Rulers must not believe in destiny. When you lead, if there is a destiny, it will follow you.
Ancient Indian Ruler Chandragupta II
(Originally written on January 23, 2012)
In Dantes’ Inferno, there is a sign outside Hell that reads “abandon all hope, ye who enter here.” Now, I am not suggesting that we should put that exact sign next to the year 2012 which just started. However, the global trends, politically and economically, are pointing to a World where there is not much to cheer about. Yes, there has been in advancement in technology and most teenagers on the streets of Mumbai and Cairo have the latest phones or Ipads. Yes, medical advancements have materialized- even though the drugs for AIDS and other deadly diseases remain costly for the World's poor but I digress. Yes, many people have been lifted out of poverty in China and India and many remain poor and the price these two nations have paid for the economic growth is huge but that is the trade-off these nations have made. Rising income inequality and its impact on social order, is one of the biggest challenges India, China and other emerging economies are facing as nations and societies.
as economic issues are concern, it seems that the most of these challenges
facing the global economy are not temporary or random in nature. In fact, they
have been building up since early 1970s. It is just now that we are seeing the
impact and the consequence. (Some of these issues have been discussed
by this author before in various forms).
The power of the state has been battling many fires on many fronts especially since the crisis started in 2007. After the fall of the Berlin Wall, we were supposed to see the decline of the nation-state or at least its ability to use its power as it saw fit. However, that was a fantasy. This crisis has brought the nation-state at front and center of international policy making but with a cost. The capacity of the Nation-State has been stretched to its limits. Most of the world's nation-states are drowning in debts and deficits, many are facing aging population and others are faced with rising and a very young demography. The accumulation of challenges has taken a toll on the policy making system. One of the ironies of this current ongoing crisis is that nation-state has gotten stronger because of its involvement in managing the crisis. At the same time, this management of crisis has fatigued the nation-state apparatus and policy making system.
We can see the above described situation in every major economy. The US, where a political gridlock has basically reduced the current Congress into do nothing and the institution of bi-partisanship is badly damaged. Moreover, with a rising debt and structural issues (potential trade spat with China & NAFTA) in the economy, US as a country is facing a very tough future where one way or the other, hard decisions will have to be made if the US citizens want to even preserve the idea of American Dream- even if the actual dream is so hard for many and impossible for some. That is the reality. Whoever is in the White house on November 2012 must make unpopular decisions to bring some sanity to the US political and economic system. Unfortunately, the odds of happening are not that promising. Populism often comes gradually specially when institutions are under tremendous stress.
The European situation continuous to be a major concern for the global economy. Unemployment remains high in Europe and the debt talks go on and on with no results. As of now, the talks between the Greek government and its creditors are installed. Moreover, over the weekend, the statement by the Italian Prime Minister and Spanish Foreign Minister to beef up the European Bailout Fund shows that there are still some serious disagreements between Germany and the rest of the EU members on how to contain this crisis. According to Mr. García-Margallo, the Spanish Foreign Minister, Europe needs to move from words to deeds, and that means mutualisation of debt. That is contrary to what Germany wants which means the European economic challenges will continue.
For China, the thirst for energy to give continuous momentum to now its slowing economy, is its biggest challenge along with ageing population and the rising income inequality. The Chinese leadership is fully aware that the only way they can have the tight control on the Chinese population is to provide them with good jobs or just jobs and a promise of a better life. One could argue that when people are able to buy things, they usually do not question the status-quo or at least that is the rational of the Chinese leadership. The Chinese spring, if it were to happen, will be way more chaotic than the Arab spring. The risks to China are worrisome. The Chinese model, which consists of high savings rates, low consumption, and about 50% of GDP geared to fixed investment isn’t balanced or sustainable. The debt situation in China is quickly becoming a major issue for the Chinese leadership.
Arab spring which had so much promise. Yet, it has delivered so little. The average Egyptian or Tunisian still faces the same grim prospects for his future and his country. The revolutions which started last year around this time had so much energy in them but then the reality hit the masses. The decade old economic systems and social structures do not just disappear. Low incomes just do not go high right away and political institutions do not change in a year. However, the post-revolution situation is still not clear in the Arab world.
The wars in Afghanistan and Iraq have ended with no results. The wasted $US to finance these wars did not produce victories in any definition and the situation is way more fragile than before in both places. Syria is in the midst of a very volatile conflict. The dangers of proxy involvement are gaining momentum. Talibans have shown a comeback and Iraq has become a battleground for external powers. That was not the outcome these wars were supposed to produce.
And then there is Iran. As of now, the tension remains in the area regarding the Persian Nuclear issue. The question of the Persian nuclear will not go way. Either the world acknowledges the nuclear Iran or somehow stops its nuclear program. There is no other way. Whichever direction this issue will go; the outcome will not be a positive one for the region in particular. How Iran issue is linked to geopolitical security in the region and beyond has been discussed on these pages before.
All in all, I can say that the current sources of uncertainty and volatility, including systemic risk in Europe, political gridlock in Washington an unsustainable growth model in China, and the myth of decoupling will haunt the global economy. But it is the unstable geopolitical landscape which has the biggest potential to disrupt the global order and test its durability. Future leaders must be cognitive of this reality.