The Crisis and the Multipolar World System

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dsc_0656.jpg From Dec. 7-12, 2008, the Seminar “Crise – Rumos & Verdades” took place in Curitiba, Brazil. The seminar dealt with the financial and economic crisis and its implication for Brazil. Participants included senior political figures, economists, and business leaders from Brazil and other Latin American countries. Also participating were economists and political analysts from Russia, USA, Italy, Britain and Germany. Here we publish the contribution to the seminar by

Michael Liebig


First, let me thank the State Government of Parana and Governor Roberto Requiao personally for the invitation to this important conference on the current financial-economic crisis and its strategic implications.

I will start with six theses and then eleborate on the last three of them, those dealing with the strategic, geopolitical implications of the crisis from a German perspective.

I) The current financial and economic crisis has its origin in the United States. The crisis, which broke out in August 2007, is first and foremost a crisis of the US financial system.

Since 1971, a finance-vectored variation of capitalism has dominated the US economy. In 2006, roughly 40% of corporate earnings in the USA were generated in the financial sector. The US economy is characterized by a historically unprecedented accumulation of debt of corporations, private households and the state.

During the past 40 years, the US economy has been significantly deindustrialized – with the exception of the defense and information technology sectors. The deindustrialization trend has manifested itself in a massive secular trade deficit and ever rising foreign indebtness which has remained unchecked because America’s foreign debt is denominated in America’s national currency.

The lack of investment in industry, productive SMEs and infrastructure has made debt-financed consumption the main driver of the US economy.

II) The US-centered crisis has escalated ever since and has radiated across the globe. The crisis has increasingly affected financial systems and the real economy outside the USA.

Nevertheless, I think, the term “global financial and economic crisis” is problematic, if not misleading.

I do not see the inevitability of a global depression, which however does not mean that it cannot happen. The internal problems in European Union and the Chinese, Russian, Indian, Brazilian and other “emerging” economies/financial systems are severe, no doubt about that, but they are of a different quality than those in the USA.

Relevant here are the “dialectics” of globalization which features both connectivity/conformity and diversity/multipolarity. This “paradox” marks a key difference between the present world situation and that of the 1930s “Great Depression.” Between 1929-33, the combined financial and economic collapse in the United States and in Germany pulled down the whole world economy. Neither the British and French colonial empires nor the Soviet Union, in her early industrialization phase, could effectively counter-balance the depressions in the USA and Germany.

Today, we have a multitude of economic power centers and/or regional combines with significant economic “eigenvalue”. The endogenous economic development potential of these

economic power centers and/or regional combines is great and can be a a significant buffer against exogenous shocks – provided concerted efforts by both state and private actors are undertaken for domestic/regional development. The nature of state-of-the-art technology and infrastructure would preclude the regression to 1930s-style “protectionism”.

III) Beyond immediate crisis management, the design work for a new and sustainable global economic order and financial architecture necessesitates new paradigms in economic theory. Such “new thinking” must be more than a mere negation of discredited neo-liberalism. Relevant here are two 20th century economists: Joseph Schumpeter and Nikolai Kondratiev.

Schumpeter notes that crises within the conjunctural cycles of capitalist development tend to have a severity which correlates to the relative weight of the financial sector in the economy

as a whole. In other words, the bigger the financial sector — and its eigendynamik – the worse the crisis will be. But the real economy too has its own eigendynamik: Cycles of basic technological and organizational innovation – the 40 to 60-year “Kondratieff Cycles”.

It seems that current financial crisis is converging with the tail end of a Kondratieff Cycle — characterized by the ebbing out of innovations in the realm of micro-electronics and information technology.

Thus, concerted public/private efforts for the promotion of scientific research and technological R&D towards new, basic technological and organizational innovations are imperative.

For the world economy, both the OECD sector and “emerging” economies, the directionality of necessary economic development seems obvious: Large-scale, long-term investment in “hard” and “soft” infrastructure and the promotion of advanced-technology small- and medium enterprises (SMEs). Reconceptionalizing the role of skilled “human capital”, by extending its productive “utilisation” by 10-20 years, is probably one of the major productivity reserves for the world economy, and not only a pressing issue for the demographically aging OECD sector.

A most useful draft document containing basic guidelines for a new world financial and monetary architecture is the Juli 2008 „Modena Declaration“ which was worked out by a joint taskforce of Russian and Italian economists.

IV) The US-centered financial and economic crisis has further accelerated the shifts in global power potentials and the correlation of forces among the world’s main political-economic actors. We have already a multipolar world system, but not yet a multipolar world order.

The United States will remain the world’s leading military power during the next decade, but America’s internal economic-financial problems have a serverity that tends to degrade her overall power potential. The core of the power potential of a nation remains its economic-financial strength. And this economic-financial core strength ultimately determines the correlation of forces in international relations.

The emerging multipolar world order will not resemble the traditional setting of “power blocs.” Unlike traditional, rigid politico-miliary pacts, already today the leading players in world politics and the world economy are crosslinked by multiple, multi-layered and overlapping economic-strategic “cooperation modules.”

Among such “cooperation modules” are the EU, BRIC, the SCO, ASEAN plus 3, Mercosur in Ibero-America, South-South cooperation like IBSA (India-Brazil-South Africa) or the Gulf Cooperation Council (GCC). And this listing of regional and other “cooperation modules” in international relations is by no means complete.

The evolution of the multipolar world order means moving into “unchartered territory”. Sofar, the predominant mode of thinking and acting in international relations was one of reacting and adapting to the hegemon’s agenda. In the multipolar order, the reactive mode has to be replaced by a proactive and cooperative mode in the conduct of international relations. The main actors will have to generate a cooperative agenda for a new international political-strategic and economic-financial order. That is an historically unprecedented challenge — necessitating the sorting out and balancing of national and regional interests.

V) A new sustainable global economic order and a new financial architecture have to be complemented by a new global security architecture, which involves issues like obsolete Cold War security structures, nuclear weapons arsenals (minimum credible deterrence), nuclear non-proliferation, foreign military bases and terrorism.

VI) The European Union, paradoxically because of it complex strucure and seemingly cumbersome working mechanisms, has the chance and obligation to take a “moderator” role in bringing about multipolar world order during the coming decade. Europe has “special” and resiliant relations to all major world political actors: USA, Russia, China, India, Brazil and regional combines.

And, when moving from a multipolarity to a multipolar order, the world’s leading actors can draw valuable lessons from the desastrous mistakes the European powers, and Germany in particular, made when they squandered the peace and progress that had been achieved in Europe between 1870 and 1914.

A Multipolar System of International Relations

President-elect Obama decided not to get personally involved in the G-20 World Financial Summit on Nov. 15 in Washington. He left it to his predecessor to represent the Unites States at an international conference which finalized the demise of the G-7 as the world’s premier mechanism for running economic and financial affairs.

I have great difficulties understanding the frustration expressed by many “progressive” people over the G-20 World Financial Summit. If the agenda, agreed upon in Washington, is implemented by next April, the post-1971 world financial system will indeed have changed dramatically. Putting together a “Bretton Woods II” over a weekend with a lame-duck US president was not a realistic proposition. And, as German Finance Minister Steinbrueck emphasized in Washington, analogies with Bretton Woods are misleading. In 1944, the USA were the sole industrial and financial hyperpower, while Europe, Russia and China lay in ruins und India was still a colony. The world today is very different.

When Yevgeny Primakov proposed the “strategic triangle” of Russia, China and India in 1998, he was not taken seriously in the West. And the same dismissive attitude prevailed when Shanghai Cooperation Organisation (SCO) was founded in June 2001.

On May 16, 2008 the foreign ministers of the “BRIC” group – Brazil, Russia, India and China — convened for their first ever “stand alone” conference in Russia’s third-largest city Yekaterinburg. Two days earlier, German foreign minister Steinmeier had been meeting his Russian collegue Lavrov in the same Urals city.

At the press conference following the BRIC meeting, Lavrov said: The BRIC countries “in which more than half of the world’s population lives and which are becoming major centers of economic growth and political influence are simply obliged to closely cooperate and build common approaches…[in respect to] the further development of the system of international relations, bearing in mind that it should become more democratic, equitable and sustainable, I would not want to speculate how this natural process will evolve. But I dare say that our talks yesterday and today allow us to speak with confidence that the natural course of things will find reflection in organisational forms.” Lavrov was was not exaggerating. The new format in international relations became manifest exactly six months later at G-20 World Financial Summit in Washington.

Was it mere coincidence that the German Foreign Minister was in Yekaterinburg just two days ahead of the BRIC meeting? FM Steinmeier gave a speech at the Yekatrinburg’s Urals University on May 13. He said: “Humboldt stood for the surveying of the world in the early 19th century…[A]t the beginning of the 21th century, we see a new surveying of the world, albeit in a different way…Hundreds of million people, for the first time in history, have gotten the ability to generate wealth and welfare from their own strength…And what is true for the economy, is also true for politics: New power centers are emerging. In Asia, at the Arab Gulf, in Latin America, even in Africa. The weights are shifting in the world. Compared to the past century, many more states and regions will influence and shape the world…[T]he consequence is that we need more international cooperation, crosslinking and interweavement [Verflechtung in German]. This necessitates a ‘new thinking’: Turning away power politics, ‘balance of power’ politics and unilaterally pushing through national interests.”

Towards a new Euro-Atlantic/Eurasian Security Architecture

In terms of bilateral relations, Steinmeier presented in Yekaterinburg the “strategic offer” of “partnership for modernisation” between Russia and Germany, encompassing industry, SMEs, energy, science & technology and administration. At the joint press conference with Steinmeier on May 14, Lavrov said: “Russian-German relations, to which we devoted the greater part of our talks, are improving further, have — without exaggeration – a strategic character, and influence the overall situation in Europe and also in the world as whole.”

On August 8, 2008, a nasty attempt was made to disrupt Russia’s relationship with Germany and the European Union. Georgian president Saakashvili ordered a military attack on South Ossetia. Russia repelled the attack, the Georgian forces weren driven out of South Ossetia, and Russian troops moved into Georgian territory (in what was probably an overeaction). The Caucaus crisis was hyped up as an alleged “new Cold War” in much of the international media. But the crisis soon fizzled out after French President Sarkozy had gone to Moscow and Tiblissi; Sarkozy, who also held the rotating EU presidency, worked out a stable ceasefire agreement. The Neue Zuercher Zeitung’s article on the Sept. 13-14 annual conference of the International Institute for Strategic Studies (IISS) in Geneva had the title: “No new Cold War on the Horizon”.

This assessment, I believe, will also prove correct in respect to the planned stationing of American anti-missile systems in Poland and a strategic radar system in the Czech Republic, which were formalized right in the middle of the Caucasus Crisis. As competent military experts have noted, the BMD systems are of no value for defending against non-existent Iranian ICBMs. The American BMD systems in Eastern Europe however do potentially affect the trajectories of Russian ICBMs. And Russia has made clear that it will take counter-measures against the BMD deployment. They day after Obama’s election, Russian president Medvedev announced the stationing of short-range “Isakander” missiles in the Russian enclave Kaliningrad (Koenigsberg) region, which have a range covering the American BMD sites in Poland.

The real strategic purpose of the American BMD deployment in Poland and the Czech Republic is to drive a wegde between Russia and the European Union and within the EU between “new” and “old” Europe. “Old” Europe – notably Germany, France, Italy and Spain – is opposed to American BMD systems in Eastern Europe, while Poland, the Baltic states and the Czech Republic for understandable historical reasons harbour ambiguous feelings towards Russia – and Germany — and tend to be closer to the USA.

The other US attempt to drive a wegde between Russia and the European Union is the American attempt, again with the backing of Poland and the Baltic states, to give Georgia and Ukraine a special status (MAP) for early NATO membership. However, this gambit, firmly opposed by the majority of EU and NATO states, will not materialize, not the least because the majority of the Ukrainian population rejects the country’s membership in NATO.

I’m confident that the just mentioned strategic maneuvres will not translate into a lasting political deterioration between Russia and the European Union. Both Russia and the European Union have too much to loose in political and economic terms. Europe depends on Russian energy supplies and diplomatic cooperation in all major world political issues, and Russia depends on Europe as an export market for her energy and raw materials and needs technology imports from Europe to modernize her economy.

Germany’s foreign policy orientation towards China has been traditionally strong, albeit more in the economic, scientific-technological and cultural sphere than in political cooperation. Over the past two years, significant efforts have been made to improve relations with India, in particular in the economic sphere. German-Indian relations had been traditionally good, but during the last decade much of the earlier momentum was lost. In India, there are frustrations about what is perceived as Germany’s economic and political preference for China. But the German government, I think, has recognized the problem and has made serious efforts to upgrade relations with India.

On July 4, 2008, the new US embassy building near Berlin’s Brandenburg Gate was inaugurated in the presence of former President George Bush Sr. and Henry Kissinger. At the oaccasion, German FM Steinmeier and Kissinger delivered the main speeches. Steinmeier’s speech had the programatic title “The New World Order and Transatlantic Relations.” Thinking in terms of “blocs”, “containment” and “the number of tanks and rockets” is “obsolete,” said Steinmeier, and presented the strategic aim of creating a “joint security space between Vancouver and Vladivostok.” In unmistaken terms, he said: “I’m convinced: The attempt to re-consolidate the West by excluding the rest of the world, will end in world without the West.”

The initiative for creating a “joint security space between Vancouver and Vladivostok” had been presented first by Russian President Medevedev in a speech to some 1000 representatives of the German foreign policy establishment and the business community in Berlin on June 5, 2008. Since, the Medevedev initiative has also been supported by France, Italy and Spain.

One should not be surprised if the new Obama administration would soon present some spectacular foreign and security initiatives. For example, announcing the unilateral reduction of US nuclear weapons to 1000. That would not only seem to prove that Obama is really serious about “change” in America’s stance towards the rest of the world, but would also tend to counter the efforts towards building a new euro-atlantic-eurasian security architecture.

In the “real world” of great power competition, the rule is: The less nuclear weapons there are (as welcome as that certainly would be), the higher is the weight of “conventional” weapons. And, what concerns conventional fighting power, in particular naval and air forces, the United States is quantitatively and qualitatively ahead of the rest for the next two decades at least.

Paradoxical as it may sound, in the “real world”, an unilateral reduction of US nuclear weapons to 1000 would not diminish, but strengthen America’s global strategic position. It would put enormous pressure on America’s two main military-strategic competitors Russia and China. It would also further increase the pressure on Iran, which obviously wants to become a “virtual nuclear weapons state”, meaning not actually acquiring nuclear weapons, but being capable of producing them on short notice. Of course, there are at least 30 other “virtual nuclear weapons states”, which do not want to have nuclear weapons, but possess the technical infrastructure to produce them.

As long as nuclear weapons and an international non-proliferation regime do exist, a benchmark has to be introduced in nuclear strategic affairs: Minimum Credible Deterrence. The acceptence of this benchmark by the nuclear weapons states is the precondition not only for sustaining the nuclear non-proliferation regime, but of a new global security architecture.

Some lesser known Facts on Germany’s and Europe’s Actions in the current Crisis

On November 15, 2008, German President Horst Koehler delivered a speech at the “European Banking Congress” in Frankfurt, where the leading European central and private bankers were assembled. The Governor of the Brazil’s central bank, Henriquue de Campos Meirelles was also present. Besides crisis management, said Koehler, “[P]riority is the international and political conceptionalizing of a new international economic and financial order that draws legitimacy by solving the global challenges that face mankind…The principle of state control on internatinal financial markets must be redefined an reasserted… A major cause of the crisis was the buildup of enormous trade imbalances between national economies over years. We need binding policies to ensure that these global imbalances are reduced and cannot come about again in these proportions in the future… I remain convinced that the magnitude of the crisis we face demands a Bretton Woods II, a meeting of the best minds who will put their expertise, morality and political willpower to use in systematically tackling this crisis. We should not forget that those who brought about this crisis, sit here — in the capitals and financial centers of the industrialized nations.”

Koehler ended his speech by putting forward two scenarios: Either trying to muddle through without the will for decisive change – ending in a global depression. Or: “At the time of next G 20 meeting the first measures for a stable international financial architecture have been realized… An international consensus exists regarding strategic measures for an in-depth assessment of the crisis. There is a surge of confidence, which privides the basis for a new upturn in the global economy… An extensive global programe of investments for the future is put on track, focussing on infrastrucure and education, with emphasis on poorer countries. A development policy for the entire planet is drawn up. Not just poor countries are in need of development, we in the industrialized countries are also in need of devlopment. A new cooperative world order comes into being.”

Koehler can be rightly criticized for not having said this while he was head of the International Monetary Fund. But, I think, that his recent statements are a significant indication that European governments have not only understood the “signs of the times,” but have begun to act in earnest for building a new, multipolar world order – both in economic-financial and security terms.

That this assessment is not wishful thinking, may also be indicated by Germany’s reorientation towards Latin America. On May 9, 2008, just before Chancellor Angela Merkel left for her visits in Brazil, Peru, Columbia and Mexico, FM Steinmeier declared before the Bundestag: “South America has become a new focus for me… South America is a continent rising…The face of this continent has changed a lot more than many realize here in Germany…I call for a partnership, on an equal footing, with South America”.

Bildnachweis: Michael Liebig at the Conference (LINK)

 

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