THE GEOPOLITICS OF THE NEW WORLD ORDER

In 2001 I read Peter Schwarz’s newly published book China’s Futures. He is one of the world’s leaders in developing business strategies. One of the China scenarios in the book deals with a possible collapse of the regime in Peking. The environment becomes a sewer of damage and waste. Competition for status and power is raging. The chaos is finally choking the system. The elite is loosing the grip. A military dictator takes over. He can put down rebellions and can establish a new order with China as the world’s largest kleptocracy and himself as the chief plunderer.

How realistic is that scenario ten years later when every strategist seems to believe that China will be the world’s largest economy in say 2030?

In 2005 I read a brilliant essay by Professor em. Matthew Melko in the Journal of Comparative Study of Civilizations (“The Hegemon in World History”, No. 10). The prominent civilizationist concluded, for instance, that the United States exceeded all other hegemons in economic generosity. He also said that although the United States was addicted to consumption it compensated by greatly increasing production. In all, however, Melko concluded that so far America was experiencing a normal hegemony. It is interesting, though, to note five years after the publication of the essay that Melko admitted at the time that he had ignored the trade deficit and its future consequences for American hegemony. He said he would welcome a study of hegemonic trade deficits in history.

In a excerpt of a forthcoming book (“Civilization: The West and the Rest”, March 2011) historian Niall Ferguson (WSJ, November 20, 2010) deals with the question why the West came to dominate not only China but the rest of the world in the five centuries after the Forbidden City in Peking was built at the height of Chinese power? And is that period of Western dominance now finally coming to an end?

The Chinese economy was probably the world’s largest until the Ming era (1402 – 1626) and in 1600, per capita GDP in Britain was probably already 60% higher than in China.

For the next several hundred years, China continued to stagnate and, in the 20th century, even to retreat, while the English-speaking world, closely followed by northwestern Europe, surged ahead.

In 1968, so Ferguson, the average American was 33 times richer than the average Chinese, using figures calculated on the basis of purchasing power parity (allowing for the different costs of living in the two countries). Calculated in current dollar terms, the differential at its peak was more like 70 to 1.

Ferguson has, in researching his forthcoming book, concluded that the West developed six “killer applications” that “the Rest” lacked. These were:

Competition: Europe was politically fragmented, and within each monarchy or republic there were multiple competing corporate entities.

The Scientific Revolution: All the major 17th-century breakthroughs in mathematics, astronomy, physics, chemistry and biology happened in Western Europe.

The rule of law and representative government: This optimal system of social and political order emerged in the English-speaking world, based on property rights and the representation of property owners in elected legislatures.

Modern medicine: All the major 19th- and 20th-century advances in health care, including the control of tropical diseases, were made by Western Europeans and North Americans.

The consumer society: The Industrial Revolution took place where there was both a supply of productivity-enhancing technologies and a demand for more, better and cheaper goods, beginning with cotton garments.

The work ethic: Westerners were the first people in the world to combine more extensive and intensive labor with higher savings rates, permitting sustained capital accumulation.

These applications were the key to Western ascendancy. Then, since the 1980s China’s has been the biggest and fastest of all the industrialization revolutions. In the space of 26 years, China’s GDP grew by a factor of 10. It took the U.K. 70 years after 1830 to grow by a factor of four. In terms of GDP China will probably overtake the United States in 2027, according to Ferguson.

In addition there is a looming U.S. fiscal crisis. With a debt-to-revenue ratio of 312 percent, Greece is in dire straits already. The debt-to-revenue ratio of the U.S. is 358 percent compared to Greece. In the present financial problems of the United States China has a new grand Strategy. It wants is to be a Middle Kingdom, the dominant tributary state in the Asia-Pacific region. There will be four geopolitical components:

By consuming more, China can reduce its trade surplus and, in the process, endear itself to its major trading partners, especially the other emerging markets.

By importing more China will in 2035, according to the International Energy Agency, be using a fifth of all global energy, a 75% increase since 2008. It accounted for about 46% of global coal consumption in 2009, the World Coal Institute estimates, and consumes a similar share of the world’s aluminum, copper, nickel and zinc production. Last year China used twice as much crude steel as the European Union, United States and Japan combined.

China wants to invest abroad more. In January 2010 alone, the Chinese made direct investments worth a total of $2.4 billion in 420 overseas enterprises in 75 countries and regions. The overwhelming majority of these were in Asia and Africa. The biggest sectors were mining, transportation and petrochemicals. Across Africa, the Chinese mode of operation is now well established. Typical deals exchange highway and other infrastructure investments for long leases of mines or agricultural land, with no questions asked about human rights abuses or political corruption.

Growing overseas investment in natural resources is a basic strategy. It allows China to increase its financial power, not least through its vast and influential sovereign wealth fund.

China is innovating more, aiming to become, for example, the world’s leading manufacturer of wind turbines and photovoltaic panels. In 2007 China overtook Germany in terms of new patent applications. This is part of a wider story of Eastern ascendancy. In 2008, for the first time, the number of patent applications from China, India, Japan and South Korea exceeded those from the West.

Ferguson believes the West has to come to terms with a new global order. We are living through what now is the end of 500 years of Western predominance. This time the Eastern challenger is for real.

The West does not, however, as Ferguson is thinking, have to accept a new global order with China as the leader. History cannot be predicted with certainty. Social unrest based on the different living conditions in the inner parts of China and the rich coastal regions is a possibility. There will certainly be “black swans” during the coming decades. No doubt the human rights issue will play a greater role in the future and the demand for freedom of expression will grow in China. The Schwarz scenario may become reality and China could end up being ruled by a tyrant. Internal wars might ravage the country as it did in the 20th century.

No doubt Ferguson’s new book will serve as just another warning of many. The West has to shape up quickly and prepare a grand strategy to challenge the rise of China.

If not there might initially be a new bipolar world with the United States as a hegemon of the Global North (including Latin America) and China as a hegemon of the Global South (starting with Asia, excepting Japan, and Africa).