Wednesday, November 26, 2014

Silver Linings for a Golden Age

SINGAPORE – Are prospects for global stability and prosperity improving or deteriorating? With enlightenment and progress in some parts of the world accompanied by atavism and stagnation elsewhere, this is not an easy question. But we can gain greater purchase on it by considering three other questions.

The first is whether the United States will regain its standing as a source of moral leadership. Despite its flaws, America did provide such leadership, beginning at the end of World War II. But the terrorist attacks of September 11, 2001, changed everything.

Americans’ anger following the attacks drove them to support policies that they once would have considered inconceivable. In the name of the “global war on terror,” they have tolerated torture; accepted – and even endorsed – the illegal invasion of Iraq; and allowed innocent civilians to become collateral damage of mechanical drone strikes.

In order to restore America’s moral leadership, President Barack Obama must make good on his early rhetoric – exemplified in his speeches in Istanbul and Cairo early in his presidency – which demonstrated genuine regard for the oppressed. In 2007, during his first presidential campaign, he wrote that America “can neither retreat from the world nor try to bully it into submission. We must lead the world, by deed and by example.”

But Obama cannot do it alone – and, so far, neither the American public nor the US Congress seems committed to reconnecting with its moral compass. It should be unacceptable, for example, for Congress to block the release of 86 Guantánamo Bay detainees cleared by a committee of national-security officials. Not even the revelations by former intelligence contractor Edward Snowden that no one is exempt from the possibility of US surveillance have stirred Americans to demand a new approach.

The answer to the second major question shaping the world’s future – whether China will regain its economic momentum – also appears to be “no,” at least in the short term, with most experts agreeing that China’s export- and investment-led growth model has all but exhausted its potential. Indeed, China cannot continue to rely on manufacturing exports when its major sources of demand – the US and Europe – are struggling and its labor costs are rising.

Likewise, China’s government cannot continue to waste resources on economic-stimulus packages that have led to industrial overcapacity and skyrocketing local-government debt. And China cannot move toward a more market-oriented, efficient, and innovative economy with bloated state-owned enterprises blocking the way.

Whether China can develop and implement a viable new economic-growth model in post-crisis conditions depends on whether President Xi Jinping and Premier Li Keqiang can revive the legacy of their predecessors, Deng Xiaoping and Zhu Rongji. In other words, China’s future – and that of the global economy – depends on how committed its leaders are to overcoming vested interests and pursuing comprehensive structural and policy reform.

While many in the West contend (and perhaps hope) that China will not succeed in transforming its economy, Xi and Li are acutely aware of the previous growth model’s unsustainability – and the challenges that changing it will entail. For example, in March, Li said that implementing the needed market reforms “will be very painful, and even feel like cutting one’s wrist.” And both Xi and Li have indicated the government’s willingness to tolerate slower GDP growth in the short term for the sake of building a stronger, more sustainable economy.

The final question is whether Europe and Japan will recover their “animal spirits.” Given Europe’s current malaise and the waning impact of so-called “Abenomics” in Japan, it is difficult to believe that their economies, which fueled global output growth for several decades, will regain their former stature. Indeed, Europeans and Japanese have largely given up hope of doing so.

Although European Union leaders have managed to keep the eurozone intact, they lack a long-term strategy to lift their economies out of the doldrums. The seriousness of Europe’s situation is reflected in growing acceptance of the high unemployment – and youth-unemployment rates of over 50% – that some EU countries, including Spain and Greece, now face.

Meanwhile, the first two “arrows” of Japanese Prime Minister Shinzo Abe’s economic program – radical monetary-policy easing and increased government spending – seem to have given the country’s long-stagnant economy a lift. But the third and most important arrow – structural reform – has so far had little impact. And, after more than two decades of political turmoil and economic decline, the Japanese public has become skeptical of official promises of economic revival.

Fortunately, the US and Chinese economies are underpinned by societies that remain dynamic, vibrant, and hopeful. Young people in other parts of Asia, especially India and the ten ASEAN countries, are similarly optimistic – as well they should be. Asia’s middle-class population is expected to experience explosive growth in the coming years, rising from 500 million people in 2010 to 1.75 billion in 2020.

Africa, with its population of one billion, is also gaining economic momentum, contributing further to the rapid expansion of the global middle class, which is expected to surge from 1.8 billion in 2010 to 3.2 billion in 2020 and to 4.9 billion people – more than half of the world’s population – in 2030.

Despite the massive challenges that countries like Syria, Somalia, Egypt, and Afghanistan currently face, and global challenges like food security and climate change, the world has reason to be hopeful about the future. Notwithstanding today’s tragic and terrifying headlines, we may be entering a new golden age of human history.

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    1. CommentedKir Komrik

      Thank you for taking on a timely topic,

      Your first question is key and imo USG has done an insufficient job of assessing what is going on domestically, to the point of potential tragedy. Leadership begins with credibility, for if no one can trust that your facts and statements are accurate, and if that leadership is not predictable and consistent, the ability to lead is seriously undermined.

      What USG can't seem to get through its head, as they say, is that secrecy and representative government are not compatible. The greater the frequency and magnitude of secrecy, the greater the social structure is undermined. This is because, imo, people tend to have an innate awareness regarding credibility. When pertinent facts are simply not shared or the facts are incomplete and internally inconsistent, people tend to notice this with considerable discernment and enter a state of cognitive dissonance because they do not _want_ to believe their "leader" is not being truthful. The result of this is a psychological disconnect; a tendency to "check out", disengage and become apathetic about matters of civics, particularly foreign policy.

      Those outside the US do not have this problem of cognitive dissonance. They can be honest with themselves. When it walks like a duck and it quacks like a duck, they can call it a duck. But the voting public stateside reacts completely differently. Every one of the policies this article mentions are wrapped up so tightly in matters of national security it is essentially impossible for any US citizen to have an informed opinion about it. And _that_ is why what the article laments as a broken moral compass presents in our day, here in the States.

      US citizens have no idea why USG is doing what it is doing, and it concerns them, but USG isn't talking. That is the problem. If we were to survey the bizarre, clinical and irrational policies issued by this government since 9/11 we cannot help but conclude USG knows far more than we do. And that doesn't necessarily mean that there is no criminal wrongdoing, only that certain people are hoarding information that would be very costly to them if made public. And that's being generous.

      And this is _one_ of many reasons why I argue that the problems here are _structural_ and go straight to the core of the neo-liberal, western democracy. Europe is not free of this problem, either. They have the same basic normative systems we do. Resolving this incompatibility in representation and secrecy is key to durability. For those that really, really like to read, you can read all about moral hazard, democracy and why a totally new set of ideas are so desperately needed here:
      But the summary is this; much of the demand for secrecy is coming from the fact that we live in a New World Disorder; that is, abject anarchy. As a result, states must keep secrets from each other. When times get dangerous, the frequency and extent of secrecy spirals out of control.

      Something dangerous for someone looms, but we know not what.

      - kk

    2. CommentedHarmohan Singh

      Dear Excellency, Thank you for this very informative piece.
      With your kind permission, may I offer my thoughts?

      1. Agree the US and Chinese economies are not in the best shape. They are however, closely inter-related. They need each other more than some of their respective policy makers realize.

      2. The US economy will rebound. Her single largest import is oil. For several decades, the US imported nearly half of her oil demand, or 10 million bbls/day. This is a big ticket item considering the steep price of oil. However, of late, the US has managed to reduce her reliance on imported oil by increasing domestic production, viz. fractionating, etc. It's possible the US may be a net exporter of energy in the near future, according to some experts.

      3. China's economic model as you correctly stated is export-oriented, especially of manufactured goods. This will remain the model for some time, albeit with a few adjustments. China's policy makers are acutely aware that she has to move up the scale towards a consumer society, with its focus on driving domestic demand. To get to this level will, as you said, require structural changes to her economy, particularly the judicious management of her significant domestic debt. Fiscal and monetary policies have to be calibrated to ease the problem without stoking unemployment.

      4. Given the level of mutual interest between the US and Chinese economies, policy makers in both countries will continue to collaborate to ensure a win-win - there is no win-lose in this relationship because of its interconnectedness. China will recover and continue to rise, because it is in America's and, the world's interest.

      Thank you, Sir

      Best wishes
      Harmohan Singh