The Global Structure, Economic Development, and Conflicts over Culture in the 2010s

  1. Introduction

Looking back from mid-2008 to the years 1988-1992, when the communist system collapsed, it seemed that the United States, in the words of Harvard University’s Joseph Nye, was “bound to lead”.[1] Though nuanced in intent, the phrase came to encapsulate the view that the world had entered a unipolar moment, with the United States uncontested leader of a world no longer divided between “free” and “unfree”, but now definitely launched on an irreversible process of economic integration and political convergence around a global norm of “market-democracy”. Only China, the dictatorships and monarchies of the Arab, and parts of the Muslim world, stood out as temporary bastions of resistance to the trend which had set in during the mid-1970s in the political transitions of Portugal, Greece and Spain, spread out across Latin America, to embrace the Philippines, Taiwan and Mongolia, engulfed the Soviet empire in central and south-eastern Europe, precipitated German unity, prompting the collapse of the Soviet Union, and then lapped into Africa, marked by the election of Nelson Mandela as President of a post-apartheid South Africa. America’s primacy, both military and diplomatic, was underpinned at home by a growing population of over 300 million, a settled political system, federal law supremacy, a large internal market, a galaxy of corporations, a rich research base, a strong educational infrastructure with some serious weaknesses in primary and secondary schooling, and an enviable geography; abroad, it was manifest through an indisputable lead in “hard power” capabilities on land, sea, air and space; the role of the dollar as the world’s key currency; the existence of  the world’s largest and most liquid capital market, the home of the world’s leading corporations, with the whole backed by enviable soft power capabilities, based—it was surmised—on the attractiveness of American culture, the ubiquity of the English language and the exemplary nature of its liberal political system. The United States, French Foreign Minister Hubert Vedrine stated, was more than a superpower”; it was a “hyperpower”, which he described as “ a country that is dominant or predominant in all categories”. [2]

The argument here is that the dominant “globalisation vision” in the first couple of decades after the end of the cold war was stamped “made in the USA”, and entertained a vision of the unipolar hyperpower driving towards a One World of shared prosperity, democracy and better living conditions for all. But it also under-stated the reality of a multipolar global structure, containing their own local power balances between states of varying capabilities and inherited enmities and amities,  suffused with their own particular mixes of religions, cultures and histories.[3] These regions and particularly the component states secrete  divergent structures, policies  and performances which, in an ever more interdependent world, seek to externalize the costs of their domestic compromises, in the expectation that they are absorbed in the global system. [4]  Rather, this externalizing of domestic compromises-US deficits and the dollar; the House of Saud and its arrangements with the Wahhabite imams; China’s external surpluses and its rural masses; or present-day Turkey’s post-Ottoman policies– become a prime cause of turbulence in world markets and politics. The states  are bound in an ever tightening network of interactions, accelerated by the forces driving humanity forward—notably technology as it affects demography, nature, politics, markets, and culture. The resulting complexity of world affairs, and the repeated failures to foresee events as they occur, have together prompted a search for meta-narratives that, it is hoped, will give meaning and narrative to world affairs: the world as dominated by a global hegemon; run by the Davos crowd; formed by a G-2 of China and the U.S.; ready to bow down before post-modern Europe’s soft power; by the resurgence of races humiliated by white supremacy, or by a Marxist story of exploitation.

All of these are real enough, but they are special cases, relevant to particular situations, not universal explanations. The central feature of the modern world, born arguably around 1750, is the curtailment of variety in social norms, economic structures or ideologicies and religions, while at the same time the trend to uniformity is offset by a much greater complexity within human societies. [5]  Complexity is inherent to the dialectical process of homogenization and differentiation which modernization entails. The trend to uniformity is evident in the accelerated but uneven diffusion of know-how and the spread of wealth. The one makes for widely divergent interpretations of events, while the other accentuates differences between neighbours. Globalization is an irreversible process which can be benign one moment, and become malign the next. I shall present this process in stylized form, and then illustrate  longer term trends at work.

II. Some remarks on the globalisation process.

One of the central features of modernity has been for humans to place themselves as the prime architects and masters of the world. As Marx and Engels implied in their Communist Manifesto of 1848, human agency, incarnated for them by the “bourgeoisie”, sweeps away “all fixed, fast-frozen relations with their train of ancient and venerable prejudices and opinions” while “all new-formed ones become antiquated before they can ossify.” [6] Nature becomes a commodity for capitalism, and God is ridiculed as an invention of the ruling classes to preserve inequalities in this world, in exchange for a promised paradise in the next. Everything that happens is through human agency. The case of air passengers stranded at northern European airports in April 2010 on account of the dust cloud emanating from the Eyafjallajokull volcano in Iceland is a case in point. Travellers accused insurance companies of using an “Act of God” defense to avoid paying compensation for personal losses that were valued at £20 million. The airlines offered refunds for travellers, but stated that there was no right for compensation. This prompted a Mrs Argyle to say that :”We rang our insurance company and they said it was an “Act of God”, so they won’t cover us—we’re stuffed”. To which the answer from a spokesman of the Association of British Insurers came: “There is no “Act of God” exclusion in insurance policies”. [7] What happens to humans in other words is the responsibility of humans, whether or not volcanoes erupt or tsunamis occur.

This is the bleak doctrine of modernity which asserts that everything that drives the human saga forward is endogenous to human existence. Whatever happens is sourced in the action of human beings, who are thereby responsible for the world they live in. There is no appeal to a deus ex machina, no explanatory recourse to chance, no surprise that resolves the intricacies of the plot. We humans are identified as both principals and agents in creating the main forces which move the world: demographic trends; technologies and modern corporations; the politics of states and the fragmentation of the world polity; the ubiquity of markets, and the shifting sands of ideas about how they work; and the varied collective lenses through which the human saga is viewed. Let us identify here a cluster of humanly-generated forces and then spell out in stylised form what this implies for the globalisation process.

*Population growth is arguably the key driving force of the outgoing century. In 1900, the world population was 1.7 billion, rising to 2.5 billion in 1950, and 6.0 billion in 2000. One major transformation is the steady shrinkage of the populations of North America, Europe and the ex-USSR from 30% of the total in 1900 to under 20% in 2000, and a similar trend in China. Higher population growth rates are recorded in Latin America, India, and the rest of Asia. The latest UN figures indicate that the world’s population will tend to flatten out at around 8-9 billion sometime in the years 2020-2040. These figures also record an ageing population for the industrialised nations, a decline in the size of the working age population, employer demands for immigrant labour and strains in pay-as-you go pension schemes. [8] They point to a further growth in the rich world’s pension assets. For the poorer nations, these figures indicate that job creation  for younger (and old) job seekers will remain a priority. This calls forth two contradictory trends : one is to have the rich world pour the wealth of its ageing populations into developing countries in order to accelerate access of the 3 billion living on less than $2 a day to modern communications,[9] or to cleaner technologies. That can only be done by improving the risk/return ratio for rich country investors in developing countries. In fact, the consumption-orientation od the developed world has inversed the process, so that the creditors are the Asian countries, and the debtors are the rich. Environmental pessimists, on the other hand, note the world’s growth in consumption of fossil fuels, in disposal of hazardous waste, the rise in mega-cities in developing countries, the extension of intensive agriculture, timber and fisheries, and the expanding demands on fresh water resources. Their preferences, at the extreme, are for no growh, or in their more moderate form, for global regulation that raise costs to all participants in the global economy.

* Technologies, rooted in the coded knowledge of the human race, improve at exponential rates, and condition changes in all aspects of human activity. Joseph Schumpeter, the Austrian economist, famously coined the phrase of the gale of “creative destruction” resulting from competition between industrial corporations for market shares.[10] With more than 90% of all known scientists in the world’s history now alive, and a massive and expanding infrastructure of education around the world, laboratories are conducting the basic science for five waves great waves of technology—personal computers, telecommunications, biotechnology, nano-technology and alternative energy.[11] Their diffusion is ensured by the secular fall of transport and communications costs, which in turn extend the reach of corporate planning processes. This has shifted the balance of power between states and corporations—the primary vehicles for global technology dissemination—and prompted the globalisation of their production, marketing, personnel and financial functions. As corporations need to recuperate the cost of investment in new technologies, they must look to world markets, drive down prices, improve quality, and continually innovate. In this context, creativity is the key to their not taking the slide to become commodity suppliers. Corporations scour the world for talent, as success depends in part on technological advantage and on reconciling the contradictory demands of efficiency with the need to craft corporate strategies to local conditions[12]. In so doing, they establish transnational networks of alliances and arrangements with other corporations, and enter bilateral bargains with states, where control over outcomes are negotiated. This is the “new diplomacy”[13] between states and corporations, which overlays and complements the older bi- or multilateral diplomacy of states.

*Markets are indispensible  people-centred knowledge and information systems. The market mechanism prices all factors of production—land, labour, capital and technology—through the interplay of supply and demand. More recently, knowledge is analysed as a  new factor of production.[14] Over time, knowledge creates increasing returns. Opportunities tend to rise for high skill, adaptive and mobile workers, and decline for those less skilled. For governments, this spells the urgency of effective and efficient educational provision; but equally because knowledge, and its instruments, empower individuals, public goods will have to be delivered through de-centralised mechanisms. The Internet has no central governance in either technological implementation or policies for access and users, numbering as of 2011 more than 2.2 billion people, equivalent to one third of the world’s population.  But each constituent network has its own standards, that governments seek to police within their own territories, for reasons of security or control over information flow. Financial markets are even more de-centralized and ubiquitous. In the past century, as the risks to investors have risen with the onset of industrialization, the cost of capital has risen relative to that of labour. The trend has prompted a mutual conspiracy between governments and corporations to allow the development of a private world capital market, beyond the regulation of any one state or even of a collection of states. Corporate strategy provides the link between this external capital market, populated by shareholders and financial institutions, and the internal process of corporations through which the organisation’s resources are allocated, and measured.[15] The price mechanism is thus the eyes and ears of large as of small  organisations, and acts as a self-regulating system, which coordinates the activities of millions and serves as an exploratory device for new needs and technologies.[16] The driving force behind this self-regulating system is the entrepreneur, who requires reasonably predictable conditions to fulfill their social function as innovators. Predictably, investors and entreprepreneurs are as often as not swept along by the emotions of market participants about future prospects, positive or negative. The economic cycle is a constituent part of the market mechanism.

*Politics embraces all undertakings where the wills of two or more people are harnessed to a particular task. Politics is not just what politicians do.[17] This extensive definition avoids the trap of state-centrism, a prevalent doctrine which claims that the only and ultimate political players are the states, their varied institutions, parties and interests, their domestic political processes, the relations between them and whatever goes on in international organisations. Nor does this definition downplay states or the state system as obsolete. States in effect are major market participants in their own right. Beyond their regal duties to ensure law, order and security within their territories, states are supposed to be concerned primarily to ensure that business conditions within their own jurisdiction are sufficiently attractive to foster wealth-creating activities and to attract inward investment by multinational corporations. Their powers to ensure the security and wealth of their citizens are shared with other governments, and with firms; they share powers with the financial markets to set the value of their currencies; their powers to raise revenues are shared in many countries with political parties and maffias, while the development of the internet provides citizens with the means to place their incomes outside the state’s territorial jurisdiction. Yet the world is not so integrated as to allow us to talk of a global society. Rather, it is full of players from state bureaucracies and corporations to non-governmental organisations, churches, diasporas or maffias.  All in some way exercise power over outcomes, so that authority in the world system is exercised by a multiplicity of agents, which operate alongside and often in disregard of states.In the wider world, many traditional functions of the state to provide for their citizens are no longer discharged at all, given the combination of circumstances created by the dispersion of authority between states and other players and the integration of the world economy.

*The search for meaning in a complex world stimulates the competitive co-existence of ideologies, whose disciples seek all-embracing explanations for  the purpose of their activities, or for what they think they observe. Nationalists demand self-determination, free marketeers proclaim the need for an efficient global economy, techno-optimists see the cure for human problems in universal access, or religious zealots call for the peoples to follow God’s path to salvation. This search is inherent to human existence having become the object, in the words of the French author Paul Valéry, ” of an experiment of which we can say only one thing—that it tends to estrange us more and more from what we were, or what we think we are, and that is leading us, we do not know, and can by no means imagine, where”.[18] This estrangement between future and past is rooted in the tension they introduce between what may be called “world” and “local time”.[19]  World time lives in world markets, flourishes on commincations, substitutes memory for choice and trade-offs, embraces all populations of the world, and offers the means to satisfy desires for reward and retribution, that have lain dormant in the dreams of individuals or even more of civilisations. Local time stretches far beyond the life of individuals into mythologised pasts which populate the many mental landscapes of the world’s peoples, with holy places, ruins and legends. It is conditioned by long-dead technologies and its distances are measurable in the hours, days or weeks and months which journeys took by foot or horseback. It is bound by history and geography. It is rooted in the malleable memories of communities, in their habits and languages. Its rationality is exclusive of choice, of trade-offs and of  aliens. Its appeal is to the inner well-springs of loyalties on which it draws. Local time cultivates trust and tribalism, as two sides of the same coin. It is patient and particularist. Its expressions are secretive, and its reflexes are coded. But it also lives in and is seduced by world time.

The world, in short, is being driven forward by demographical trends, ever-changing technologies, ubiquitous markets, a de-centralised politics in a fragmented world polity, and by the clash of ideologies, the permanent challenge to old ways, and the stimulus to local aspirations provided by the availability of new technologies. A couple of consequences flow from this observation. First, all these “driving forces” are endogenous to human existence, so that humans rather than elemental or supernatural forces are identified as the source of whatever happens. There is no deus ex machina, on which failures or disasters can be blamed. The burden is ours, or at least someone else’s. Secondly, the existing density of interactions, it is reasonable to assert, has no precedent in the history of the world. Causalities become much more difficult to disentangle, with limited chance of agreement on why events occur, or what there significance maybe. More than ever, humanity is living an experiment, where hope is placed more than ever on the quest for a future, more than on learning the lessons from a past which nonetheless permeates humanity on all sides. The past being inescapable and the future more than ever open is the condition we are in now.

Let us illustrate the inter-actions among these driving forces, starting with new technologies somewhere around the 1970s and 1980s. The resulting wave of innovation yielded our densely networked world, stimulating major changes in the markets that fuel and fund development, and in the institutions that enable the technologies and markets to come together.  The result has been unprecedented surges in productivity, with labour productivity in China’s manufacturing sector, for example,  growing at around 10% per annum since the mid-1990s from a low base, while Japan’s has stagnated over the period. By another measure, India has shown faster improvements in human development, than Pakistan, but China has seen one of the most rapid improvements of all, lifting hundreds of millions out of poverty in the last decades. The result has been an overall major improvement in global human development, but a more selective spread of prosperity across and within regions.

This has had a major import on global politics and the state system. The most notable development has been the growth of the Asia-Pacific region, from 16 per cent of world product in 1980 to 27% in 2010. The largest component of this rise is China, whose share in the global economy rose from 2 to 13% of the total.  Along with the rise of Asia-Pacific has been a democratisation wave spreading out from 26% of all countries in the world in 1972 to 46% of all countries in 2009. Major exceptions to the trend were China, the Mid-East and the Gulf, and parts of the former Soviet Union and Africa. Differentiation in economic performance and regime types have in turn mutated regional balances, and brought the world balance of power into flux, symbolised by a significant debate about how rising and falling powers have behaved in the past, and may be expected to behave in the future. Overall, the most significant development is the defusion of power around the world.

Meanwhile, the marketisation of the world economy has been paralleled by a further trend to withdrawal of states from extensive ownership of assets to becoming more hands-off regulators of markets. This is turn has prompted a major expansion of world markets, registered for instance in the growth of international trade, which –except for the recessions of 1979-81, 2001, and 2009—grew more rapidly than world product. The world’s marketisation in turn was in part led by the internationalisation of production, confronting corporate managers with the challenge of adapting to the twin realities of international competition, which pointed to a downward pressure on costs combined with improvements in quality, and the need to get as close as possible to consumers, thereby raising costs and the complexity of conducting business across many territories. Managers this faced the challenge of having to go global in scope but also local in focus—a paradox of corporate strategy encapsulated in the neologism, “glocalisation”, which refers to the internalisation of global production and exchange in corporations as much as to the spatial reorganization of production and consumption processes across territories.[10] This incorporation of all parts of the world in the global market, and the restructuring of global production under the aegis of the multi-nationals, combined with a great variety of government policies and local business systems, has generated significant conflicts over political values, and in particular over the contradictory pressures to a homogenisation of cultures, and more of less forceful efforts to preserve and to differentiate them.

This combination of selective success in economic development, a defusion of the global power structure, and the stimulus to conflicts over values, cultures and religions—my argument runs—is integral to the process we label as globalisation. My suggestion is that we understand it as dialectical in  nature: it  points both to widening prosperity, but also to deeper imbalances, to greater opportunities say in business or the arts but also to mounting burdens placed by humanity on nature; it points to the reduction in the number of major conflicts in the world but also the ever rising potential for extreme violence, and it has been accompanied by an unprecedented spread of wealth, and a rise in the number of major financial crises. Globalisation is anything but a one way street to prosperity and freedoms for all. On that opened-ended note, let us turn to identify eight longer term trends. I leave out Latin America and Africa for reasons of space, not because of their intrinsic interest and importance.

III.  Eight longer term trends

The first, and most notable trend during the early years of the 2000s, has been the growth of endebtedness of the United States, the UK and the European Latin nations, and the emergence of Asia and northern continental Europe as the world’s prime creditors. In 2001, the US, the UK, and France and Germany, despite the costs incurred from unification, had stable or rapidly falling public sector debt. Over a decade later, their public sector debts had sored to 70 to 90% of gdp, with payment on the debt growing three to four times faster than their real economies. In the case of the UK, public sector debt was growing 13 times faster than the real economy. All their economies had flatlined or registered negative growth since the financial crash of 2008. Russia, helped by high energy prices, had switched to being a creditor nation. But the major changes, according to IMF figures, [20] was the emergence of a hierarchy of creditors by 2010: Japan was a net creditor at $3 trillion; the Chinese area, including mainland, Hong and Singapore at $3 trillion; and northern European countries at $4 trillion.

The common feature between the creditor nations is that Japan, China and Germany-which we discuss later in the context of Europe– recorded chronic external  surpluses. Japan ran consistent current account surpluses, averaging 2 to 5% gdp surplus, from 1981 through to 2008, when trade moved in to deficit, as China replaced the United States as Japan’s prime market and source of imports. As soon as China joined the WTO in 2002, its current account surplus soared, reaching an unprecedented 11% of gdp in 2008. Europe, despite its currency ailments, replaced the US as China’s prime trade partner. Together, China and Japan by 2012 amassed foreign exchange reserves respectively of  $3.2 trillion dollars, and $1.2 trillion. The source of these surpluses nonetheless differ considerably in both countries: in China, net savings rates at 43% in 2010 are twice those of Japan, implying that at its present stage of development, China is likely to remain in structural external surplus for some time yet. On the other hand, China is much more open to trade and foreign investment than is Japan-merchandise trade in China is 51% gdp, compared to 27% in Japan, while China is host to over three times as large stock in inward direct investment as Japan.  China is an international creditor because its domestic financial system, subject to party-state direction—is not yet capable of absorbing its high savings; Japan is a net creditor because it continues to operate as a national economy, relatively closed to foreign imports and investment, while benefitting by the openness of the global system. By 2012, both Japan and China’s net foreign asset position stood at 54% of their respective gdps.  East Asia is the world’s prime creditor.

The second notable trend of the 2000s has been the growing indebtedness of  the U.S. Carmen Reinhardt and Kenneth Rogoff have recorded the increase in the number of financial crises since the early 1970s, when the world moved on to the dollar standard, and financial and international capital account liberalization took root worldwide.[21] Severe financial shocks included the two oil price hikes of 1973 and 1979, followed by the oil price crash of early 1986; the financial meltdowns in Africa, Latin America; the implosion of the Soviet empire; the devaluations of the lira and pound sterling in 1992, the Mexico crash of 1994; the East Asian financial crash in 1997-98; and the meltdown of the banking system in Argentina in 2001. Conventional analysis of these events held that their  source lay not so much in market failure as in political failures.[22] In the case of the East Asian financial crash, the favoured explanation identified the source of the crash in the “crony capitalism” of the Asian states. But as Professor Jagdish Bhagwati of Columbia University pointed out, “crony capitalism” was not just Asian: “a dense network”, he wrote, “of like-minded luminaries among the powerful institutions—Wall Street, the Treasury Department, the State Department, the IMF, and the World Bank most prominent among them”,  had hi-jacked the argument in favour of free trade markets and applied it to promote free capital mobility everywhere.[23] In other words, what was good for Wall Street was good for the world.

Government fingers were all over the meltdown when it hit the United States in 2008. East Asian states had learnt from their experiences in 1997-98 to avoid reliance on capital inflows like the plague, and to jointly manage their exchange rates relative to the dollar. Subsequently, in the years 2000 to 2012, 62% of the increase in world total foreign exchange reserves, including gold, was accounted for by 7 Asian states, including India. The U.S. came to absorb 70% of world savings and  70% of the global trade surplus, confirming its position as the world’s consumer of last resort. While China used the first decade of the millenium to focus on infrastructure and export-led growth as a priority, the Bush administration-in response to the terror attacks of 9/11 on New York and Washington-launched two wars, first in Afghanistan, then in Iraq, and proceeded to cut taxes. With the wars, then President Obama’s reform of welfare,  financed out of savings,  government debt soared from $6.4 trillion in 2003 to $16 trillion in 2012. Approximately 50% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1 trillion each.[24]  As John Maynard Keynes once observed, “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

It follows that the third trend, whereby the financial crash in 2008 came home to roost in the heartland of the global economy, has had a deeper and more prolonged impact on global affairs than the East Asian meltdown of the previous decade. The reasons why the financial crash came in 2008, are many and varied.  One, no doubt, was the fantasy in Washington and Wall Street over America’s unipolar primacy in world affairs.[25]  Global conditions, and particularly the explosion of new technologies in the U.S. definitely helped to swell pride in America. From the early 1980s onwards, the U.S. experienced almost unbroken boom times, characterized by a wave of new technologies, rapid growth in productivity, waves of corporate mergers, extensive overseas investment by U.S. corporations and the rapid expansion of the service sector, particularly of financial services. During the 2000s, occasional warnings were sounded by Martin Wolfe of the Financial Times, or Nuriel Roubini the NYU’s Stern School, about the lax monetary policy by the Federal Reserve; major imbalances developing between the high savings rates and current account surpluses of Asia-Pacific countries, and the low savings rates and government and current account deficits of the U.S.; and the excessive leverage of leading U.S. financial institutions.  Given this record, the shock to America’s self-confidence was all the greater when the crash came out of the blue with the bankruptcy of Lehmann Brothers in September 2008. It was not just that U.S. trained economists’ assumptions about how the world political economy operates proved deficient; there was also a happy consensus that somehow U.S. exceptionalism exempted the U.S. from the afflictions of less fortunate peoples. Yet as Reinhardt and Rogoff noted, the U.S. was no exception to the pattern that systemic banking crises were preceded, as elsewhere, by asset price bubbles, large capital inflows and credit booms.

Because the U.S. is the centre of the world economics profession—economists affiliated to North American institutions contribute 76% of articles in the top journals- [26] inevitably the question was asked,: why did economists fail to foresee the crisis? There were a plethora of answers: economists, it was observed, were riding the gravy train of fame and fortune, as revealed in the Oscar winning documentary Inside Job. Beyond the corrupting influence of money and politics, “our collective failure”[27] was ascribed  to the narrow training of economists; their shying away from forecasting because of “reputational risk”, and their  disengagement from “the real world”. Most importantly, their training led them to  ignore history, politics, anthropogy or psychology. In other words, the secular priesthood of economists had fallen at the vital hurdle of being able to give relevant advice to avoid meltdown in America. Worse, the evidence was that many of their number had been giving advice damaging to the world at large. As one commentator observed, global economic policy is “really at sea without an anchor”. [28]  Hence, whereas the confident response to the East Asia crash of 1997-98 had ben that it was caused by “crony capitalism”, the 2008 crash both punctured the reputation of economists, and that of the developed world. Western powers and international organisations had preached rigour to East Asia in the late 1990s, but in 2008, they preached bail-out rather than work-out to the developed world. There is the sense not only that consistency in advice is absent, but that economists, of whatever background they come from, are trained in an ethno-centric discipline.

The fourth major trend was the recognition in the capitals of the western world that the global economy was changing shape at unprecedented pace. The decision to widen the Group of 8 (G-8) advanced industrial countries, plus Russia, to the Group of 20 (G-20) major economies in the world, took shape at the Washington Conference of November 2008, followed by the London summit of April 2009. The G-20 account for 85% of world product, four-fifths of world trade, and two thirds of the world population. Arguably, the most important contribution to world affairs of these meetings is to socialise the leaders of the world’s major states, and to symbolise a shared commitment to the general good, and not just that of their own states. The G-8 itself started life in 1975 at the Rambouillet summit as the G-5 of the world’s leading economies of the time — France, Germany, Japan, the United Kingdom, and the United States. Within the year, they were joined within the year by Canada and Italy, both pained at being excluded from the club, while Russia was invited in 1997 as partial compensation for the enlargement of NATO to include the countries of central Europe, which had previously been members of the Soviet Union’s Warsaw Pact. The G-8 then morphed over the coming decade into the G-20, which in September, 2009 replaced the G-8 as the main economic council of wealthy nations. The decision, taken in the aftermath of the financial crash, reflected the view that the emerging global economy required more inclusive representation at the world’s top table.

For within a decade, the economic map of the world shows a very different distribution of capabilities to that of the past two centuries. As a PricewaterhouseCoopers study indicates, [29] the G-7 countries would be eclipsed in economic size by the world’s largest emerging markets (E-7) within two decades. The combined GDP of E-7 (China, India, Brazil, Russia, Mexico, Indonesia and Turkey), the PwC study showed, would match the G-7 around 2019. Indeed, the economic weight of the E-7 was already visible in the decisive role they were playing in shaping world regimes dealing with trade, financial markets and climate change. With the downturn in economic activity among developed countries after 2008, China became the prime locomotive of the Asian economy, and in 2010, overtook Japan as the world’s second largest economy, when measured in current US dollars. By a similar token, East Asia became the world’s prime market place, with growth rates 3 times that of Europe and North America. Nowhere else in the world was the middle class growing faster. Nonetheless, the U.S. and EU economies still held a commanding lead, some 2 to 2.5 time larger than that of China, where per capita incomes, though growing fast, were still 8 to 9 times lower than that of the U.S. As Asian Development Bank researchers found, growth rates of Asian countries are highly correlated to China’s exports to the US, indicating that U.S. final demand remains the ultimate driver of regional growth. The China locomotive for Asia still relies on the U.S. economy for traction.[30]

The fifth longer term trend at play in world affairs is that there is a vacuum of power at the centre of world affairs. This is nothing intrinsically new, as no single power has ever ruled the world. But in the ancien regime, -where 70% of humanity were governed by the agrarian empires of Qing China, Mughal India, Togukawa Japan, Safavid Iran, the Ottoman, the Russian and Hapsburg empires, and the still agrarian societies of France, Great Britain and the Americas-the acceleration of uneven development among the major power centres bred widening gaps in the ability to wage war worldwide. Arguably, it was the Seven Year’s war of 1756-1763, involving war in Europe, the Americas and Asia, that precipitated first the American and then the French revolutions, culminating in the climacteric twenty years of war from 1793 to 1815, and leading to the near two century dominance of what came to be called the “West”.[31]

Whether the world’s transformation is conceived as a fading of the West, or as a dissemination, absorption and reinvention of Western ideas and practices by the peoples of the world, there can be little doubt that the process has been underway for a long time, since at least the 1939-45 world war, the end of the European empires, the expansion of membership in the United Nations, America’s defeat in the Vietnam war, the implosion of the Soviet Union, an the opening of China and India as of 1991 onto the world economy. In the subsequent decades, the U.S. arguably came to believe in its own rhetoric as a new type of power, described by Susan Strange as an entirely new kind of non-territorial empire, composed of multinational companies, financial institutions, the media, the dollar markets, the military bases, or the oil pipelines. It was this non-territorial entity, rather than the territory of the U.S. that formed the “flourishing economic base” of U.S. power, and that ensured America’s centrality to all the components of what Strange termed “structural power” -security, production, finance and knowledge-“the power to shape and determine the structures of the global political economy within which other states, their political institutions, their economic enterprises, and(not least) their scientists and other professional people have to operate”. [32]

Seen in this light, the pre-eminence of the U.S. remains barely affected, despite the whirl of changes in world affairs. U.S. capabilities far outrank any challenger: the U.S. defense budget accounts for 46% of total defense spending in the world, and exceeds China’s by a factor of 8; [33]  the U.S. is home for 132 of the top global Fortune 500 corporations in 2012; the dollar accounts for 86% of foreign exchange transactions in the world, and for two thirds of total reserve assets held by central banks; [34] U.S. based researchers have won 323 out of the over 500 Nobel prize winners since 1901.[35] Yet the U.S. has helped to shape a world which consistently challenges its status. China spends much less on defense, but its expenditures are focused and growing; a decade ago, the US was home to  185 of the world’s top 500 corporations; the financial crash of 2008 illustrated the rising cost to the U.S. of running a debt-charged national economy on the back of the dollar; and the networked economy global has distributed knowledge at an unprecedented rate. In short, , this de-centralising global polity makes it increasingly difficult for the lead powers to impose their preferences and rules on the world, while definitely the world’s rising powers neither have the capability nor necessarily the willingness to take the lead.

The sixth longer term trend is the re-emergence of China and India. Together, the two giants account for 37% of the world population, 40% of the world labour force, and a rising 18% of world product. China is ageing fast, while India’s median age is similar to the world’s. China is a communist party-state, while India’s is the world’s largest constitutional democracy. In terms of production, China has leapt ahead of India, producing 500 million tons of steel per annum compared to India’s 40 million. Both are still largely national, rather than cosmopolitan economies: China is the more open, holds the ninth largest stock of inward investment in the world, behind Spain, Belgium and the Netherlands, while India ranks number 26. One major difference between the two is that about two-thirds of China’s exports and imports are accounted for by the multinationals, whereas India’s exports are carried by India’s own corporate “houses”. The relative impact of both giants on world trade may be measured by a comparison of their port capacity, all of India’s being comparable to half of Shanghai’s. Indeed, it is the emergence of China rather than of India as a prospective great power that has disturbed the Asian balance of power, and—as I will elaborate—is impinging on global alliances. China is the major business partner for the countries of the Asia Pacific, and India’s prime importer. Its expanding foreign exchange reserves enable it to buy access to commodities in Africa, Latin America, North America and Australia. It spends an estimated $100 to $150 billion per annum on defence, compared to a $30 billion a year budget for India. Not surprisingly, India is strengthening its relations with the U.S., the countries of South East Asia and pursuing closer relations with Japan and South Korea. The significance of this longer term trend is to greatly modify the time horizon of China’s rise and America’s relative decline in the pecking order of world powers: the U.S. may be expected to build coalitions and alliances to counter China’s rise, and thereby greatly prolong its central role in Asian, and in world, affairs.

The rise of the two giants is not only transforming the Asia Pacific power balance; it is also reshaping the Eur-Asian continent. Russia is increasingly dwarfed by India, and especially by China. In the years following the U.S.S.R’s collapse, both Moscow and Beijing saw scope for cooperation in the UN (in joint statements of opposition to Western or U.S.“hegemonism”), in the transfer of military technologies from Russia to China, and in expanding trade relations. In October 2004, Moscow and Beijing settled their outstanding territorial claims in a landmark agreement where China signed away its claims to Siberia. Both voted the UN Security Council resolution in favour of sanctions on Iran, but both opposed Western intervention in Libya, and blocked Security Council resolutions asking President Assad of Syria to relinquish power. ‪

There the similarities stop. China did not favour Russia’s attack on Georgia in September 2008, while China challenges Russia’s inherited positions in the Central Asian republics, particularly in energy-rich Kazakhstan. Across the board, China is outclassing Russia as a world power. China’s population will continue to grow to about 1.5 billion by 2030, whereas Russia’s population of 140 million is shrinking at the rate of 700,000 per annum, caused principally by male alcoholism and recorded in a male life expectancy of 59 years. China’s public and external finances thrive on  manufacturing, whereas Russia is a petro-state, with oil and gas accounting for 40 and 80%  of tax and export revenues respectively. As China’s transformation has progressed, the country has moved up the global index for corruption, to 78 out of 178 countries, ahead of Greece, while Russia ranks 154, in the company of Venezuela and Equatorial Guinea. The most telling change though is that the Russian and Chinese economies of 1990 were of the same size, whereas by 2012, China’s is five times larger, and likely to be 10 times larger by the end of the coming decade.

Russia’s apprehension in being dragged into vassal status as a commodity provider to China’s manufacturing platform is evidenced in its pattern of trade: despite China’s thirst for access to Siberian oil and gas, only 10% of Russia’s total exports go to China, compared to 80% to Europe. Over 50% of Russia’s official foreign exchange reserves are denominated in Euros. This commercial opening to the EU has been complemented by a strengthening of ties with Germany, Italy and France, and especially by the major improvement in Polish-Russian relations following on Moscow’s public acknowledgement of Stalin’s crime, ordering in early 1940 his police chief, Beria, to murder 22,000 Polish officers and patriots in the Katyn forest massacre, west of Smolensk. These overtures have nonetheless not been expressed in closer co-operation with the E.U., particularly in the Gulf and the Mid-East. Moscow continues to base its post-Soviet appeal to public opinion at home on inherited attitudes of distrust towards Europe. Russia remains unwilling, or unable, to chose between the E.U. or China. Were Russia to opt for Europe, its choice would create in effect a greater Europe, whose outer boundaries would be with China.

The seventh longer term trend is the growing global dependence for oil on the Gulf, the Mid-East and North Africa. The International Energy Agency predicts that global energy demand will grow 36% between 2009 and 2035.[36] China and India are expected to lead the way, with the Mid East not far behind. The reasons for the growth in world demand are economic growth, population increases and heavy fuel subsidies, which provide consumers a buffer against rising prices. China is expected to account for 25-40% of the increase in global demand, driven by a voracious appetite there for the automobile. China is the fastest growing market for autos in the world, with 240 out of every 1000 people there expected to own cars by 2035, as compared to 30 per 1000, and 500 out of every 1000 in Europe today (700 in the U.S.). On the supply side, an assessment of 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is accelerating. [37] In addition, there is a problem of chronic under-investment by oil-producing countries, ensuring relatively high oil prices for the world economy, an incentive to develop alternative energy resources, particularly shale in North America and potentially in Europe, and make unlikely a return to pre-2008 growth rates. Most significantly, the market power of the very few oil-producing countries that hold substantial reserves – mostly in the Middle East – is set to increase rapidly. They already have about 40 per cent share of the oil market and the IEA expects this share to grow strongly in the future.

In addition to the expected secular rise in oil prices, the “fear factor” of supply disruptions related to concerns about the geopolitics of the region, the prospect of a nuclear-armed Iran,  and the political brittleness of the local autocracies—all these contribute to as much as $15-20 per barrel in price spikes.. Economic growth rates in Tunisia and Egypt in the first decade of the new century had averaged around 5% per annum. But wealth remained concentrated in the hands of autocrats who had been in power for decades. State censorship ensured that the mosque became the sole source of effective opposition. In 2002, the Justice and Development Party (AKP), won a majority of seats in the Turkish parliament. While espousing the secular tradition of modern Turkey, the AKP held long standing links with the Moslem Brotherhood, whose slogan proclaimed that “Islam is the solution”. But the catalyst came in Tunisia, with the self-immolation on December 18, 2010 of Mohamed Bouazzi in protest at police corruption and ill treatment.  Anti-government protests swept across the region. Rulers were overhrown in Tunisia, Egypt, Libya and the Yemen. Civil uprisings erupted in Bahrain, and were crushed by Saudi military intervention in support of the al Khalifa ruling family. In Syria, demonstrations escalated into full scale civil war. Iran backed the Alawite regime of President Assad, and Saudi Arabia, Turkey and the new government in Egypt backed the largely Sunni uprising. Russia and China, backed Iran and Syria, no doubt in the hope to fill the vacuum created by what is perceived as strategic retreat by the U.S. under Barack Obama. In short, as long as the world runs on oil, the region will remain fundamental to the world power balance: the security of the countries of the Gulf Co-operation Council( Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE) remain closely linked with a continued U.S. prominence in the region; on the other hand, 97% of the Gulf’s net trade surplus comes from Asia-Pacific. As long as China retains capital controls, the dollar may be expected to reign as the key commodity currency: as soon as the yuan becomes convertible, the dollar’s supremacy as the currency for oil and commodities trade is sure to be contested.

The eighth longer term trend is the emergence of the EU as the world’s prime emporium. This statement runs contrary to the conventional assessment of the region as ageing, economically stagnant, with high levels of public debt, fragile banks, low workforce participation, and a legislative preference for leisure over work. The EU is this, but it also enjoys enviable political stability; it is the world’s No 1 exporter, and the world’s No.2 importer; given that 16 of its member states account for below 2% each of the EU economy, there is a constant majority for open markets. Its labour force is the third largest in the world, and yields a per capita income of $34,500, less than the high productivity labour force of the US at $49,000 but six times that of China. The EU is China’s prime trade partner, as it is for Africa, Russia, the Middle East and Gulf states, the Mediterranean countries, while counting among the top trade partners of Latin American countries and India. More importantly, the European footprint on the world economy is giant size. It is overwhelmingly the world’s prime recipient of inward investment, and by far the largest source of foreign direct investment in the world. The EU is home to 148 of the global Fortune 500 corporations. The EU and the U.S. both chose to place the great part of their stock in each other, while over the past two decades EU corporations have accounted for over 70% of the total inward investment to the US. The total stock of U.S. investment in Spain alone is greater than the combined position of the US in China and India.  It is the home for 224 of the top world 500 universities, compared to the United States’ 155, and China’s 6. It is also the base for the world’s second reserve currencies, with 27% of the world’s foreign exchange reserves in Euros and a further 4% in pound sterling. Before the deeper problems of the Euro became visible in May 2010, when the Greek government admitted that its previously rosy picture of the national economy was not accurate, an equally rosy future was entertained about the Euro. Econometric analysis by Jeffery Frankel and Menzie Chinn suggested the euro could replace the U.S. dollar as the major reserve currency by 2020 if: (1) the remaining EU members, including the UK, adopted the euro by 2020 or (2) the recent depreciation trend of the dollar persisted into the future. [38]

Neither of these conditions held, and arguably, they were not the most important. The most important development within the Euro since its launch in 2001 with a membership of 11 states, expanded to its present 17, is the divergence in economic performance that has emerged between the economies of northern Europe, and those of southern Europe. Over the first decade of the new currency, Germany became to the rest of Europe what first Japan, and now China, is to Asia. At one fifth of the huge EU economy, Germany accounts for one third of EU net exports. Like its Asian counterparts, Germany-with its northern neighbours, particularly the Netherlands and Finland-ran widening, reaching 7% gdp by 2008. By 2012, Germany’s net foreign asset position was 43% of gdp. This growing surplus was not rooted in particularly high savings rates, which in Germany are in line with those of EU partners. Rather, it had to do with labour market reforms introduced by the Social Democrat-Green coalition government in 2003, and the hard work of German managers to raise the productivity of capital and labour, re-establishing the country as a production platform (Standort) for manufacturing, despite high labour and non-labour costs. Germany’s corporate cross-shareholding structures have given way to firm-centred shareholder value practices, while German producers have outsourced and integrated manufacturing operations with partners in central-eastern European neighbours. Only the smaller countries of northern Europe have equalled or surpassed Germany’s productivity performance. The Mediterranean countries- Portugal, Spain, Italy and Greece-, trapped in monetary union, have nowhere to hide their lesser productivity performance, other than to watch unemployment rise or wages fall. Since the Euro crisis started in 2010, the southern countries have in effect asked the northern countries to bail them out, while the northern countries have asked the southern countries to cut wages and  slash government spending. The failure to resolve this fundamentally political dispute within the EU is  magnified by Europe’s centrality in the world economy. The world hangs on Europe’s very complex internal politics, just as southern Europe and Germany are locked together as creditor to debtor.

IV Partial conclusions.

These eight broad trends, summarized in italics in the box below, allow for some partial questions about conditions in the world during the third decade since the end of the Soviet empire, and flowering of what has come to be called the process of globalization.

First of all, the turbulence of the world economy plays out in its  embedded inequalities, and the selective prosperity which is the result.  Even if the U.S. goes in for some major house-cleaning in terms of raising savings, cutting deficits, reducing debts and raising productivity, it can no longer afford the costs of a global leadership, as defined by previous administrations in varied forms since 1990. Meanwhile, the realities of the world are that the EU is the nearest equal of the terms of economy and political ideals, but not at all in terms of political logistics. China and more so India have much to do at home before they can turn their attention more fully to global affairs. Meanwhile, there is plenty of tinder in the world for pyromaniacs to play with. This leaves three apparent paradoxes:

*The U.S. remains indispensible to the system, but not in the way it has been in the past. There is no present challenge to the role of the dollar, but there could well be sooner than we anticipate if the EU does meld into a more cohesive unit, and China is impelled to liberalize capital movements.  For that to happen, two things would have to happen:

1.The northern Europeans, led by Germany, would have to concede that they cannot have the EU in their own image, or the southern Europeans would have to accept their junior status in the EU. The world financial system could look very different very fast. T

2.The Chinese party-state would have to liberalize transactions on capital account, and thereby create a direct linkage between the domestic and global capital markets. The party-state would have to sharply reduce its policy guidance for the flow of funds within China, which it presently considers as one of its key instruments in managing the country’s transformation from a rural to an urban population.

Both of these developments could occur, but are unlikely to do so fast. Meanwhile, the U.S. remains the consumer of last resort, and faces a further growth in indebtedness, unless successful domestic reforms in the U.S.- in the U.K. the same holds to a regional extent- switch the burden of adjustment to those countries which have become used to running perennial trade surpluses. That in turn would imply major changes for German domestic policy and for the “China model”—much admired in Africa and Latin America. But major changes in policy orientation in the U.S. are hard to envisage in the present political climate. What is likely to continue as before is China’s emergence as a challenge to U.S. primacy. To the extent, however, that China frightens its neighbours, both continental and maritime, the U.S.role as the balancer of Eur-Asia is likely to perpetuate America’s lead for decades to come. Related to this development is the prospect of India’s moving to the heart of the English-speaking world.

Second power  and wealth is visbly spreading around the world. The creation of the G-20, and the rapid development of the emerging markets, raises longer term questions about the distribution of responsibilities for governance in the world. I argue that the EU’s significance in recent years has been greatly under-emphasized, not least because the Europeans have some difficulty in explaining themselves to themselves, let alone to others. The likely path for the EU, I believe, is that a fiscal arm will evolve to partner the federal monetary authority, and that that in turn will create pressures—the famous “spillover” effect at work—to create a political union. Achieving this will require major intellectual investment, no doubt perpetuating thereby the EU’s proclivity to look inwards and to foster a low growth environment. In this regard, can the U.S. find sufficiently like-minded partners to create a reasonably coherent coalition of the willing to help steer the world forwards? Will China and the EU be sufficiently extroverted to take on the role of co-managers of the global system? Perhaps. If they are, then the world structure, implicitly multi-polar already, alliances would tend to become more fluid. Meanwhile, interdependences will tend to deepen with the corollary of an ever pressing need for enlightened, but increasingly de-centralized leadership around the world. The formation of the G-20 encapsulates the truism that there is no other boat we have than this earth.

Third, globalization spawns conflicts of culture, religion and values. The West remains immensely influential in the culture that it exports to the rest of the world, but the paradox is that the rest of the world has, is and will continue to absorb the West’s devices and ideas, remodel them to their own uses and re-export them back to the West. This pattern, particularly evident in the Arab Awakening of 2011-2012, signals perhaps a new wave of democratization, following on the wave which started in Portugal in May 1974. But this time, democratization, along with the increase in exchanges of ideas through modern media across cultural boundaries, has lapped into the Mid-East, possibly into Central Asia, and potentially into China. The Western assumption holds that democratization involves convergence on a liberal democratic model of free elections, the separation of powers, the rule of law and free speech. But democratization is also compatible with theocracy, as in Iran; with the army as guarantor of a secular order more open to religious influence, as evidenced in recent developments in Turkey, and in Egypt; or with the Chinese party-state. The absolute priority the party-state gives to economic growth signals a concern that political evolution away from the party-state built by Mao Tse Tung is in the pipeline. Domestic opponents have long known that the party-state can be outdone on chauvinism, and in the game of striking a patriotic pose. The West flatters itself if its representatives mistake the form of westernization for the acceptance of liberalism, with its fundamental challenge to older traditions, cultures or passions. There is no particular reason to think that a democratic China, like a democratic Egypt, could be a like-minded partner. The confidence of countries in the Asia-Pacific, often expressed in anti-western sentiments, would indicate that this is not likely to be the case. [39]

In summary, changes that seem tumultuous when experienced in real time, take time to work their effect on the structure of world affairs. One of the features of globalization is that events can no longer be conceived as sequential where ‘one damned thing follows another”, so much as punctuated by the inter-action of both ongoing forces and of pasts long gone.  The modern world features both a trend to uniformity offset by a much greater complexity, and therefore variety, within human societies. This has become particularly evident as we procede into the third decade of the modern globalization process.

East Asia is the world’s prime creditor and the U.S. is the world’s prime debtor.As John Maynard Keynes once observed, “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

The headquarters of the economics profession is the U.S. In the advise that its members have proferred, there is the sense not only that consistency in advice is absent, but that economists, of whatever background they come from, are trained in an ethno-centric discipline.

The China locomotive for Asia still relies on the U.S. economy for traction .This is just one illustration of how the de-centralising global polity makes it increasingly difficult for the lead powers to impose their preferences and rules on the world, while definitely the world’s rising powers neither have the capability nor necessarily the willingness to take the lead.

Whether or not China manages to allay neighbours fears about its ultimate objectives, the United States may be expected to build coalitions and alliances to counter China’s rise, and thereby greatly prolong its central role in Asian, and in world, affairs.

Russia remains unwilling, or unable, to chose between the E.U. or China. Were Russia to opt for Europe, its choice would create in effect a greater Europe, whose outer boundaries would be with China.

As long as China retains capital controls, the dollar may be expected to reign as the key commodity currency: as soon as the yuan becomes convertible, the dollar’s supremacy as the currency for oil and commodities trade is sure to be contested.

The failure to resolve the fundamentally political dispute within the EU is magnified by Europe’s centrality in the world economy. The world hangs on Europe’s very complex internal politics, just as southern Europe and Germany are locked in an interdependency of creditor to debtor.

[1] Joseph Nye, Bound to Lead: The Changing Nature of American Power, Basic Books, 1990.

[2] “To Paris,U.S. Looks Like a ‘Hyperpower’, International Herald Tribune, February 5, 1999.

[3] Barry Buzan, Richard Little, International Systems in World History: Remaking the Study of International Relations, Oxford University Press, 2000.

[4] John Zysman, « How Institutions Create historically Rooted Trajectories of Growth », Industrial and Corporate Change, Vol.3.No.1.1994.pp.243-283.

[5] See C.A.Bayly, The Birth of the Modern World : 1780-1914,Oxford, Blackwell Publishing, 2004.

[6] From the Penguin Books version, with an introduction by A.J.P.Taylor, reprinted 1975.

[7]  “Air passengers stranded by volcano cloud accuse insurers of £20 m “Act of God” get-out”, Mail Online, 16th April 2010.

[8] See Sheetal K.Chand, Albert Jaeger, Aging Populations and Public Pension Schemes. IMF Occasional Paper 147. Washington DC 1996.

[9] Kerry McNamara, Why be Wired ? TechKnowlogia, March-April 2000.

[10] Joseph Schumpeter, ,(1994) [1942]. Capitalism, Socialism and Democracy, London: Routledge. pp. 82–83.

[11] Peter Schwartz, Peter Leyden, “The Long Boom: A History of the Future 1980-2020”, Wired July 1997.

[12] C.K.Prahalad, Yves L.Doz, The Multi-National Mission: Balancing Local Demands and Global Vision. New York, The Free Press, 1987.

[13] John Stopford, Susan Strange, Rival States, Rival Firms : Competition for World Market Shares, Cambridge : Cambridge University Press, 1991

[14] Dominique Foray, The Economics of Knowledge, MIT Press, 2004.

[15] See Michael Porter, “Capital Disadvantage: America’s failing Capital Investment System”, Harvard Business Review, September-October 1992.

[16] See Sam Brittan, Capitalism with a Human Face, Edward Elgar,1995.

[17] Susan Strange, 1988, States and Markets : An Introduction to International Political Economy, London : Pinter.

[18] Quoted in Peter Schwartz, The Art of the Long View: Planning for the Future in an Uncertain World. New York. Doubleday, 1991.

[19]  For a discussion on world and local time, see Zaki Laïdi, Un Monde privé de sens, Paris, Fayard 1994.

[20]  The IMF defines the “Net International Investment Position” of a country, as the difference between foreign assets that domestic residents own and domestic assets held by foreign entities

[21]  Carmen Reinhardt, Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009.

[22] See the author’s ”Reform of the International Financial Architecture: What has/not been written?”, in Order and Disorder in the International Financial System, ed Geoffrey Underhill,, Cambridge, 2003.

[23] See Jagdish Bhagwati, “The Capital Myth: The Difference Between Trade in Widgets and Dollars”, Foreign Affairs, vol. 77, no. 3, May-June 1998.

[24] Major foreign holders of U.S. Treasury securities, Department of the Treasury/Federal Reserve Board,August 15, 2012,

[25]  See  David Calleo, Follies of Power: America’s Unipolar Fantasy , Cambridge University Press, 2008.

[26] Ana Rute Cardoso & Paulo Guimar�es & Klaus F. Zimmermann, 2010. “Trends in Economic Research: An International Perspective,” Kyklos, Wiley Blackwell, vol. 63(4), pages 479-494, November.

[27] Raghuram Rajan, « Why the experts failed to foresee the crisis », The National, February 9, 2011.

[28] Robert Johnson, Economists : A Profession at Sea, Time Business, January 19, 2012.

[29] “G-7 will be eclipsed by E-7 by 2020 as China surges, PwC says”, Bloomberg Businessweek, Thursday February 17, 2011.

[30] Donghyun Park, Kwanho Sin, Can Trade with the PRC be an Engine of Growth for Developing Asia, ADB Economics Working Paper Series, No. 172, October 2009.

[31] See the magisterial book, already cited, by C.A.Bayly, The Birth of the Modern World 1780-1914, Global Connections and Comparisons, Oxford, Blackwell, 2004. On the concept of the West, William H. McNeill, The Rise of the West: A History of the Human Community, University of Chicago Press, 1963, 1991; also Riccardo Bavaj, “The West”: A Conceputal Exploration, European History OnLine, Mainz, Mainz: Institute of European History, 2011, retrieved: November 28, 2011.

[32] Susan Strange,  States and Markets : An Introduction to International Political Economy,London : Pinter. 1988,  pp.24-25.

[33] Winslow Wheeler, The Military Imbalance: How The U.S. Outspends The World, AOL Defense, March 16, 2012

[34] Linda Goldberg What is the status of the international roles of the dollar? Vox, 31 March 2010

[35] «  Which country has the best brains », BBC News, last updated October 8, 2010.

[36] See the IEA World Energy Outlook 2010, Paris 2010.

[37] “Warning: Oil supplies are running out fast” Petroleum World News August 3, 2009.

[38] Menzie, Chinn; Jeffery Frankel “Will the Euro Eventually Surpass the Dollar as the Leading International Reserve Currency,” Paper presented at the NBER Conference, Newport, Rhode Island, June 1-2,2005.Revised January 2006.

[39] See , for instance, Kishore Mahbubani, The New Asian Hemisphere: The Irresistible Shift of Global Power to the East,New York,New York, Publicaffairs,2008.

About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) ( His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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