the world market enabled better allocation of resources and thus the overall growth of wealth. But the free market recipe along with its extreme model, the “Washington Consensus,” has created obstructions for the development of several regions. The economic growth rate in poverty-stricken countries, where neither domestic businesses nor governments and people can sustain the impact that the entrance of powerful multinational companies have, has stagnated. Thus, the world market alone does not guarantee development.
Behind the curtains of world market rules, there are all kinds of interplaying powers, either economic, social or political, playing within geographical borders, or have already crossed national borders, sowing chaos.
It is also to be noted that the format and rules of the interplay of powers differ among various territorial, sectoral and professional power circles. In fact, there has never been a perfect market at work. The roads toward development are shaped differently and determined by different countries’ backgrounds, people’s opinions and the strategic planning of governments. The resources are therefore mobilized and distributed differently.
Although all governments claim to serve their people, citizens are organized and served in different ways with different priorities. After decades of rapid development of welfare states, European countries are now trying to cut down their public provisions and replace them with private ones, while countries like China, after rapid industrialization, are now aiming for a speedy buildup of a social security network that would cover all their citizens.
Behind these seemingly opposing trends, we see comprehensible reasoning and interplays of different powers in different circumstances.
Almost all observers agree that the world has changed and shall continue to change, but they also disagree on the ways and directions of this change. The experiences and lessons of past changes are highly divergent, and people like to draw conclusions based on their own understandings while abandoning the more tiresome holistic perspective.
As a result, many continue to adhere to the zero-sum thinking and try to gain at others’ expense. Conflicting concepts and rules generate chaotic interplays of world powers and offset the effectiveness of healthy efforts. Economies have begun moving in different directions: while the EU is trying hard to implement stricter rules and tighten economic governance, the U.S. continues to play with “quantitative easing,” puzzling the rest of the world about what is really happening.
Many serious matters, such as multilateral surveillance over the “important” currencies, effective coordination among partners with diverse interests, operational multilateral monitoring and surveillance, an early warning system against crises, and stricter self-discipline, and greater democracy and transparency, are waiting to be tackled.
The prosperity of humankind depends on the openness of economies, free flow of capital and other economic factors. It also depends on regulations that can guarantee free trade on one hand, and offset market failure on the other. Above all, it depends on the ability of countries to tolerate different modes of development and on the ability of different peoples in mutual learning.
The world’s economic giants club has grown from G5 (France, Germany, Japan, the United Kingdom and the U.S.) to G20. The dialogue and cooperation among different types of economies has at last become possible. But the issues on the G20 agenda and the rules and regulations will make a real rather than nominal difference for the future. The power to set rules is not only more decisive than military strength in today’s world, but also a determining factor of the future configuration of world powers.
But to establish a longer-lasting world order, the aims have to be set high and broad enough to encompass mutually shared interests such as sustainable prosperity, and the working plan should be realistic enough to embrace different developmental strategies for countries in different development stages and having different cultural backgrounds.
By Zhou Hong
Zhou Hong is a researcher at and director of Institute of European Studies, Chinese Academy of Social Sciences. ― Ed.
(China Daily/Asia News Network)
