globalization

The Carnegie Endowment for International Peace's Uri Dadush and Bennett Stacil have released The G20 in 2050, in which you learn the following:

China will become the world’s largest economy in 2032, and grow to be 20 percent larger than the United States by 2050. Over the next forty years, nearly 60 percent of G20 economic growth will come from Brazil, China, India, Russia, and Mexico alone. However, these emerging markets will not rise among the world’s richest countries in per capita terms: their average income in 2050 will still be 40 percent below that of the G7 states today. The end of the decades-old correlation between economic size and per capita income will have profound effects on global economic governance.

Hmmm.... yes, this sounds familiar:

  

Studies by Goldman Sachs and Deutsche Bank on growth trends for big developing economies contains some startling predictions. By 2010, the annual growth in aggregate demand from Brazil, Russia, India, and China will be greater than the combined growth of the United States, Japan, Germany, Italy, and Great Britain. By 2020, China and India are projected to have the second and third largest economies.  By 2025, the annual growth in aggregate demand from the four leading developing economies will be twice that of the G-7.  By 2030, the combined purchasing power of China's and India's consumers is projected to be five times that of today's United States.  While simple extrapolations from the recent past can be misleading, economic and demographic trends suggest that growth of India and China will shift what is currently a bipolar economic distribution of power into a more multipolar world.

As the number of actors increases, the likelihood of creating a concert of common preferences among them necessarily declines.  This holds with particular force if these countries achieve great power market size while still having low per capital incomes.  In addition to the current tension between the American and European varieties of capitalism, another source of preference divergence could emerge among the great powers:  the tension between rich countries willing to trade off economic growth for quality of life issues, and still-developing countries that are more reluctant to sacrifice growth.

My latest column in The National Interest online is up, and it sounds a warning about the Obama administration's policy malaise on both the Asia/Pacific region and the #1 issue to countries in the Asia/Pacific region -- namely, trade:

Obama’s policy malaise on trade will not win him friends in a region hell-bent on deepening economic integration. U.S. policy on trade liberalization has stalled out so badly that rumors are swirling around the Beltway that U.S. Trade Representative Ron Kirk is contemplating resignation. Meanwhile, countries in the region are signing free-trade agreements with each other at a record pace. The European Union has inked a free-trade deal with South Korea, and is negotiating one with Japan. In contrast, the chances of the Korea-United States free trade agreement passing this Congress is hovering around zero. The comparison with China is particularly dispiriting....

The United States has not been eclipsed yet—the bevy of activity in the Pacific Rim is a lot more about hedging than balancing against the United States. Nevertheless, if President Obama wants to be taken seriously in the region, he needs to take the region’s issues more seriously. Trade is not merely about economics—it’s about foreign policy too. Just because Washington ignores a policy issue does not mean others do not think it important. As we are learning, some regions can bypass America altogether if they so choose. 

In a very disturbing sign of the times, I see that former State Department official Evan Feigenbaum has written something similar for the Financial Times: 

[T]he business of Asia is business. Without more vigorous trade engagement, such diplomatic efforts cannot secure America’s position in a changing Asia. The US could soon face a region less willing to accommodate its commercial and financial interests.

Many eons ago in graduate school Only recently Evan and I woul talk about the Asia/Pacific when we were matriculating in graduate school together -- and, more often than not, we disagreed with one another.  The only times we agreed was when some serious s**t was going down.  So take this consensus for what you will. 

The Financial Times' Edward Luce talks today about the ways in which U.S. perceptions of China have changed:

[N]o amount of dexterity can disguise the fact that Mr Obama’s visit to China crystallises a big shift in the global centre of gravity over the past few years. Just a decade ago Bill Clinton persuaded Capitol Hill that China’s membership of the World Trade Organisation would strengthen the forces of democracy within China.

Today, almost nobody in Washington even tries to make that case. Subsequent developments in China – and elsewhere – make it hard to sustain the argument that economic liberalisation leads necessarily to political liberty.

Hmmm..... really? 

I'm not saying Luce doesn't have a point.  China's been opening to the world for two decades now and Beijing's Freedom House score on accountability and public voice hasn't really budged (and stories like these don't help).  So anyone who thinks that economic liberalization will lead to political liberalization in the short-term is fooling themselves. 

That said, this isn't a short-term game that's being played.  Freedom House also acknowledges that, "Even though political institutions in China have not undergone major change, the degree to which Chinese can manage their own lives has increased substantially in the reform era."  Furthermore, as someone watching their foreign economic policy, I think it's safe to say that the current Chinese leadership is far more sensitive to domestic political pressures than was the case a decade ago (whether the Chinese public actually wants what Kantian liberals think they want is another matter entirely). 

China might be one of the toughest tests imaginable on the relationship between economic and political liberalization.  The country has a strong civilizational identity, but the leadership is acutely aware of the rebellious tendencies of some of its ethnic minorities.  The population is so huge that even after decades of double-digit economic growth, a lot of Chinese citizens are dirt poor.  It will likely take another decade for China's GDP per capita figure to rise to the level when most political science models would predict some push towards democratization. 

I certainly don't think U.S. policymakers can sit around and wait for China to democratize as the answer to policy problems in the Pacific Rim.  But neither am I convinced that China's domestic polity has reached its final steady state. 

Throughout the course of the Bush administration, a constant irritant in the Asia/Pacific region was Bush's tendency to place antiterrorism at the top of the queue in Asia/Pacific Economic Cooperation (APEC) discussions.  Not that anti-terrorism wasn't important, but APEC was not the proper forum for that -- APEC is all about regional economic integration.  China, by wanting to talk about trade, made a lot of diplomatic headway by distinguishing itself from the United States.

I bring this up because, according to the FT's Edward Luce, it looks like the Obama administration's policy malaise on trade is not winning it any allies in East Asia: 

In a meeting with President Barack Obama last week, Lee Kuan Yew, the veteran former prime minister of Singapore, said he felt privileged to meet the US leader at a “time of renewal and change in America and during a period of transition where the world order is changing”.

At private meetings around Washington, however, Mr Lee’s message was rather more blunt.

“You guys are giving China a free run in Asia,” he told Fred Bergsten, the director of the Peterson Institute for International Economics. “The vacuum in US policy is enabling the Chinese to make the running.”

Mr Lee’s timing was apposite. On Wednesday Mr Obama leaves for Tokyo for a regional tour that will include China, South Korea and Singapore, where Mr Lee’s government is hosting a summit of the Asia Pacific Economic Co-operation (Apec) forum this weekend. Surveys in each country show that Mr Obama’s popularity has helped to restore the battered US standing in the region.

But the views of Asian governments do not always chime with those of their public. Across the region, concern is rising about the absence of US leadership on trade since Mr Obama took office. Few believe that he has the will or power to restart the Doha round of global trade talks – and he has not asked Congress for a renewal of the presi- dent’s fast-track negotiating authority.

Fewer still believe that he will be able to ratify the landmark 2007 US-South Korea free-trade agreement in the face of strong hostility in Congress....

while globalisation gets steadily less popular in the US, other parts of the world are moving ahead. South Korea recently concluded a free-trade deal with Europe. Japan is holding similar talks with the European Union. Ironically, the EU broached the talks as a way of protecting itself against the trade-diverting effects of the now moribund US-Korea deal.

US business lobby groups are hoping Mr Obama will be able to achieve some kind of a breakthrough in Seoul next week. Given that it would be futile for him to send the free-trade agreement back to Capitol Hill, any new steps would have to include a renegotiation of the deal to include better market access for US cars.

“It is really important to understand just how badly the US is screwing itself on trade,” said Mr Bergsten. “By having an inactive trade policy, others are rushing to fill the vacuum.”

For an administration that claims it wants to have better relations with its allies, Obama and his foreign policy team have been remarkably tone-deaf when it comes to trade policy. 

At every major summit meeting since he's come to office, Obama has heard complaints about the lack of U.S. leadership on the trade front.  This administration has demonstrated that it's not afraid to tackle multiple, complex challenges at the same time -- and yet they've been either mute or worse when it comes to trade. 

Barack Obama's decision to put trade policy in a lockbox and throw away the key is utterly appalling -- and, from a foreign policy perspective, completely counterproductive. 

With the fall of the Berlin Wall twenty years ago today, there's going to be a lot of navel-gazing about What It All Means. 

It occurs to me, however, that the Fall of the Wall is one of those rare Good News Events in which people remember where they were and what they were doing when it happened.  For a multitude of cognitive reasons, I think most of these transcendent events -- the Kennedy assassination, the Challenger explosion, the 9/11 attacks -- are calamitous events.  Beyond the fall of the Wall, I can only think of the Moon landing as a similar good new focal point.

So, my question to readers -- what were you doing when you heard the Berlin Wall had been breached?  What was your reaction?

I'll go first -- I was a senior in college, and found out when I was in the coffee shop.  My first thought was a profound desire to get on a plane and go to Berlin -- I had been there six months earlier, and here was no inkling of what was going to happen. 

My second thought was unadulterated joy -- because the Cold War had been so omnipresent for my entire life, and it looked like it was headed for the dustbin. 

What about you? 

Greetings from tomorrow. 

In light of the Fort Hood shootings, I thought I would share with you a sampling of national headlines from my morning copy of the Asahi Shimbun:

• "2 more boyfriends of Tottori fraud suspect turned up dead"
• "Gangster kills self after shooting three"
• "Death sentences upheld for cultists"
• "Head of young woman found"
• "Arrow strikes student in forehead"

At least half the headlines were related to violent crime. 

I don't think a pattern can be drawn from one day's worth of headlines.  I suppose it's possible that the English-language editors of Asahi are thinking, "Push the violence!  It's the only thing the dumb, stupid, not-so-bright Americans understand!" 

Still, this sort of thing always reminds me to always cast a skeptical eye towards headlines devoted to acts of individual violence.  The deaths are important; the motivations of the killers, less so.  Unfortunately, the world does not suffer a shortage of variegated homocidal impulses.

UPDATE:  Megan McArdle expresses the point I was trying to make in a more direct, non-jet-lagged manner:

There is absolutely no political lesson to be learned from this.  Gun control would not have stopped a commissioned officer from obtaining guns.  Barack Obama had no power to stop this.   Infectious PTSD is a lousy theory.  And nations certainly do not--and should not--shape their foreign policy around the possibility that a random psychopath will start shooting up a crowd.  Evil people do evil things.  That's all. 

Over at Politico, Eamon Javers notes an odd trend in the Drudge Report: 

On Tuesday, Matt Drudge ran a headline about the weakening U.S. dollar on his website, Drudgereport.com. In and of itself, that would be unremarkable, except that it was the 18th time Drudge had posted a link to a story about the weak dollar this month.

And October was only 20 days old.

Clearly, Matt Drudge has developed a fascination with the declining U.S. dollar.

“He’s fixated on it,” said Tom Rosenstiel, director of the Pew Research Center’s Project for Excellence in Journalism. “There’s no question that Drudge can alter what people are paying attention to.”

Market watchers say it’s unlikely that Drudge is actually moving the currency markets with his relentless attention.

“I don’t think that anyone who seriously trades currencies reads The Drudge Report before making important buy or sell decisions,” said Chris Roush, a professor of business journalism at the University of North Carolina at Chapel Hill. (emphasis added... because that's a priceless quote)

Drudge isn't the only one obsessed about the dollar.  Last week, James Pethokoukis blogged the following for Reuters: 

The aftershocks of the global financial crisis may now be propelling the dollar back to the political forefront. The greenback’s continuing slide makes it a handy metric that neatly encapsulates America’s current economic troubles and possible long-term decline. House Republicans for instance, have been using the weaker dollar as a weapon in their attacks on the Bernanke-led Federal Reserve.

For more evidence of the dollar’s return to political salience, look no further than the Facebook page of Sarah Palin. The 2008 GOP vice presidential nominee — and possible 2012 presidential candidate — has shown a knack for identifying hot-button political issues, such as the purported “death panels” she claims to have found in Democratic healthcare reform plans. In a recent Facebook posting, Palin expressed deep concern over the dollar’s “continued viability as an international reserve currency” in light of huge U.S. budget deficits.

She might be onto something here, politically and economically. A recent Rasmussen poll, for instance, found that 88 percent of Americans say the dollar should remain the dominant global currency. Now, the average voter may not fully understand the subtleties of international finance nor appreciate exactly how a dominant dollar has benefited the U.S economy. But they sure think a weaker dollar is a sign of a weaker America.

OK, let's be as plain as possible about this - as a reserve currency, the dollar is not going anywhere.  Really. 

The dollar's slide in value has been predictable, as the need for a financial safe haven has abated.  By and large, a depreciating dollar helps the U.S. trade balance (though it would help much more if the Chinese renminbi got in on the appreciation).   

Even the Chinese, who have spoken like they want an alternative to the dollar as a reserve currency, are in point of fact not doing much to alter the status quo.  Why?  To paraphrase Winston Churchill, the dollar is a lousy, rotten reserve currency - until one contemplates the alternatives. 

Because all of the alternatives have serious problems.  The euro, the only truly viable substitute for the dollar, is not located in the region responsible for the largest surge of growth.  It would be unlikely for the ASEAN +3 countries to agree to switch from the dollar to a new currency over which regional actors have no influence (the Europeans wouldn't be thrilled either, as it would lead to an even greater appreciation of the currency).  Oh, and the European Union has no consolidated sovereign debt market.  The euro is worth watching, but it's not going to replace the dollar anytime soon.  

The other alternatives are even less attractive.  Most other national currencies beyond the euro - the yen, pound, Swiss franc, Australian dollar - are based in markets too small to sustain the inflows that would come from reserve currency status.  The renminbi remains inconvertible.  A return to the gold standard in this day and age would be infeasible - the liquidity constraints and vagaries of supply would be too powerful.  There's the using-the-Special-Drawing-Right-as-a-template-for-a-super-sovereign currency idea, but this is an implausible solution.  As it currently stands, the SDR is not a currency so much as a unit of account.  Even after the recent IMF authorizations, there are less than $400 billion SDR-denominated assets in the world, which is far too small for a proper reserve currency. 

So, what's really going on here with the dollar obsession?  I suspect that with the Dow Jones going back over 10,000, Republicans are looking for some other Very Simple Metric that shows Obama Stinks.  The dollar looks like it's going to be declining for a while, so why not that?  Never mind that the dollar was even weaker during the George W. Bush era -- they want people to focus on the here and now. 

The thing is, I'm not sure this gambit is going to work.  People who already think Obama is a socialist will go for it, sure, but that's only rallying the base.  I'm not sure how much fence-sitters care about a strong dollar, however.  If anything, populist movements tend to favor a debasing of the currency rather than a strengthening of it. 

Still, I'm just a political scientist -- I'm sure that, "theories on political behavior are best left to CNN, pollsters, pundits, historians, candidates, political parties, and the voters." 

So, have at it, readers!  Will the falling dollar be a source of populist outrage if Drudge links to it enough? 

UPDATE:  contrasting takes from Kevin Drum and Megan McArdle. 

No, that's not the name of my new band -- though, man, that would be a geekily awesome name for a band -- but a cue for my latest bloggingheads diavlog with NSN's Heather Hurlburt.  Topics include Iran, the G-20 summit, and multilateralism more generally:

One follow-up note -- I've been amused to read the reactions to the G-20 summit, which range from (justifiably) mocking the communique to complaining that the summit failed to develop a cure for cancer to worries about a new oppressive global governance mechanism.

I believe that I might be the only blogger who thinks that the G-20 solved the Goldilocks problem of not being meaningless without being so binding that there's no wiggle room.  The peer review mechanism is the best enforcement arrangement that's possible given the heterogeneous cluster of countries involved, and I give the Obama administration full marks for setting its agenda on macroeconomic imbalances. 

That is all