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Philip Stephens

Global response needed to the shifting world order
By Philip Stephens
Published: November 29 2007 19:27 Last updated: November 30 2007 07:27
The big story next year will be ... well, the same as this year. It will be about the profound shifts in the distribution of economic and political power that we call globalisation.
There will be lots of diversionary headlines. Iraq and Iran will most likely provide some bad ones. We must hope governments thwart the efforts of extremist jihadis to continue to make the news. By the end of the year America will have chosen a new president. Think about it: who will we throw bricks at once George W. Bush has packed his bags?
Europe will have its own troubles. Russia will get a new president (probably), but the petulantly pugnacious Vladimir Putin has no intention of bidding farewell to power. The ghost of the Balkans may return to haunt the continent. France’s Nicolas Sarkozy may finally run out of steam, find a new paramour, or perhaps both. Britain’s Gordon Brown may, or may not, discover some. Steam, not lovers.
Homeowners in the US and some other rich nations will begin to pick up the bill for the global credit crunch. You might say that having enjoyed the party they are due the hangover. Signs are it will be a pretty bad one. Politicians will promise bold action to slow climate change – as long as it does not hurt too much.
Beijing will host the Olympics, banishing the poor and any valiant protesters to the countryside, and trying to do the same to the deadly smog that now defines China’s place as a global economic giant. Pakistan, hopefully, will take half a step towards democracy, though we should not bet on it.
There will be plenty of known, and unknown, unknowns to add to the list. Most, if not all, of these events will be ripples, sometimes waves, on the surface of the water. The real story will be, as this year, the tectonic shifts below the sea bed: shifts that are recasting the global order in the image of the east.
I know we should be bored with globalisation – all those useless calculations about China’s production-per-second of microwave ovens and India’s output of software engineers. The rise of these powers has become the geopolitical cliché of our times. For all that, the shift matters more than anything else in shaping global prosperity and security. We are seeing the political and economic awakening of hundreds of millions of citizens hitherto locked out of the global arena.
I was looking the other day at some statistics gathered by my colleague Martin Wolf. A little under 200 years ago, in 1820, China produced about a third of world output and India 16 per cent. The big four European countries accounted for 17 per cent and the US less than 2 per cent. By 1950, the US share had risen to 27 per cent, China’s had fallen to 5 per cent and India’s to 4 per cent. The European Big Four claimed 19 per cent.
Now consider the projections, measured at purchasing power parity, for 2015. At 20 per cent, China’s output will match that of the US. These figures may prove inexact but the direction is clear. By some calculations China will easily overtake the US before 2025.
Put simply, and at the risk of repetition, economic integration is driving the biggest upheaval in the balance of global power since the 19th century. Shifts in political influence and military force will lag behind these economic changes.
But after almost two centuries of retreat China has already rediscovered geopolitics. As for India, as a senior US official told me recently, its “soft” power is already felt almost everywhere.
The onward march of globalisation is, of course, not ineluctable. At a seminar in Washington recently I heard another official in the high ranks of the US administration remark that he was no longer sure that globalisation was “politically sustainable” in the US. The free trade majority in the Congress had fractured and the impact, as much perceived as real, of outsourcing on middle-class jobs had fanned the flames of protectionism. To this had now been added the strategic, as well as economic, fears generated by the hundreds of billions of dollars in sovereign wealth funds sloshing around in search of assets. It does not help that there are plenty in Washington who believe that strategic conflict with China is inevitable – and better sooner than later.
You can detect the same economic anxieties in Europe – and not just in France. Peter Mandelson, the European Union’s trade commissioner, is a champion of open economies. Visiting Beijing this week, however, he added his voice to the criticism of China’s disregard for intellectual property rights and product standards. China’s manipulation of its currency prompts similar ire.
Behind the specific complaints lies the deeper concern, felt particularly acutely in Washington. In the aftermath of the fall of the Berlin Wall, globalisation belonged to the developed economies. The opening of goods and financial markets was framed by the so-called Washington consensus. The technology was provided by Silicon Valley.
Suddenly it seems as if it belongs to Asia. Globalisation was something the rich countries did to the rest of the world – for the good of all, of course. Now it is beginning to feel like something someone else is doing to them. It does not help, again especially in Washington, that the principal “do-er” is China. The protectionist impulses are overlaid with the strategic fears.
Yet it is hard to see how the forces of globalisation could be reversed. The economic and technical drivers of integration – information technology, virtually costless communications, the internet as an all-in-one platform for voice, video and data services and the accelerating pace of innovation in service as well as manufacturing industries – are growing stronger. The hundreds of millions who have joined the world economy are not about to return to the fields. Globalisation has self-sustaining momentum.
It would take a crash to stop it. One possibility would be a sequence in which the world economy slips into recession and weakening world trade provokes the beggar-thy-neighbour protectionism that then turns recession into depression. Another would be a major geopolitical clash between the US and China, perhaps over Taiwan.
For now you have to be pretty pessimistic to predict either outcome for 2008. On the other hand, you have to be just as strong an optimist to detect any signs that governments have grasped the urgent need to respond to economic integration with effective global governance. We do not know the ending, but globalisation is still the big story.
philip.stephens@ft.com
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