Global encounters and rearrangements

In the last few weeks a series of encounters have taken place at the very top of our international society that indicate a sense of urgency about how to organize, or reorganize, relations among the powers. And as we use the word ‘powers,’ we are forced to recognize that that connotation to be given to that very long-standing term in international politics and economics, has itself become the subject of global discussion.  All now recognize that as time goes on the definition of who are today’s relevant powers is changing, with some states accepting the change and others being forced to do so by events.

We have had the United Nations General Assembly session, with President Obama then chairing the Security Council, the G20 Pittsburgh meeting and President Obama’s series of meetings with world leaders, including those involved in the Palestinian/ Israeli issue. The meetings really marked a first collective encounter between President Obama and the other member-states of the global community, with his address to the General Assembly permitting him to give the new United States world view on global arrangements and global difficulties.

We focus this week on the Pittsburg meeting, dealing essentially, as it did, with the evolution of the global economic crisis, and on the complementary issue of global economic management. At Pittsburgh the powers, whose assembly was until recently characterized as the Group of Eight, have finally signified their cognizance of the limited nature of their grouping, and the need to ensure that conversations at the apex of global economic relations, now have to be widened – to a Group of Twenty. That concession  has come in the form of a formal decision at the meeting, confirming what has becoming more and more obvious over the last decade at least: that the post World War Two great economic powers no longer can maintain the fiction that they have the sole responsibility for ensuring economic stability over the globe as a whole.

As is now obvious, these powers have been really forced into that decision – discussed for quite a long time now in political and intellectual circles – by the recession that has struck the globe, from the mightiest to the smallest, and has forced the North Atlantic powers to rethink their traditional modes of economic decision-making both domestically and internationally. To some of those who are now to form the G20, Brazil for example, this concession has been long in coming. For them the signal of the need for change was the experience of having their own economic failures in the second half of the 1980s into the mid-1990s. These failures put them in a position of being forced to accept the so-called Washington Consensus advice of the international financial institutions (IFIs), requiring their adoption of so-called “structural adjustment” policies. For these countries, and indeed most of the countries in our hemisphere, that era came to be known as the “lost decade,” the designation suggesting, as well as economic decline, a certain dissatisfaction with the policies which they were required to accept in return for funds from the IFIs .

Then it goes without saying that the Western world has been surprised at the decisions which the People’s Republic of China took at the end of the 1970s on its own, so to speak, towards a managed open economy and engagement with the capitalist economies, including the acceptance of extensive foreign investment. This shift from a Soviet-type economic ideology was welcomed by the West as a conversion by China to Western economic methods, unencumbered by its traditional statist ideology; and in some measure the then Chinese leader seemed to confirm this Western assessment in what was taken as a statement by him of economic pragmatism: “It doesn’t matter if the cat is black or white, as long as it catches mice.”

But the sophistication of the Chinese approach to evolving out a state-dominated economy has surprised the North Atlantic powers, and the pace and depth of its economic growth have surprised the Western economic powers. China’s leaders have manoeuvred their economy from recession to resumed economic growth within a little more than a year, while the US and the European powers are still wondering whether they are out of the woods, and this has come as something of a shock. The persistence of China’s statements querying the wisdom of the United States dollar remaining as the main global reserve currency, has also indicated to the US and others that China is serious in having a greater input into global decisions on the future of the world economy, even though the Chinese recognize that the US economy is still the largest on this earth.

Parallel, of course to China’s development, has been that of India, traditionally a more open economy than that of China, though with a substantial state sector and relatively high protective tariffs. The further liberalization of the Indian economy, particularly under Finance Minister, and then Prime Minister, Manmohan Singh, has delighted the leaders of the Western economies, as well as giving the United States (under President Bush) the opportunity to institutionalize its relations with the country, including a formal pact on nuclear weapons which, in effect, has sanctified India’s progress in that regard (matching Pakistan, a traditional US ally) and her status as a nuclear power.

The Asian crisis of the late 1990s had, indeed, moved the Western powers to include countries like China, India and Brazil among others, into a formalized G20, constituted of finance ministers and central bank governors by 1999.  So in a sense, last week’s decision merely  elevated this status, in consequence of the traditional powers’ recognition of the need for a geographically  wider multilateral economic cooperation and financial regulation system at the highest level of global governance. And in that regard too, it is instructive that a decision was taken to reconstruct the IMF’s voting structure in favour of the emerging economies (and somewhat at the expense of the Europeans), and to provide that in future the post of Managing Director of the IMF would no longer be the prerogative of Europe (matching the presidency of the World Bank as the prerogative of the Americans), but would be open, on the basis of qualifications, to all nationalities.
So we would agree with a summing up of last week’s Pittsburgh meetings’ decisions made by a leading American international economist, Colin Bradford of the Brookings Institution, as “a symbolic act of inclusion of immense importance to international politics… filling the void created by the pretence of the G-7/8 being a global forum when it was really only a forum of Western nations.”

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