Tuesday, September 23, 2014
15

The Global Security Deficit

FORT LAUDERDALE – Summer is normally a time to take a break from the risks and worries of everyday life, and perhaps to take stock of where we are and where we are heading. But this is increasingly difficult, because our everyday lives are becoming so much riskier and more worrying.

Much of the discussion in the period following the 2008 financial crisis focused on various economic imbalances that either threatened or impeded growth. These issues have not gone away. The US economy’s surprisingly weak performance in the first quarter, for example, has left analysts confused and uncertain about its trajectory.

But, to an increasing extent, political insecurity, potential conflict, and deteriorating international relations pose a greater threat to economic progress than the post-crisis debate foresaw.

Asia, a bright spot in terms of growth in the post-crisis years, is now experiencing rising tensions that jeopardize regional trade and growth. Japan’s somewhat fragile recovery could be derailed by an escalation of its territorial conflict with China, which is both a major market for Japanese goods and deeply integrated into Japanese firms’ supply chains.

While territorial disputes often are historically and politically important, their economic significance is usually minor, even minuscule, unless tensions like those in the East and South China Seas are allowed to get out of hand. America’s ambiguous role in Asian security – owing to its interest in supporting its regional allies while not antagonizing China – contributes to the uncertainty.

Aside from their strategic minuet in Asia, China and the United States are engaged in a cyber-security battle that is already starting to affect flows of goods, investment, and technology. On both sides, stated commitments to resolve the issue cooperatively have not produced significant results. And disputes over electronic surveillance have caused tension between the US and Europe.

The Middle East, meanwhile, has entered a period of extreme instability that will surely have negative economic effects both regionally and globally. And the tug of war between Russia and the West over Ukraine and other former Soviet satellites will adversely affect European regional stability, energy security, and economic growth.

The downing of Malaysia Airlines Flight 17 over eastern Ukraine – and, more recently, the suspension of commercial flights to Tel Aviv – adds a new dimension of uncertainty. When civilian air traffic is no longer safe from attack, one may legitimately wonder about the effectiveness of the basic systems of governance that underpin global commerce.

Indeed, the World Trade Organization is once again in jeopardy, with the Indian government threatening to veto the Agreement on Trade Facilitation reached in Bali last year, owing to disagreements about food stockpiling and subsidies. A loss of confidence in the WTO would be a major blow to an institution that plays a vital role in securing international cooperation and regulation.

The global economy is a far more highly interconnected place than it was 40 years ago. The cross-border flows of goods, information, people, and capital that are its lifeblood rely on a threshold level of safety, stability, and predictability. It is this threshold that appears to be under threat. Continued economic progress in the developing world and recovery in the developed countries requires preventing local and regional conflict from delivering large systemic shocks.

In terms of priorities, it is arguably more important for G-20 governments to strengthen the core systems that enable global flows than it is to address strictly economic issues. Moreover, there is a clear, shared interest in doing so: No one benefits from the expansion of systemic risk.

Failure to contain the impact of regional conflicts and bilateral frictions may lead to more than just supply shocks in areas like energy. The principal effect is likely to be a series of negative demand shocks: investors withdrawing, travelers staying home, and consumers closing their wallets. In a global economy in which aggregate demand is a key growth constraint, that is the last thing the system needs.

We have gone about as far as we can with a global system that is at best partly governed and regulated. As the global order defined by the Cold War (and then by a briefly dominant America) recedes into history, a new set of institutions and agreements must be developed to protect the core stability of the system.

That is easier said than done. But the starting point is to recognize the broad-based damage to the global economy’s prospects that failure to address the issue implies. Ineffective regulation in areas like food safety, infectious diseases, cyber security, energy markets, and air safety, combined with the inability to manage regional tensions and conflict, will undermine global flows and reduce prosperity everywhere.

In a way, the current global environment is a classic case of negative externalities. The localized costs of suboptimal behavior – the ones one might expect to be internalized – fall well short of the overall global costs.

Several more narrowly economic issues – for example, defective growth patterns, underinvestment in tangible and intangible assets, and the absence of reforms designed to increase structural flexibility – remain a cause for concern, because they underpin subpar growth.

But, at this moment in history, the main threats to prosperity – those that urgently need world leaders’ attention and effective international cooperation – are the huge uncontained negative spillover effects of regional tensions, conflict, and competing claims to spheres of influence. The most powerful impediment to growth and recovery is not this or that economic imbalance; it is a loss of confidence in the systems that made rising global interdependence possible.

Read more from "The Middle East Meltdown"

Hide Comments Hide Comments Read Comments (15)

Please login or register to post a comment

  1. Commentedcaptainjohann Samuhanand

    Sir, Much of the trouble comes out of the only super power in the world. This is because the wealth from globalisation is going into the pockets of super Rich in america but not to the generous Middle class in America.That is why they just cannot understand the demand of India or other poor countries about food security for their poor. Same is the case with america spending more than marshal plan in Afghanistan which one can see has only created corrupt elite and toiling poor and no goodwill for America.It is the Military Industrial complex of America which is driving the insecurity in thenworld.

  2. CommentedEnrique Woll Battistini

    The post WWII institutions have ceased to provide effective governance mechanisms in a world that bears little resemblance to the world of 69 years ago, with a population at least three times as large which faces entirely different and far more threatening existential risks. I may be wrong but my perception is that even though the analytic and information tools at our disposal are far superior to those available in the mid 20th century, our ability to focus them on the long term problems on whose solution the very survival of the human species -and life on Earth itself- depends is critically inadequate. Polarization of new wealth distribution is a mere echo of the extreme polarization of all forms of power, and governments have become the instruments of the powerful, to the increasing detriment of the people. Selfishness and foolishness are king and queen, and nothing short of cataclysm will shift humanity's course away from self-destruction.

  3. CommentedEnrique Woll Battistini

    The post WWII institutions have ceased to provide effective governance mechanisms in a world that bears little resemblance to the world of 69 years ago, with a population at least three times as large which faces entirely different and far more threatening existential risks. I may be wrong but my perception is that even though the analytic and information tools at our disposal are far superior to those available in the mid 20th century, our ability to focus them on the long term problems on whose solution the very survival of the human species -and life on Earth itself- is critically inadequate. Polarization of new wealth distribution is a mere echo of the extreme polarization of all forms of power, and governments have become the instruments of the powerful, to the increasing detriment of the people. Selfishness and foolishness are king and queen, and nothing short of cataclysm will shift humanity's course away from self-destruction.

  4. CommentedJohn Brian Shannon

    Hi Michael,

    It is a finely written article.

    The nod to rising global interdependence is profoundly important.

    "The most powerful impediment to growth and recovery is not this or that economic imbalance; it is a loss of confidence in the systems that made rising global interdependence possible."

    Without an overarching theme for a new and better global economy that all continents can voluntarily support, we are doomed to excessive drift and future tensions.

    Interdependence combined with a vehicle for levelizing market spikes will speed us past economic downturns, or allow us to avoid them altogether.

    With apologies to the Brits because it would be costly for them, a 1% Tobin tax could be used to levelize negative spikes in the world economy.

    "The Brits might want to consider this truism, "Short term pain, for long term gain.

    A Tobin tax although in the short term may mean lowered transaction activity, it can prevent runaway (negative) transactions and contribute funds during difficult periods -- certainly not to prop up a failing model -- but to help overcome unforeseen market shocks.

    As all nations would be contributors a large amount of money would soon accumulate and recessions could become a thing of the past, except in the case of determined malfeasance.

    The funds collected could be set aside and one representative be appointed from each continent (an elder statesman or economist) to advise on upcoming or present (negative) shocks to their economy.

    The Tobin tax has much going for it; Excessive and harmful speculation would be dampened, all parties would be playing by the same economic rules, at least moreso than at the present, and a large fund could contain economic disruptions.

    Best regards, John Brian Shannon



      CommentedJohn Brian Shannon

      I've enlarged on and edited my comment and posted it here:
      http://johnbrianshannon.com/politics/as-interdependence-increases-a-tobin-tax-to-stabilize-the-global-economy-310714/

      Cheers, JBS

  5. CommentedRichard Schippers

    How could there be anything else but 'a loss of confidence in the systems'?
    If there is indeed a 'security deficit' in today's world, it doesn't scare people as much as it used to. In fact, this typical CFR article seems to confirm that fact and warns us not to take things too lightly, or else. In every paragraph, one expects the 'New World Order' to pop up as the ultimate panacea.
    In his comment, Michael Heller couldn't agree more with Michael Spence if he tried. We all recognize the best of intentions in his grandfather's idealism. Those were the days in which the whole world saw the USA as a beacon of benevolence, justice and democracy. But those days are over. Today's masses are better informed than ever before. America's catastrophic shortsightedness and outright malevolence has been demonstrated so often, and so clearly in the Middle East, 9/11 and Afghanistan, to name just a few examples, that it is hard to understand why anyone would still want to call upon its boldness and pride. The American Dream has ended, we're all sitting up sweating and panting. And you wonder why the world won't let you 'enforce the global rule of law'? Even the most meek and modest, even those indifferent today and blissfully unaware of the CFR, would eventually rather opt for the hapless chaos of self-governance. The USA cannot and will not impose its version of global leadership on all of us, because your institutions, 'so immensely successful on a large territorial scale', have degraded to a sad remnant of democracy, steered by vested interests, that mysterious complex Ike and John F. warned us about more than half a century ago, and the spending power of corporations larger than most nations. The world is tired of it, disillusioned and distrustful. How can that mortal fatigue be so hard to recognize, unless one has never left American shores and prefers to stay in Disneyland? I am quite sure that Michael Heller's grandfather did not envisage a unilateral American move towards world leadership, as in those days his mind could not possibly have been fogged to this degree with delusions of superiority.

  6. CommentedVal Samonis

    RE: The most powerful impediment to growth and recovery is not this or that economic imbalance; it is a loss of confidence in the systems that made rising global interdependence possible.

    That is THE BEST SUMMARY OF OUR PREDICAMENT!

    Val Samonis
    Toronto-Vilnius

      CommentedCurtis Carpenter

      Or perhaps the loss of confidence is itself only the product of a growing sense of economic awareness and realism?

      "In a global economy in which aggregate demand is a key growth constraint, that is the last thing the system needs."

      I would like to suggest that the core problem lies precisely in the fact that the current system relies on the growth of aggregate demand -- not that aggregate demand constitutes a key growth constraint.

      "We have gone about as far as we can with a global system that is at best partly governed and regulated. "

      Or have we in fact gone about as far as we can with a system that is dependent on the continued growth? A new set of institutions and agreements that are developed to protect the core stability of a system that is flawed in its basic premise can only delay -- not prevent -- the escalating difficulties ahead.




  7. Commentedhari naidu

    US Congress, at this moment, will not allow for an objective condition to expand multi-lateralization to not only Dodd-Frank and regulatory reforms of global finance, but expansion of globalization. Forces of insularity in Congress are not only seeking to *impeach* Obama but they are playing with fire - disregarding world public rage - with Israeli/IDF genocide in Gaz. They are in fact exacerbating the Arab-Israeli conflict; thereby making it difficult to forge international cooperation, as you point out.
    Without an administrative staff, G20 cannot govern the current global mess arising from regional conflicts.

  8. Commentedslightly optimistic

    We have gone about as far as we can with a global financial system that is unregulated; new agreements are needed.

    However the multi-billion financial collapse in 2008 was mainly because of national failings. For example the parliamentary investigation in London into the UK's bail out of the banks discovered the professional dilemmas that stopped warnings from being independently reported.

  9. CommentedJoshua Ioji Konov

    The theory could easily be turned around whereas the political instabilities that have been going around from Iraq, Afghanistan, the Arab Spring, Yugoslavia, e.g. and now Ukraine have their deep roots in the developed countries inadequate economic policies to boost a consistent Global markets development, the adeptness with which the utilization of the possibilities that have been presented by the ongoing Globalization, rising Productivity and improving Technologies, whet the sticking to the Trickle-down Economics has done to a globally straggling population bringing desperation, wide spread poverty and the following insecurity....

  10. Portrait of Michael Heller

    CommentedMichael Heller

    Unfortunately the "the huge uncontained negative spillover effects of regional tensions, conflict, and competing claims to spheres of influence" are completely unpredictable in their consequences, and radical shifts could quickly undermine preexisting assumptions and sources of order.

    The world is reliant on US leadership. While the USA does remain the superpower (as we say, this could change very suddenly) it behooves it to lead in muscular single-minded fashion -- as the prime exemplar of democracy, capitalism, and rule of law -- towards the rapid creation of various priority elements of world government.

    There is no puzzle about the components of world government. It is only a matter of scaling up the US governance model to the world. Granted, it could be the Belgian model, or the Congo model, or the China model. But I think it makes sense to choose the US model. It's tried and tested and immensely successful on a large territorial scale.

    Why don't people nowadays even want to talk about 'world government'? It beats me. My grandfather favoured it passionately, and I admired him for that.

    Be bold and proud USA. Take the decisive initiatives and unrelentingly push to create the structures enforceable global rule of law. There is no other power on earth capable of doing that.

      CommentedRichard Schippers

      How could there be anything else but 'a loss of confidence in the systems'?
      If there is indeed a 'security deficit' in today's world, it doesn't scare people as much as it used to. In fact, this typical CFR article seems to confirm that fact and warns us not to take things too lightly, or else. In every paragraph, one expects the 'New World Order' to pop up as the ultimate panacea.
      In his comment, Michael Heller couldn't agree more with Michael Spence if he tried. We all recognize the best of intentions in his grandfather's idealism. Those were the days in which the whole world saw the USA as a beacon of benevolence, justice and democracy. But those days are over. Today's masses are better informed than ever before. America's catastrophic shortsightedness and outright malevolence has been demonstrated so often, and so clearly in the Middle East, 9/11 and Afghanistan, to name just a few examples, that it is hard to understand why anyone would still want to call upon its boldness and pride. The American Dream has ended, we're all sitting up sweating and panting. And you wonder why the world won't let you 'enforce the global rule of law'? Even the most meek and modest, even those indifferent today and blissfully unaware of the CFR, would eventually rather opt for the self-governance. The USA cannot and will not impose its version of global leadership on all of us, because your institutions, 'so immensely successful on a large territorial scale', have degraded to a sad remnant of democracy, steered by vested interests, that mysterious complex Ike and John F. warned us about more than half a century ago, and the spending power of corporations larger than most nations. The world is tired of it, disillusioned and distrustful. How can that mortal fatigue be so hard to recognize, unless one has never left American shores and prefers to stay in Disneyland? I am quite sure that Michael Heller's grandfather did not envisage a unilateral American move towards world leadership, as in those days his mind could not possibly have been fogged to this degree with delusions of superiority.

  11. CommentedZsolt Hermann

    The last sentence is very powerful:
    "The most powerful impediment to growth and recovery is not this or that economic imbalance; it is a loss of confidence in the systems that made rising global interdependence possible."
    This missing confidence, or distrust is much deeper, and it is the root of all of our problems.

    We have entered into a completely unprecedented state in our human history. On one hand we evolved into a globally interconnected and inter-dependent human network, where each individual and nation depends on everybody else for even daily necessities.

    In this respect humanity has become similar to the surrounding, vast natural system which is completely integral, inter-connected, and is based on maintaining general and homeostasis in order to create and sustain life.

    On the other hand humanity is still operating on a self-centered, egocentric "operating program", with maximum focus on self-fulfillment, competing with others, many times succeeding at the expense of others.

    This does not mean humans are "evil", it simply means for some reason humans do not feel the instinctive inter-dependency, the instinctive mutual guarantee that is prevalent in nature, and is unconsciously felt by any other living creature apart from humans.

    Global security, global peace, building fair, mutual and sustainable systems, institutions in between human beings is only possible by re-establishing that communication, mutual trust, mutual guarantee we have lost by becoming humans.

    That way instead of feeling ourselves existing in a "dog eat dog" world where we are obliged to fend for ourselves, try to grab everything we can for ourselves for survival since we do not trust the "system" we could switch into a qualitatively much higher, effortless existence.

Featured