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World Affairs
The United States and The Imperatives of The Global Economy in The 21st Century.
By Ismail Shariff
There is an inherent and imperative urgency for the United States to listen to global voices while designing its foreign policy in the post-Clinton era.
At the beginning of the twenty-first century the United States remains the world’s most powerful force for peace, prosperity and the universal values of democracy and freedom. Our nation’s challenges – and responsibility – is to sustain that role by harnessing the forces of global integration for the benefit of our own people and people around the world.
– President Clinton
We are stranded between old conceptions of political conduct and a wholly new conception, between the inadequacy of the nation-state and the emerging imperative of global economy.
– Henry A Kissinger, 1992
Unprecedented changes have taken place in the structure of the global economy in the last decade, more than anything since the industrial revolution. The pace is likely to continue at an accelerated rate. From all indications we can expect the next few years as a watershed leading to a significant turning point in economic and security relations as we prepare to enter the twenty-first century. It is a uniquely promising moment in history as Western Europe moves towards unity; Japan has attained great economic power and is seeking appropriate world responsibilities; the Soviet Union has disintegrated into 15 independent republics, and several Eastern European nations (as well as China, to some extent,) are moving away from doctrinaire Communism to attempt economic and political reforms. Many developing countries have emerged as pace-setters in political and economic reform. In short, we have relative peace and many shared political and economic goals – a large number of which have been inspired by US example and leadership. Moreover, this remarkable moment in history is also witnessing a fast-moving, multi-dimensional technological revolution which has heightened the increasing interdependence of nations.
Unfortunately, instead of taking advantage of these developments, the industrial democracies have permitted dangerous trade and other economic imbalances to build up within the international system through the creation of powerful, refined trading blocks. Unless corrected soon, they could engulf the world in a new wave of protectionism and bring about a financial crisis of the sort the world has never seen before; as a matter of fact, at present the Southeast Asian countries are just beginning to emerge from such a crisis. These imbalances, looked at from any angle, are rooted in misguided and often self-serving domestic policies of the industrialised democracies. The responsibility to ensure a healthy international economy now rests primarily upon domestic policy changes in the industrial democracies in general, and the United States in particular. It is imperative that the leaders of these nations act quickly and decisively. Thus, the new millennium represents not only a decade of enormous opportunity but it can also, if ignored, plunge the world into an economic catastrophe. Therefore, what is needed immediately, is to take calculated and deliberate steps to create a new framework for international, economic co-operation, one that takes advantage of the economic strength the industrial democracies have attained over the years. What is needed is, primarily, crafting of policies, promoting global economic growth, expanding and liberalising trade, strengthening the international development effort of the developing countries, and simultaneously addressing issues such as drug and environmental deterioration, which affect virtually all nations alike.
The Role of United States
It is a fact that the United States has risen to the task of rebuilding the global economy as it did under the aegis of the Marshall Plan after World War II. Once again, it is at a point in history when it must again exert leadership, as it did then to develop a comprehensive strategy for addressing the myriad issues before the international economy. The only difference is that, this time around, the United States can act with the help of a group of nations that were unable to play a major role in the 1940s in sharing the responsibility for providing ideas, a sense of direction, and resources necessary, to meet the challenges ahead. It is true that the world has made remarkable economic progress since the devastation of World War II, and rightfully, the credit should go to the United States, for the critical role it played in this success. Most of the goals set by the United States for achieving a stronger and more prosperous democratic world over the last 50 years have been met beyond expectations. Western Europe and Japan are thriving and prosperous democracies. Market economies have demonstrated their superiority to totalitarian economies, and world trade and investment have expanded dramatically.
Now the obvious question remaining before the United States is to choose what goals and policy instruments need to be employed to address global economic problems and the other important tasks ahead. Also, before any such strategy is adopted, it is equally important to realise that the economic and political relationships among nations and the underlying characteristics of the global economy today differ greatly from those of the 1940s, when current international institutions were created. And by the end of this century they will be far different still. Today, the freedom of international capital flow exerts powerful constraints on national management, burgeoning populations in the developing world exert massive pressure for migration; and governments increasingly seek to manage flows of trade and direct investment. The forces of economic nationalism have become stronger as globalisation of the world economy renders workers and industries more vulnerable to international forces; nations artificially create competitive advantages to the detriment of others; trade and current account imbalances reflect large, domestic imbalances in the United States and its trading partners. Nations have come to realise how vulnerable they are to one another’s lack of environmental responsibilities. Remarkable changes in the previously rigid economies in the communist world reflect recognition that they lack global competitiveness and are unable to meet the basic needs of their citizens. The developing nations, most of them debt-encumbered, are experiencing enormous human and economic problems which portend social volatility and international instability. Finally, technological changes cause quick shifts in competitive advantage and bring the world closer together by permitting the instant and massive dissemination of information and ideas.
The Role of Non-Governmental Organisations
Furthermore, leaders and officials including NG0s (non-government organisations), under pressure of time and policies, must make choices that will influence the course of our lives and societies. Often what appears to be insurmountable political or resource constraints to new policies or shifts in priorities, attitudes, or patterns of resource allocation can be overcome, if the benefits of doing so or the costly implications of not doing so, are made dramatically clear. President Franklin Roosevelt conveyed a sense of the cost to America of failing to provide Britain with lend-lease aid by explaining the importance of "helping a neighbour to put out the fire in his home lest it next spread to yours."
From time to time it is asserted that democracies take bold decisions only in crisis. However, in the current environment it is not only imperative, but also essential to build a new framework of international, economic cooperation based on mutual interdependence to avoid an economic stalemate on the global level. Failure to act puts the United States and the Western democracies in harm’s way, to the extent that they will all be vulnerable, one, to an energy crisis, two, to a financial crisis, as a result of domestic and international deficit and the growing dependence on international capital flows, three, to an outbreak of economic nationalism, as trade issues and imbalances go unattended, four, to massive instability in the Third World along with massive debt problems, five, to ever-growing dangers to the physical environment and, six, to the geopolitical consequences of instability in Eastern Europe, as their economies deteriorate before becoming sustainable.
In a nutshell, these are some of the major concerns the United States’ leadership has to take into consideration to deal effectively with the challenges facing, or going to be faced, in the immediate future on a global perspective. Failure to do so means a steady drift that may render the United States less and less capable of influencing events, and thus may undermine the leadership role of the United States in the determination of the future direction of the global economy.
Therefore, to build on the success of the United States’ leadership of the free world since World War II, the principal strategic goal of the United States (in the post-war and the post-Cold War era, and at the beginning of the twenty-first century) should be to focus relentlessly on creating an international economic framework based on cooperative, global, economic management. The need for such an international framework becomes all the more important in view of: one, the emergence of a new united Europe, two, a critical bilateral relationship with China and, three, a vastly changing Third World with its ever-growing aspirations and multitudes of problems.
The Importance of Sustained Economic Growth
Thus the policy goals of the United States in managing the global economy are essentially what they have always been – sustained economic growth on the basis of an open-market oriented, global economy. While the United States can, and should, remain the leader for the foreseeable future, in order to do so it will first have to improve its own economic performance by managing its economic affairs more successfully and cooperating more effectively with Japan and the European Community. With regard to dealing with Japan and the European Community, the US policy objective should be one of genuine partnership beginning with economic and financial responsibility sharing. For political, as much as economic reasons, a great majority of the members of the US House of Representatives and the Senate have come to the conclusion, including President Clinton, that the United States is paying too high a cost and too disproportionate a share of the costs for leadership in security, world economic development, and maintenance of the world trading system. In addition the existing international institutions, like the International Monetary Fund (IMF), The International Bank for Reconstruction and Development (IBRD), The World Bank, The Regional Development Banks, The World Trade Organisation (WTO), the Organisation for Economic Cooperation and Development (OECD), and the relevant UN agencies – and informal – Groups of Five and Seven or Eight (with Russia), need to be reinforced. There will also have to be reallocation of responsibilities, with Japan, for example, being encouraged to play a far bigger and more positive role in global affairs, in the twenty-first century.
More importantly, successful, global policy co-ordination requires not merely the constant cooperation of the United States, Japan, and West Germany within the growing European countries institutional framework, but willingness of all the main, newly industrialised countries (NICs) in the Pacific rim, including the primary NICs like Korea, Taiwan, Singapore, Malaysia, Indonesia, to align in the pursuit of domestic and international goals in terms of both domestic, economic growth and international trade. Without such co-ordination, the industrial democracies in general, and the United States in particular, cannot expect constructive and effective leadership in achieving and maintaining the growth of the world economy, along with price stability and exchange rate stability.
In specific terms, realising the emergence of a new kind of entity in Western Europe (one characterised by ever-greater pooling of sovereignty in economic affairs, for example, the European Monetary Union), the United States will have to deal simultaneously with both the European institutions and member states in ways that complement and reinforce multilateral objectives and promote the fundamental goal of a more liberal and sustainable world economy.
With the remaining part of the European continent, the collapse of the communist model represents one of the great changes in the world and a positive development for the United States and its allies. But blatant self-satisfaction is not the right response. Efforts need to be made that are consistent with the maintenance of Western security and that bring Eastern European countries into the world market economy. In this endeavour the United States should pursue constructive policies aimed at not only encouraging but providing direct assistance during the transition of their economies from a controlled to a free market economy.
There is no doubt that since the Gulf War, Japan, the world’s first economic superpower without military power, is embarking on a historic, domestic debate about the nature of its global responsibilities and its long-range interests. The United States also stands at an historic juncture, to re-evaluate its crucial, bilateral relationship with Japan. Yet, the US-Japan relationship suffers from intense conflicts over important economic interests. The United States is growing increasingly frustrated by the limited results of endless attempts to penetrate the Japanese markets, whether in semiconductors, automobiles, supercomputers, agriculture, or consumer goods. On the other hand, the Japanese rightly argue that the United States lacks a responsible fiscal policy and adequate savings rate. There are real risks from this state of mutual recrimination.
Therefore, what is needed is an immediate mutual attempt to resolve the disputes as quickly as possible, so that wider cooperative vision can be put in its place. The current account surplus Japan enjoys against the US is both a political and an economic problem. A way must be found to open Japanese markets to US goods, mainly with an intent to reduce Japan’s ever-growing current account surplus against the United States, (for eg, the US trade deficit ballooned to $10.3 billion in the month of July, 1999 alone, a 25 per cent jump over June 1997), so that both countries can concentrate on the important issues confronting them in their new global role. Thus, Japan must be encouraged, in a positive way, to proceed faster towards implementing the vision of its role in the world economy indicated by the "Maekawa report", one in which growth is driven largely by domestic demand at home, and greater governmental attention is given to constructive engagement abroad, especially in the developing world. There is also a need to find opportunities for additional, shared activities. The immense challenges of addressing global, environmental changes and Third World debt presents an important opportunity in that regard.
The US and The Third World
As for Third World countries, the role of the United States as leader of the free world is faced with immense responsibilities; the Bosnian intervention represents a microcosm of the role the United States is expected to play in the years to come. In fact, the goal of the United States policy should be to help create a stable growing Third World economy, which in turn means US interests must include active participation in Third World affairs. The failure to deal with vastly changed, but often ignored Third World affairs effectively may eventually lead to explosive situations, given the problems facing Third World countries. In a way the Third World, as supplier of industrial raw materials, must be part of the solution to many problems confronting the industrialised world, from the US trade deficit to the scourge of narcotics. It is true the Third World covers a broad spectrum of nations that includes such new industrial powerhouses as South Korea, and such nations as Mexico, where economic potential is hobbled by debt. On the other extreme, we have the desperately poor lands of Sub-Saharan Africa where living standards have sharply eroded in recent years.
In addition, if debt burdens are not eased fairly soon, some Latin American countries are likely to erupt with social and political turbulence. Rather than waiting for a crisis, prompt action can prevent one. Renewing growth and investment in developing countries will restore a valuable market for US exports. Thus, helping Third World countries reduce their debt burden is not only "charity" but also self-serving self-interest.Therefore, the United States, to accomplish this responsibility, should spearhead the following reforms:
Furthermore, sustaining the global environment provides a major challenge in relations with developing countries. The apparent warming of the world climate is likely to widen the gap between the developed and developing world. Dealing with this issue requires urgent policy choices; it is hoped that the post-Clinton administration can provide such a leadership in the near future, thus leading towards new forms of co-operation by all nations.
Currently, the shared social problems connected with narcotics and AIDS demonstrate another dimension of the relationship between the developed and developing countries. AIDS epidemics are apparently most serious in Africa, the Caribbean, Europe, and South America. The tide of illicit drugs entering developed countries is a significant and increasingly decisive factor in relation with developing countries. Clearly any lasting solutions to these problems need co-operation and co-ordination of goals and policy to rise above national interest.
Therefore, the United States must acknowledge and take corrective policy initiatives to provide unparalleled support to the developing countries’ willingness to help themselves, which, so far, the developed countries in general, and the United States in particular, have failed to provide. The obvious question, as it relates to the United States, boils down to what can the United States do, given its superpower status. Therefore, the United States needs a coherent, predictable, long-term programme, not only to help a differentiated and much more important Third World, but also to help its economy. Sustained and rapid economic growth in the developing countries can be a key element in reducing the US trade deficit, without inducing recessionary pressure at home and/or abroad. Some of the elements in a differentiating package for the Third World should include: one, support for human development programmes and for opening up their markets for developing countries’ products; two, long-term twenty year commitment to accelerating African development through major allocation of concessional flows; and three, specific plans to help reduce debt. The recently proposed "debt forgiveness" declared plan of the G-7 Cologne meeting in Germany might be a step in the right direction in promoting economic development in the Third World countries.
Finally, the US administration should lay the foundation to create a more open and peaceful international order. However, to accomplish this, it is essential for Washington to articulate a clear sense of the world it would like to see, and how it would go about arriving there. It is true many other nations do not yet know what role the United States wants to play in the post-Cold War era, much less their own role. But it is a fact that at the same time these countries, not only accept the idea of US leadership, but are also willing to follow the US lead. To play a creditable role in the international arena, the United States for its own sake, and for the sake of world economy, must finally put its economic house in order. For years the United States has borrowed more than it has saved, spent more than it has earned, and bought more than it has sold. The result: a huge and growing national debt, until 1998, and a lower national saving rate and hence investment than in the other developed countries. Only in the recent past have measures been put in place to eventually balance the budget by a record surplus, the first since 1970.
The United States in the new century
To draw a parallel from the past, at the dawn of the twentieth century the British empire was at its peak, about which it was repeatedly said that "the sun never sets". The reigning monarch, Queen Victoria celebrated her diamond jubilee in 1900. She had been queen for sixty-three years, and representatives from every colony in the vast empire came to pay her respect. Historians noted that never at any time had so much pomp and ceremony been bestowed on a monarch. Imperial Britain was the world’s largest sea power, and the pound sterling was the world’s strongest currency and the foundation of the gold standard. A year later she was dead, and in 1914 World War I had begun, marking the beginning of the decline of the British empire.
The United States enters the twenty-first century in the same position that England had at the beginning of the twentieth. Its economy is the largest and the strongest in the world; it is the leading military power; and the dollar has replaced the pound as the leading world currency; its culture is, for better or worse, well on its way to becoming the dominant world culture, and there are those who loudly trumpet its virtues. Allen Greenspan, for one, the chairman of the US Federal Reserve System, concluded that "only free-market systems" – that is the American model – exhibit the flexibility and robustness to accommodate human nature and harness technology to ever higher living standards. Mortimer Zuckerman, editor-in-chief of the US News and World Report, wrote an essay called, "A Second American Century". It began by proclaiming: "Why We Will Remain Number One", and even suggested that the twenty-first century will belong to America. Alan Murray of the Wall Street Journal echoed the same sentiments, writing that "the US enters the twenty-first century in a position of unrivalled dominance that surpasses anything it experienced in the twentieth. ... Coming out of World War II, the US may have controlled a larger share of world output (GDP); but it also faced threats to its security and its ideology. Today, those threats are gone, and the nation far outstrips its greatest rivals in economic and military power and cultural influence. America’s free-market ideology; and the nation’s internet and biotechnology businesses are pioneering the technologies of tomorrow."
Given this remarkable achievement, the question as to how it can be sustained in the twenty-first century becomes all the more important. There are several schools of thought ranging from isolation to sharing its leadership or going it alone. The US Committee for Economic Development (CED) emphatically rejects the notion that the United States can no longer afford to be a leader of nations. America has a global responsibility in accord with its global interests. Our nation’s position of international leadership reflects our concern for the security of our own citizens and people worldwide, and our recognition that a global free marketplace for goods, services, and ideas benefits citizens of all nations, especially our own. We have the resources to pursue these interests, more resources than in the past, if we choose to deploy them wisely and productively.
Expanding economic links between nations and confronting a new array of challenges, ranging from the global environment to international security, will require new cooperation among nations. Although we can no longer "do it alone", we should no longer want to. Henry Kissinger has pointed out that as "the key is creating a global community of interest, there is no example in history, where a pre-eminent power like the United States could maintain itself without having other nations wanting it to sustain power". In this context we can rightfully assume that we have capable friends and allies throughout the world, most notably in Japan and Europe. They have skills and resources which can complement ours, and they share many of the same objectives. We should call on them to join the United States in crafting a new age of cooperation among nations based on mutual long-term interests and values which will replace the Cold War relationships based on fear.
Although such a new model for relationships between countries will be based on cooperative agreement and shared burdens, there will still be a pressing need for the United States active and effective leadership, re-defined to meet the new challenges. The US leadership will require making a persuasive case for a collective agenda among nations, using a broad range of economic, strategic, and political tools to spur international action. With its remarkable wealth and power, and its commitment to democratic ideas, the United States is uniquely positioned to lead the development of these cooperative efforts. But the nature of the US leadership needs to change. For during the Cold War, security concerns were the guidepost for relations between countries; as the pre-eminent military power in the west, the United States was able to set much of the international agenda. Now, at the dawn of the twenty-first century, in a world where international issues often have a central economic component – and some of our allies are economic powers in their own right – the United States should no longer think and act unilaterally. In fact, the United States should learn to share power and authority along with the many responsibilities, if we are to share more equitably the burdens of leadership and the costs of maintaining global order and enhancing global development.
In the final analysis asks Allen Murray, could the twenty-first century be an American century? For the moment, no other nation comes close to competing for that honour. But as a word of caution, the challenges of the next 100 years could prove even more difficult than those of the past 100 years.
Over the long haul, the capacity of the United States to play a decisive role in the world leadership depends upon its political will to deal with current domestic problems, thereby ensuring its continuing economic strength. Such leadership will be substantially enhanced if the United States’ real GDP grows as fast as most countries, and preferably as most major industrialised economies. In addition to the measures enumerated above, the United States can adopt a sweeping series of additional changes to strengthen its competitiveness and improve its prospects during the 1990s. In this endeavour the United States policies should be directed towards lowering the cost of capital. In some cases, aggressive promotion of American products and American industries through the network of commercial attache in the American embassies abroad has to be undertaken. The United States should provide more support, especially for basic and process research. A regulatory environment should be created that fosters pro-competitive co-operative activities, particularly in high technology products and a renewed attention to long-term needs through greater investment in research and development in the private sector. In addition, the United States should act to support American companies when foreign mercantilism or subtle preferential government policies and practices demand a response in order to enable American industry to compete on an even playing field.
The US must share the stage with other nations
In all these areas, the United States leadership is critical not only to domestic economic success, but also to the global economies’ success. The United States possesses a unique combination of economic strength, military power, technological prowess and political vitality. At the same time in the post-Cold War new international order, the United States must learn to share the stage with other nations. The impending transition imperative in the new international economic order may well bring some frustration, even acrimony to the United States, among the industrialised nations. A price the United States has to pay, while continuing to welcome the emergence of other powers, if it wants to continue to assume the leadership role. Dean Acheson once wrote of the enormous excitement of being present at the creation. Another such moment is at hand. If the industrialised democracies in general, and the United States in particular, fail to seize the moment, they together will risk severe global economic, political, and ecological crises within a decade. So taking advantage of the opportunity is not an option but a major and an urgent obligation.
In the final analysis, this is a watershed time. Failure to act on the part of the United States would reflect a refusal to learn from history. The post-war era was built by men and women who insisted that we learn from the Great Depression, the Second World War and the post-Cold War era. The world they built has served us well. Now it is up to the new American administration to heed the lessons of the past, to show courage, and foresight of pursuing policies that are not detrimental to the well-being of, not only the United States, but also of the world as a whole.