The debt and deficit crises driving a 2000 point decline in US Markets over the last two weeks and a credit downgrade lies at the heart of the Western financial and political system goes way beyond the debt & deficit woes currently gripping the Western world; it strikes at the very heart of the way the global economy has been run for over two decades. In short, we are seeing the emergence of a new era of Global leadership. After relying on globalization defined by the Washington consensus to deliver years of growth, lift millions from poverty, keep living standards rising and citizens happy, Western nation states now seem to have lost control of globalization. In the short term, that leaves policymakers looking impotent in the face of fast-moving markets and other uncontrolled and perhaps uncontrollable systems — undermining their authority and potentially helping fuel a wider backlash, social unrest and the emergence of new centers of leadership and influence.
As I have written here before, the emerging economies have already begun creating alternative global policy-making bodies. The progress of South-South trade is one of the biggest challenges facing the WTO and its Western benefactors. To add insult to injury, in the face of S&Ps downgrade of US credit-worthiness, talk of an alternative global currency to replace the Greenback is accelerating in highly influential quarters — from the IMF to OPEC, from the United Nations to the G-8. In the long run, there are already signs the world could repeat the mistakes of the 1930s and retreat into protectionism and political polarization – witness the present political rankling in Washington & the Euro-zone. There are few obvious solutions, and some of the underlying problems have been building for a long time. “In times of economic recession, countries tend to become isolationist and retrench from globalization,” says Celina Realuyo, assistant professor of National Security affairs at the US National Defense University in Washington DC. “Given the increased number of stakeholders on any issue — climate change, the global financial system, cyber security — it is unclear how traditional nation states can lead on any issue, let alone build consensus globally,” she added.
The financial system, the internet and even the supply chains for natural resources have quietly slipped beyond effective forms of state control. These instruments of globalization have delivered huge wealth and kept economies moving with arguably greater efficiency, but can also swiftly turn on those in authority. Just as Egyptian President Hosni Mubarak discovered that shutting down the internet was not enough to prevent social-media fueled protest from overthrowing him, the world’s most powerful nation states are confronting their helplessness in controlling markets and financial flows.
Technology and deregulation allow both information and assets to be transferred around the world faster than ever before — perhaps faster than states can possibly control, even with sophisticated laws, censorship and other controls. The broad consensus at the 2009 London G20 meeting has already been replaced by a much uglier tone of polarization and mutual recrimination at both domestic and international levels. Where once they would have lobbied quietly, Russia and China now loudly, publicly and angrily criticize the US, with Russian Prime Minister Vladimir Putin recently describing America as an economic “parasite” pulling down the global economy.
In the US and Europe, right-wing lunatic fringe groups, like the Tea Party, Euro-skeptics and xenophobic nationalist groups seem to be on the rise, a potential obstacle to sensible financial reform and effective policy making. On the left, calls for greater regulatory controls on unfettered markets and populist uprisings, as in London presently. Over the past year, global currency valuations wars have become the source of new international tensions as major states accuse each other of “competitive devaluation” to boost exports. In cyberspace, nations worry powerful computer attacks on essential systems could one day spark war, with conflicts over cyber-spying already fueling mutual distrust among major powers.
It’s unlikely that nations can genuinely pull back from globalized systems on which they have become reliant. “The Net sees censorship as damage and routes around it,” computer science guru John Gilmore said in 1993. In the modern, high-speed globalized system, one could say the same of attempts at financial and economic restrictions. Many areas of the global economy have also become effectively “ungoverned space” into which a host of actors — from criminals to international firms such as Google and Goldman Sachs, to countless other individuals and groups — have enthusiastically jumped. Transnational corporations and global billionaires move money… Read more here.
Source: Reuters, FT, NY Times Cartoon: Bill Day/MSNBC.com