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Ahead of the annual meeting of the World Economic Forum in Davos this year, the body’s founder, Klaus Schwab, gathered his lieutenants to tell a group of media leaders about the focus points of what was to follow. Many of the WEF’s 600 staffers work between annual meetings on researching and monitoring the world’s developing and existing risks. Exposing them to global leaders, the WEF figures, improves the chances of disarming the bombs before they explode. This year, Schwab told us that for the first time in the WEF’s near half a century of existence, three of the Top Five risks were geopolitical. Number one is now “war between States”. FT columnist Philip Stephens expands on the theme in this excellent piece where he refers to the Great Unwinding of Pax Americana, Euroland and shock-absorbing benefits of global economic integration. – Alec Hogg
By Philip Stephens*
The west has a new industry. It is the booming business of calculating geopolitical risk. Glance around the world at the fires burning in the Middle East, at Russia’s march into Ukraine and the tensions in East Asia fuelled by China’s rise, and it is easy to see why. These conflicts and collisions are more than an unhappy coincidence. The end of history has made way for the era of systemic disorder.
Sitting in the other day at a conference organised by two leading think-tanks – Aspen Italia and Chatham House – it occurred to me that when historians cast around for a title for the present chapter in global affairs, they might do worse than opt for “the great unwinding”. The backdrop for the gathering of business leaders and policy makers was the glorious tranquillity of Venice. The talk was about the ruptures that have brought down the post-cold war order.
FT/Wipro panel discussion asking the tough questions in #WEF2015
The optimism in the west that greeted the collapse of communism was rooted in a clutch of organising assumptions. The world has become a more dangerous and unpredictable place during the intervening 25 years because most of these suppositions have now unwound.
The first was the permanence of the Pax Americana. Remember the breathless commentary about the impregnable hegemony of the US? At the turn of the millennium Washington assumed, and most experts concurred, that the sole superpower would set the terms of international relations for most of the 21st century. There would be adjustments to accommodate the new powers, but the US would continue to act as guarantor of the peace.
The historians no doubt will debate when precisely the illusion was shattered. The chaos that followed shock and awe in Iraq is a good a point as any. The wars in Afghanistan and Iraq ultimately drew the limits of US power, and did so just at the moment that China, India and the rest were rising fast. The war on terror did more than delineate the shortcomings of military might. Abu Ghraib and Guantánamo shattered the notion that America would always act as a benign hegemon.
US declinism can be overdone. In an excellent new essay asking Is the American Century Over?, the Harvard scholar Joseph Nye points up America’s enduring strengths – economic, demographic and geographic as well as military. It is also salutary to note how quickly the shale revolution has overturned many predictions of ebbing US power. What is true, though, is that the US of the 21st century is unlikely to possess the capacity or the will to shape the geopolitical order in the way it did in the 20th. For all the noise now being made by Republicans in Congress, future presidents will be obliged to follow President Barack Obama in recognising the constraints of a multipolar world.
The second unwinding has been in Europe. The creation of the euro was intended to complete the work of the EU’s founding fathers, replacing the deep scars of competing nationalisms with a postmodern model of deep integration. Europe’s borders had been fixed in perpetuity and the continent had said goodbye to war.
The thought, too, was that Europe’s postwar model would be exported, first to the EU’s neighbours in the east and then as a template for the rising world. For a while it worked: a procession of once-communist states queuing to join the democratic club testified to the potency of normative power. There was something to be said for playing Venus to America’s Mars.
And now? The euro has been exposed as a half-finished project, a statement of intent that lacks vital political and economic underpinnings. Even after the crisis of recent years, and I am still not convinced Greece can remain in the euro, governments are reluctant to pool sufficient sovereignty to assure the single currency’s long-term future. The resurgence of nationalism is not confined to arguments about debt and deficits. Populists of left and right have prospered across Europe by demanding governments slam the door against the alleged depredations of globalisation.
There lies the third unwinding – of the assumption that economic interdependence would soften national competition and that global supply chains would beget more effective global governance. Instead we have seen the return of nationalist competition, in Russian President Vladimir Putin’s revanchism, and in the territorial disputes between China and its neighbours in the East and China seas.
If the Europeans are having second thoughts about postmodern integration, most of the rising – and in Russia’s case, declining – powers never signed up to the idea of sharing national sovereignty. The threat in the Middle East and parts of Africa comes from collapsing states; in Asia it is rooted in competition between states.
So how should business respond to this increase in political risk? Many still choose to ignore it: they worry instead about competitors’ pricing, economic growth and regulation. Investors in, and exporters to, Russia have learnt that complacency can carry a cost.
As they operate their multi-nation supply chains and just-in-time production processes, businesses should understand that the world has changed. The cold war era was dangerous but stable. The great unwinding has created a world that is dangerously unpredictable. If there is money to be made in calculating geopolitical risk, there is money to be saved in understanding it.
* Philip Stephens is a columnist with the Financial Times of London., You can reach him on philip.stephens@ft.com
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