With the future of the global order hanging in the balance, 2019 is set to become a transformative year – where history turns, but with no one yet sure of the outcome.
America and China may now find a way out of their current trade war, but the long-term battle for technological superiority has only just begun. No less dangerous are festering long-standing disputes between America and North Korea, India and Pakistan, Iran and Saudi Arabia, and Russia and the West – the latter of which is exacerbating unrest in many of the world’s hot spots, not least Ukraine and Syria.
Easing these tensions is essential for global stability and our collective economic prospects. The 2009 financial crisis was resolved as a result of intense international cooperation. With the coordination of 2009 now giving way to the confrontations of 2019, will any future global downturn see anything like the 2009 levels of monetary and fiscal cooperation? Will central banks again cooperate through coordinated interest rate cuts and currency swaps? Would the G20 join together to fight protectionism and agree the same kind of fiscal stimulus that ten years ago restored confidence in the global economy? Would China ever again aid a Western recovery with a repeat of their massive stimulus package?
I fear that as of today the answer to these questions is a sweeping “no.” Countries would be more likely to blame each other for what’s gone wrong than act together to put things right.
Any consideration of a future downturn shows the world is not only facing cyclical challenges but structural challenges, too. In particular, the retreat into nationalism which, in turn, raises further questions about why globalization – which was to break down barriers and open up the world – has brought increased protectionism, and why the public now sees it akin to a runaway train that is out of control and uncontrollable. In the unipolar age, America preferred to act multilaterally. Now in the multipolar age, America prefers to act unilaterally. And as America turns away from multilateralism, China is already beginning to reshape geopolitics on its own.
Change is upon us, so what kind of future will we build? Unless the West can find a way of managing our multipolar world in a multilateral way, China, which has already created the Asian Infrastructure Investment Bank and is contemplating an ‘Asian Monetary Fund’, may accelerate the development of different or parallel structures for international economic decision-making that potentially rival existing international institutions.
We know that in the last few decades, as the centre of gravity of the world economy has started its shift from west to east, the global economy has been changing out of all recognition. Before the crisis nearly 60 per cent of manufacturing, trade, and investment – and indeed total economic activity as a whole – was in the West. Now, 60 per cent is outside the West, with Asia certain to command an even bigger share – up to 40 per cent – in the decades to come. Manufacturing will never again enjoy the same share of employment as in the past or as services do today, and the talk is of ‘premature de-industrialisation’.
While the world’s middle class – those on the World Bank’s calculation with income above $10 per capita a day – will form a global majority, the shift of income and wealth to the top 1 per cent and from labour to capital makes both inequality and economic insecurity far bigger sources of concern. Furthermore, once homogeneous countries are becoming heterogeneous, raising concerns about cultural identity. And of course, like many other challenges ahead, environmental pollution – which is no respecter of borders – cannot be addressed without cross-border cooperation. Neither can financial instability and the contagion it causes, or the increased use of tax havens, be adequately met and mastered by nation states, even the most powerful ones, acting on their own.
Indeed all the new twenty-first century challenges, from cybersecurity and the ‘splinternet’ to pandemics, are global problems that need global solutions. And I am convinced that if we embrace this truth, then the next step is to reform our seventy five-year old international institutions – to make them fit for purpose and better able to respond to the crises ahead. How we manage these changes is the subject I will address in my contribution to the day’s events.