There are two common ways to understand world order – both of which are dangerously out-of-date. The first is that order represents a stable distribution of power. Yet China’s unprecedented and rapid rise, India’s emergence, and Russia’s current mix of resurgence and volatility make the distribution of power in the world anything but predictable.
The second approach to world order emphasizes the institutions that manage global affairs, which in the contemporary era still refers to the UN, IMF/World Bank, World Trade Organization, G7, Nato and others. But today every one of these organizations is under immense stress, with some potentially drifting past the point of no return. Of course, these two understandings of world order go hand in hand, for global governance cannot be divorced from its geopolitical foundations. New world orders are emerging, but ones governed by an age-old axiom: who has the money, makes the rules.
The US financial meltdown, which has led to massive state intervention, effective nationalization of key chunks of the financial system and the concurrent G7 economic downturn, has elevated the importance of other financial – and even geopolitical – power centres. Rather than a world order centred around the US or the West, the major emerging diplomatic and financial capitals – Russia, China, India, Brazil, Saudi Arabia, Kazakhstan, the United Arab Emirates and others – are creating connections among themselves. While some gloat that the global economic slowdown is
evidence the world has not “decoupled” from it yet, the situation would have been much worse if emerging markets were not robust centres of growth. It is not without reason that Citigroup has urged its clients to allocate 55% of their assets (up from 30%) to emerging market investments: The US can be just as risky as other regions.
Flowing east
The conventional wisdom that must now be challenged is that the dominant movement of international capital flows will remain east to west; that is, Asian central banks buying US Treasury bills and thus financing America’s deficit. Asians are clearly not rapidly dumping their dollars for fear of the “balance of financial terror”, but from the Persian Gulf to China, reserves are moving towards more diverse baskets of currencies as countries try to insulate themselves from America’s weakening fundamentals.
A similar trend is visible in outward investment from emerging markets, with sovereign wealth funds, for example, gradually balancing out their previously US-heavy portfolios as well in order to reorient themselves quickly towards Indian and Chinese demand and markets – far more lucrative than the West. Maybe the West can one day be independent of Middle East oil, but that only increases eastern leverage over the energy-rich lands in between. In Africa, many nations have profited from Chinese investment. Some decry China as the “new colonialists”, but in the age of transparency, it is likely to learn the power of shame far more quickly than the West did.
This new economics is the foundation for a new geopolitics to which the West is more responding than shaping. Militarily, rapid build-ups are occurring in the Middle East and East Asia – and now also Latin America, with Venezuela welcoming Russian bombers for training exercises. Regional orders are emerging around diplomatic bodies and preferential trade agreements – east Asia may gradually fall under the Chinese sphere of influence, and north Africa increasingly under the European. These regional institutions appear more comfortable with economic nationalism than the previous Washington Consensus permitted. Countries do not want to be shaped by globalization; they want to shape it, including through the use of capital controls.
Credibility gap
In this context, fighting to retain the centrality of the UN, World Bank or IMF in such a landscape may prove futile – particularly given the minor concessions presently put on the table by the institutions’ key patrons. The task of restoring credibility for the main organs of the international community is likely insurmountable: the Doha Round has fallen apart; the UN Security Council has not been enlarged since before the end of the Cold War; voluminous foreign investment has diminished the leverage of the IMF and World Bank. Unless we see a number of emerging market sovereign defaults in the coming year or two, these trends are likely to continue.
Even in the context of a global slowdown, high oil prices, food insecurity and domestic fault lines, key new players like Brazil, India and China have made themselves into important production centres on which the world increasingly relies, meaning capital flight from them could become as self-defeating as from the US.
The picture becomes even more complex when we realize that it would be far more appropriate to speak of a “new middle ages” than a new order: we now live in a world not just of nations, but of empires, multinational corporations, religious crusaders, non-governmental activists and mega-philanthropists operating on all layers of the complex matrix of 21st-century power. Where is the architecture for a new world order in these new middle ages?
A new international architecture can emerge either after a major war, when a new hegemony imposes order from the top down as did the US after World War II, or it can be gradually built from the bottom up. The latter is happening already in Asia. The only question is how far it will stretch. Asia has the largest populations and the most money. In the past years an alphabet soup rivalling the EU has emerged, with Asean+3 among a host of acronyms that reveal how China is co-opting Japan, Australia and Korea through trade, investment and non-aggression pacts.
This is not mere cant: Asian diplomacy has achieved concrete results. The Shanghai Cooperation Organization’s border patrols manage counter-terrorism and trade in central Asia, and could potentially be invited to help NATO stabilize Afghanistan. East Asia’s major powers conduct defence exercises together and are planning joint energy exploration. On the financial front, the current crisis may accelerate efforts towards an Asian Monetary Fund and bond markets to insulate the region now that it is ever more integrated in terms of trade and investment.
Beyond government
Beyond regional groupings, whose norms and practices may spread horizontally (rather than being imposed vertically), another core element of a bottom-up order is the growing legitimacy which corporations and non-governmental organizations (NGOs) have accrued through their provision of social services around the world. Major multinationals have become important suppliers of medical care and education in poor communities of the developing world from Nigeria to Indonesia. And in terms of NGOs, to a large degree, America’s agency for international development (USAID) is already reliant on NGOs to distribute aid and run education and relief programmes around the world. (This is less the case with European donors.)
But the deeper trend is that major international NGOs such as Oxfam, CARE, MerciCorps and certainly mega-philanthropists such as the Gates Foundation, rely less and less on governments for their funding and mandate. They have become truly independent actors pursuing global agendas – they have their own foreign policies, as it were.
Whichever world order project we embark on in the coming years, it will have to balance east and west, north and south, public and private, international and global. Whatever we call this order, it involves all of us much more than any of the past.
Parag Khanna is senior research fellow at the New America Foundation and author of The Second World: empires and influence in the new global order