JULY 2014 marks the 70th anniversary of the Bretton Woods Conference held in
1944, in preparation for the post-war global financial architecture.
This month marked the 70th anniversary of the Allied invasion of Normandy that
eventually ended the Second World War in Europe.
The war in Asia only ended after the United States dropped two atomic bombs on
Japan. Both turning points confirmed the rise of the United States as the dominant
economic and military power, centered on the US dollar as the primary reserve
currency.
Much has changed since 1944 – not least the emergence of the European Union, the
collapse of the USSR and of course, the recent rise of the emerging markets, notably
China, India, ASEAN, Brazil, Turkey, Saudi Arabia and South Africa.
In the last 70 years, five distinctive mega-trends account for the major shift in
geopolitics – demographics, economic re-balancing, technology, financialization and
climate change.
First, the world population has more than tripled from two billion in 1944 to 7.3 billion
this year and may rise to nine billion in another 20 years.
The advanced economies, particularly Japan and Europe, are ageing very fast,
whereas the emerging market populations of Africa, Middle East, South Asia and
Latin America are still rising.
Second, faster growth in the emerging markets has narrowed the gap between the
rich and poor countries (global convergence), whereas the widening gap between the
rich and poor within almost every country has created growing social and income
inequality (the great divergence).
The Credit Suisse Wealth Report 2013 said that 0.7 per cent of the world population
owned 41 per cent of total global private wealth and the top 8.5 per cent owned 83
per cent of the wealth.
Third, technology through telecommunications and computing power has networked
the world and spread information rapidly, changing social behaviors through social
media and empowering civil society and new institutions that challenge the
established order.
Fourth, financialization – defined as the size of the financial sector relative to the real
sector (using GDP as a proxy) has risen sharply as a result of financial liberalization
and innovation.
Most governments brought down their domestic government debt after the Second
World War but domestic debt (mostly private debt and debt incurred by the financial
sector) rose from 100 per cent of GDP in 1980 to an average of 370 per cent in 2012,
rising to as high as 550 per cent in Europe.
Financialization has enabled the big and powerful to concentrate wealth and has
been a significant channel for inequality.
Fifth, climate change is already apparent, as temperatures rise and polar icecaps
melt.
Last September, the UN (United Nations) Intergovernmental Panel for Climate
Change warned that if the world sticks with “business as usual,” global temperatures
may rise by over 4-6°C – far beyond the 2°C increase that has been deemed “safe.”
With extreme weather creating more natural disasters, food and water shortages are
potential trigger points for social unrest and conflicts.
Even as President Obama’s speech to West Point last month pointed out that the
United States military has no peer, the United States is facing three fronts
simultaneously in Eurasia.
In Eastern Europe, the events in Crimea and Ukraine suggest that armed conflict may
escalate.
Russia has already announced that it will cut gas supplies to Ukraine with effect from
next Monday. In the East China and South China Seas, the U.S. pivot to the Pacific,
coupled with the rise of China, has stirred up a hornet’s nest of tensions.
And in Central Asia, a large part of Iraq is being over-run by ISIS (Islamic State of Iraq
and ash Sham) insurgents.
Using the latest techniques of fund raising, ISIS even produced an “annual report”
that openly trumpeted its achievements in terms of terrorist activities and military
procurements.
If the current Iraqi government in Baghdad cannot hold, then the U.S. plan to
withdraw from Afghanistan in 2014 will be in jeopardy.
If both Iraq and Afghanistan fall to Islamic insurgents, then the entire Middle East
would be destabilized, negating the whole purpose of the post-9/11 “war on terror”,
including the controversial invasion of Iraq.
These are dangerous times. Politics in many countries is becoming more fractious
and polarized.
The European Parliamentary election results last month suggested that there was a
swing in the votes towards both the far right and the far left, at the expense of the
centrist parties.
People tend to forget that the global unrest is partly due to growing social inequality.
In many of the regions with growing social conflict, unemployment is on the rise and
the inequities are being blamed on immigrants, foreigners and other racial or religious
minority groups.
Moderate voices are ignored as fundamentalist and extreme views get more than
their fair share of press.
Thomas Piketty’s best-selling book Capitalism in the 21st Century made a
fundamental point that historically, rising inequality in income and wealth was
reversed mostly either by war or revolutions.
We have got into this dismal state because dysfunctional politics does not allow tax
and other policies to address such inequities.
Whilst Piketty’s book has framed the issue of inequality as the center-stage of global
tensions, there is as yet insufficient discussion on how to deal with such inequities.
Strengthen the bulge bracket of middle income masses, and they will be the
stabilizing force for peace and stability. It is the polarization of income and wealth that
leads to fragmentation and conflict.
In 1919, after the end of the First World War, the Irish poet W.B. Yeats wrote a
famous poem called The Second Coming. Nearly 100 years later, the words remain
apt: Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world.
Politics is the art of compromise. Without compromise, there is no diplomacy, only
conflict.
If peace and stability is to prevail, the center must hold. As Churchill famously
proclaimed: It is time for jaw jaw, not war war.
Andrew Sheng is Distinguished Fellow of the Fung Global Institute.
A version of this article appeared in The Star, 21 June 2014
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