Is it Trump or the EU that is swapping big ideas for bad ideas?

Philip Stevens writes in the FT about“How the world swapped a big idea for a bad idea”. The big idea was “the revolutionary thought that the selfish interests of rich and rising states could be accommodated if everyone played by the rules. The deep interdependence woven by globalisation would square the circle between competing national interests and multilateral obligations”. Robert Zoellick,then a senior official at the US State Department, coined the phrase “responsible stakeholders” to describe their role in the existing order.

The fashion, writes Stevens, is to dismiss such assumptions as naïve. China may have been the biggest winner from the west’s design-its entry to the WTO in 2001 being the seismic geo-political events of the early 21stcentury-but “Beijing was never going to accept a second-fiddle place in a US-led system”. Xi Jinping, now installed as emperor-president for life, judges the time has come for China to expunge two centuries of humiliation. His Belt and Road initiative is designed to make the Middle Kingdom take centre stage.

No, writes Stevens, its not China. Its America wots the culprit. The US is a bigger enemy of its own design than Beijing. Trump’s Washington seems determined, he argues, to throw away the big idea faster than Beijing has been to challenge it. Wars of choice in Afghanistan and Iraq, he writes, sapped America’s moral authority. The 2008 financial crash put paid to the consensus that liberal, open markets were a certain route to prosperity. Now Trump flatly repudiates defence of the rules-based system. Trump lives in a world of winners and losers. He blames the post-war structures built by America and its allies for western weakness. Everything in Trump-world is zero-sum: economic nationalism has been at the centre of Trump’s worldview, and he is setting the trend that others will follow.

How do these  assertions stack up?

First, the revolutionary idea that rich and poor would benefit by global exchanges: this was the insight of David Ricardo in his path-breaking essay, Principles of Political Economy and Taxation, written in 1817. Ricardo defined the principle of comparative advantage, which is the one principle on which all economists of whatever persuasion agree. The relative costs of production which Ricardo analyses so lucidly include the relative cost of institutional choices within countries, that contribute to the final costs which provide the opportunity for beneficial trade. We are here in the realm of internal balancing of interests within different countries, requiring no over-riding jurisprudence to which all states are supposed to cleave.

Second, Stevens slips in the phrase “if everyone played by the rules”. This apparently anodyne statement conceals an assumption about international law, whereby sovereign states sign up to a legal instrument, and then shape their policy accordingly, rather than use the legal instrument as a source of legal principles to cover their actual practice. In fact, the post-1945 world order was predicated on the fact that states, national or multinational, tended to maximise their interests, regardless of the general interest. Multilateral institutions provided one venue to resolve differences; bi-lateral relations another; domestic balancing of domestic and international interests, a third, Ricardo’s option; supranational institutions such as exist in the EU yet a fourth. In his jeremiad, Stevens highlights only multi-lateral institutions, which are one among a number of means to settle inter-state differences. They may be used and abused, but other means of interchange continue.

Third, China is definitely the prime winner of globalisation. But it has done well by the US-led system because that system has been very benign-to China, and to the rest of the world. As a Marxist-Maoist-Leninist party-state,Beijing has analysed that international relations were not, as Mao thought, just an extension of class-war, but involved competitive and co-operative relations between sovereign states living in an anarchic world, where the “rules of the game” were always up for re-definition, never final. In other words, it was in China’s interest to join the WTO, where it was understood from the start that China would be able defend its own position, including through the WTO dispute procedure. The party-state understood, too, that in the modern interdependent world, the aggregate of multi-national corporations were key players which it was in China’s interest to befriend. China’s successful integration into the global polity since 1972 is in no small part due to Beijing’s understanding that modern diplomacy involves being able to play on multiple chess boards. The US, it should be observed, plays on all chessboards as the world’s prime power.

Fourth, China was never going to accept playing second fiddle to the US, writes Stevens. Never is of course a word one should never use. But within a reasonable time frame of politics, this is a very misleading statement. Deng Xiao Ping’s advice as China’s chief man, responsible for the Open Door policy from 1978 on, advised China’s leaders to “keep a low profile” while focusing efforts on developing its economy. This line of policy has been very successful, but increasingly difficult to implement because it has come in conflict with another strand of Deng’s policies: the promotion of  Chinese nationalism to fill the ideological void of a discredited Marxism-Maoism-Leninism. In particular, generations of Chinese school children have been taught about two centuries of national humiliation, and the need to make good. The clash between these two strands of policy-keep your head down and out of trouble, and hold your head high, and court trouble- maybe dated from the 2010 ASEAN meeting in Hanoi, when China’s then foreign minister Yang Jiechi bluntly pointed out to his Southeast Asian colleagues that ‘There is one basic difference among us. China is a big country and you are smaller countries.’ The statement reminded ASEAN listeners of how important their US relationship was, and would remain.

Fifth, Xi Jinping is now installed as emperor-president for life. Trump joked, to the horror of Democrats, that that was an interesting idea. More seriously for China, Xi Jinping’s installment is not good news. Just take one example from the early 1980s. Deng observed that the USSR’s leadership was hopelessly gerontocratic: so he rightly introduced strict rules for retirement, and understood that a regular turnover of leadership was highly desirable, not just through the mechanism of purges but by opening the leadership to younger leaders. With Xi’s initiative, China now confronts an additional challenge, to the many challenges which its rapid transformation throws up, which is to keep the channels of recruitment open, when change at the top is frozen. Presidents for life breed sycophants.

Sixth, Xi’s Belt and Road initiative to link Europe and China via Central-Asia, and the Indian Ocean, does indeed seek to make the Middle Kingdom central to the Eur-Asian landmass. Of course it is an expression of Beijing’s ambition, as is Beijing’s intent for China to excel in the sciences, in the arts or in sports. But what it confirms is the irreversible embeddedness of China’s economy and social fabric in the global system. Deng’s fundamental insight was that this required a move away from Mao’s concept of world affairs as one of permanent warfare to one where win-win would be the spirit of international affairs. In other words, Deng signed up to what Stevens describes as the post-1990 “big idea”. Deng’s successors have deviated towards Stevens’ “bad idea”-which he ascribes to Trump. If truth be told, the party-state never did anything else but think national interest first and foremost.

Seven, nor did the US. What has changed is the framing of the US interest. Under Clinton, Bush Jr, and Obama, what prevailed in the formulation of US foreign policy was the insight of multi-national corporations that the world was their oyster; that consumers would benefit; that value chain strategies allowed corporations to exploit modern communications in a Ricardian world of comparative advantages; that the world as a whole would get richer, which it undoubtedly has since 1990; and that the US, as the world’s leader, would be a prime beneficiary. In many ways, it has. Except in one:  Trump won the presidential election on the back of a democratic mandate for more economic nationalism. The post-1990 framing of the US interest did not sing in middle America.

Eight,Trump’s Washington seems determined, Stevens argues, to throw away the big idea faster than Beijing has been to challenge it. No. The US is not throwing away the big idea. Trump is sending a warning to China that things could get very rough unless a less mercantilist policy is adopted. As Zachary Karabell points out in “How to Win a Trade  War with China: Hint-Don’t fight it”(Politicomagazine, April 07, 2018), the US is levying tariffs on 0.0003 per cent of its economy. In fact, Trump is seeking a deal with China, whereby the US will keep open its markets in counter part to visible changes in Chinese policy. The key here will be the liberalisation of China’s capital market-an event that would propel China’s economy forwards for decades. America, in short, is negotiating: its not drawing up the drawbridge-yet.

Nine,the 2008 financial crash put paid to the consensus that liberal, open markets were a certain route to prosperity, Stevens writes. No. Europe is the centre of global trade. It has tariffs, for instance on US cars, on US farm products and so on, and is running a 150 billion dollar trade surplus with the US, and 100 billion dollar trade surplus with the UK. But Germany’s global corporations are completely dependent on open markets, as are Dutch, Swedish, or for that matter, French. What 2008 put paid to was that China and Germany could inundate the world with their dollars from their massive trade surpluses- a flow of funds which kept interest rates too low for too long. Germany, in particular, was not acting as Zoellick’s “responsible stakeholder”. It talked liberal economy, but acted mercantilist. Ditto France, ditto Japan, ditto China.

Ten, Trump thinks and acts zero-sum, writes Stevens. He appears to. But a more truthful description of the world economy would have to start with the reality that China, Japan, Germany, and France, have been riding free for decades on the Anglosphere’s open markets ideology. Rather than examine that ideology, Stevens takes aim at Trump, and all too frequently, at Brexit, without analysing why Brexit and Trump happened. They happened because of a fault made by Washington and London, and for long promoted triumphantly by the FT and The Economist: Global business requires global law to override national preferences.

This is best illustrated by presenting the writing of British diplomat Robert Cooper, author of “The post-modern state and the world order”(available in pdf on the internet). Stevens mentions him approvingly. It is a sophisticated discussion, and I will synthesize, then critique.

The post-modern state and the world order.

The two crucial dates of European history, according to Cooper, are 1989 and 1648. What happened in 1989, he writes, was not just the end of the Cold War, but the end of the balance-of-power system in Europe. That system emerged at the Peace of Westphalia, marking the end of the thirty years war.  What is now emerging is not a rearrangement of the old system from 1648, where Germany becomes primus inter pares, but a new system. “Behind this lies a new form of statehood, or at least states which are behaving in a radically different way from the past. Alliances which survive in peace as in war, interfere in each other’s domestic affairs and the acceptance of jurisdiction of international courts mean that states today are less absolute in their sovereignty and independence than before”.

His pamphlet is written for Europeans, and for a number of reasons. First, it is Europe that has dominated the international stage for about 500 years.  It is also in Europe that the new systemic change has occurred: the balance-of-power system came into being first in Europe, and now the post-balance system-which he appropriately calls post-modern-has also begun in Europe. And finally, he writes for Europeans, because “they face the twin challenge of making their new model of security work while at the same time, living with a world that continues to operate on the old rules”.

In Europe, prior to 1648, the key concept for the ordering of human affairs was Christendom. He does not elaborate, but refers generically to empires in the ancient world-Roman, Ottoman, Mogul or Chinese-where the choice, as in Europe, was between empire or chaos. Within the empire was law, culture and civilisation. Outside the empire, were the barbarians, chaos and disorder. This image of peace through a single hegemonic power centre is visible today in calls for a United States of Europe, or in the hope that the United Nations could evolve into a world government.

But it was not the empires so much as the small states that proved to be a dynamic force in the world. That was Europe’s contribution, in finding a third way between the stasis of empire and the stasis of chaos. The diversity of the small European states created competition, sometimes in the form of war, that in turn proved a source of progress, social, political and technological. The threat to the system came in two forms: the danger of war cascading into chaos, or the risk of a single power winning the wars and imposing its hegemony on Europe. The solution to this was the balance-of-power system. Whenever the state system was threatened by the hegemonic ambitions of Spain, France or Germany, a coalition was formed to thwart those ambitions. Within Europe, the powers operated a system of balance, but operated empires overseas. Overseas empires were a source of prestige in the world, as within Europe. With German unity in 1871, however, here came a power too large and dynamic to be contained within the traditional European system: restraining Germany required the intervention of extra-European powers, the United States and the Soviet Union. In 1945, both powers remained in Europe, changing the nature of the European system, writes Cooper, for ever.

The wars of 1914 and 1945 destroyed both the European balance-of-power and the European overseas Empires: both were subsumed in a bipolar order, presided by the US and the USSR. Cooper argues that the Cold War order was not built to last: the system lacked legitimacy  since the ideologies of both camps rejected the division of the world into two camps. The victorious idea in the Cold War, he writes, was democracy,  the destroyer of empires. By rights, Cooper’s deduction should have been that democracy, aspired to in the form of nation states, recreated the balance -of-power system, and outlawed empire. But he concludes differently: “both balance and empire have now ceased to be the ruling concepts in Europe; and the world no longer forms a single political system”. We live, he argues, in a divided world, made up of three components sub-systems:

  • The pre-modern world lives in post imperial chaos. He cites Somalia, Afghanistan, and Liberia as examples. Governing people, especially potentially hostile people, is a burden. No one today wants to pay the costs of saving distant countries from ruin. Because no-one sees the use of empires, “we have chosen chaos”. But the danger today is that drug, crime or terrorist syndicates take to using these pre-modern bases for attacks on more orderly parts of the world. In short, what is lacking in this pre-modern world is that the local state no longer fulfils the criterion of having a legitimate monopoly on the use of force.
  • The second part of the world is, according to Cooper, modern. Here the Westphalian state system remains in tact, where states retain the monopoly of force, may be prepared to use it against each other, where the balance-of-power is practised, and where hegemonic states see an interest in preserving the status quo. An important feature of this Westphalian order is that it is linked, he writes, to the great engine of modernisation, the nation state, and hence the recognition of sovereignty, the separation of domestic and foreign affairs, where there is a prohibition on external interference in the domestic affairs of states. This is the world where the ultimate guarantor of security is force. In international relations, this is the world of the calculus of interests and forces described by Machiavelli and Clausewitz.
  • The third part of the international system after 1989 is the post-modern component. It is essentially European, and born, he writes with two treaties, the Treaty of Rome, and the Treaty on Conventional Forces in Europe(CFE). The Treaty of Rome was created, he writes out of the failures of the “modern”, Westphalian system: the balance-of-power failed to work and the nation state took nationalism to destructive extremes. The treaty of Rome is a conscious “and successful” attempt to go beyond the nation state. The CFE is born from the failures of the Cold War. Both the EU and the CFE abjure balance-of-power, and are predicated on intrusion in areas normally associated with state sovereignty. The characteristics of this post-modern world, writes Cooper, are the breaking down of the distinction between domestic and foreign affairs; mutual interference and surveillance in domestic affairs; the rejection of force for the resolution of disputes; the growing irrelevance of borders, and security based on transparency, interdependence and mutual vulnerability.

Cooper identifies a number of dangers for the post-modern order, while arguing that we must try to make it work.

  • The first is the danger from the pre-modern world of “chaos”, in other words of failed states whose territories may be used as launch pads for nefarious activities around the world. The risk there is of the EU  being sucked in for reasons of conscience, and then being unwilling either to conquer or to get out.
  • The coup de grâce to the post-modern world could be administered from the modern world. States, he writes, reared on power politics make uncomfortable neighbours for the post-modern democratic conscience. If the world were to develop into an intercontinental struggle, as Henry Kissinger considers likely, would Europe be equipped for that? he asks.
  • The third danger comes from within. A post-modern economy can still have the result that everyone lives only for themselves, and not for the community-the decline of birth rates in the West he cites as an example. There is a risk, too, that the deconstruction of the state may spill over into the deconstruction of society. An excess of transparency and an over-diffusion of power could lead to a state, and to an international order, in which nothing can be done because there is no central focus of power or responsibility. We all drown in complexity.
  • The fourth danger is mentioned, but not given the salience it deserves. A difficulty for the post-modern state-is that democracy and democratic institutions are firmly wedded to the territorial state. Economy, law-making, and the borders of the territory in a post-modern world may be decided within the EU as a transnational system, but identity and democratic institutions remain primarily national.

 

A critique to Cooper. 

One critique would refer to his observation, with which I agree, that the post-modern European system was made for Germany. Not surprisingly, Germany has prospered within it, as have the Netherlands, Scandinavia and Finland, the UK and Ireland.  So have the new EU members from central-eastern and -southern Europe, as well as the member states of the Mediterranean. But there can be no doubt that while talking post-modern, Germany has acted solely in its own economic interest. Other member states, less successful than Germany, pursue their own interests within the clearing-house of deal-making that is Brussels. In other words, the post-modern states of Europe remain nation states, and so inhabit what Cooper calls the modern world. Let me give two examples:

  • In May 2010, Chancellor Merkel said Nein to President Sarkozy’s proposal to put money on the table for a Transferunion. Opinion polls indicated that further transfers by German taxpayers to Club Med countries was not a vote winner. Equally, though, German big business had spread its wings globally, where its large and growing markets were located. Keeping Greece, Portugal, Italy and Spain as well as France within the Euro, ensured an undervalued currency for German exporters, helped to flush the coffers of German corporations, and hence the foreign direct investment flows to China and elsewhere. Put  another way, Cooper’s modern, dynamic, multi-state world metaphorically lifted Germany out of its geopolitical setting in Europe.
  • President Chirac gave the thumbs down to the Bolkestein Directive in 2005 in order to win over the French electorate to his referendum on a Constitutional treaty. He failed to win the referendum, and torpedoed the negotiations under way in Brussels to create a pan-EU services market along the lines of a post-modern EU. The result was that EU financial markets remained much less efficient than those of the US; German hostility to a Transferunionhas spilt over into German reticence on a banking union; the City of London as the EU’s clearing house for wholesale business gets two-thirds of its earnings from global business rather than EU business. One of the major reasons for the Brexit vote of June 23 2016 was the split in the City of London between its traditional Remainer lobby, and the new Leavers who wanted to escape the anti-global market directives issuing out of the Brussels machine. Global Britain voted to rejoin the modern world.

Cooper’s analysis has proven accurate in that the EU’s post-modern system has found it difficult to co-exist with the pre-modern and the -modern world. Germany for instance stood aside from the French and British 2011 overthrow of Ghaddaffi, but has sent troops to Afghanistan. In a different vein, post-modern Europe agreed to extend NATO membership in 1996 into the former territory of the Warsaw Pact, dealing thereby a fatal blow to incorporate Russia deeper into western security. This was followed up in 2014 by an EU offer of associate status to the Ukraine, without any forethought about Moscow’s possible reaction. Post-modern Europe, in short, behaved as a great power towards Russia. Not surprisingly,the EU is accused by Moscow of hypocrisy.

Here we are getting to the nub of the matter: the post-modern, post-1989 Europe is predicated on the idea of moving away from a system of nation-states, and its balance-of-power calculations. Its fundamental assumptions are twofold: that the European post-modern system can live in a divided world, where its own preferences are limited only to its own members; and that its nation states can be converted into member states, whose populations retain national identities, territories and national economies.  Like all utopias, the fit between ideals and realities,and the gaps  between hopes and performances, are too visible to be sustainable.

Both Cooper and Stevens share these pre-conceptions. Hence, Stevens’ gloom. As the utopia of Europe’s post-1989 world becomes increasingly plain to see, so is it easy to gloss over a key point. The post-1945 order, based on the UN, was very realistic: the UN was created in order not to supplant the balance-of-power system but to provide it with extra means to avoid war and to promote peace and prosperity. The EU as of 1989 is failing because it seeks to transform Europe into what it is not. What is failing is the Schumann model of Europe.

It bears repeating: there were two models for post-1945 Europe, not one. There was Ernest Bevin’s idea of a multilateral Europe, based on a variety of functional institutions allowing the participating nation states to retain their own parliamentary powers, national identities and economies; and there was the radical, French idea to make Europe in a different guise.  This is the model that is hitting the buffers of Europe’s multi-variate reality.

The rules-based system as conceived by Stevens, and with him most of UK commentators and pundits, is in effect one where international law is seen as above nation states. That, in Cooper’s wording, is the post-modern world of the EU. The problem with this conception of international law is that is not effective: the only functioning world can be one where international law is what the states recognise. In other words, sovereign states make what they make out of the anarchy of the world system. Trump is doing just that: he is telling China  that open US markets are conditional. Brexit is doing just that: Britain’s poorest voted Leave, along with some of its richest, because national identity, and interest, proved stronger than post-modern politics.

My argument is that Stevens, Cooper and others are doing us a disservice. The gloom is overdone. It is overdone because the post-1945 world, predicated on nation states, their identities, cultures and competition, is very flexible. That was the big idea. The bad idea was to be too ambitious, too post-modern, too unhistorical.

 

Advertisements

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) (www.chinauncovered.net) 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.
This entry was posted in Asia, Europe, France and Germany, Greece, Italy, Russia, Spain, The United States, Ukraine, Uncategorized, United Kingdom, World politics, business and economics and tagged , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.