Monday, 28 September 2009
Swan may have been talking about us entering the ‘Asian Century’ in India a few weeks ago, but the US is still a quarter of the global economy (compared to 2% for India) and dwarfs its nearest rival Japan. Even if China’s growth continues in a straight line (which it never does) it will be well into this century before the US is overtaken. Like it or not, this will largely be the US century as well, just an unstable one. Before a sunrise, there has to be a sunset. However, at least we now have a clearer idea of what Rudd meant by middle power diplomacy. It’s not as an interlocutor between China and the US, as though either power needs it. It is to make the best of US decline.
Irrespective of Rudd’s efforts, the G20 was always going to happen. It has not come about because China and India needed to be included, we could have had a G10 or G11 for that. It has come about because the type of political leadership that made the G7 and G8 a meaningful body over the last few decades, i.e. the US’s, has eroded. What we have now is a forum that disguises and accommodates that weakened leadership that Obama has inherited, but has not yet found a way to reverse. Rudd’s achievement was less to form the G20 than to make sure through lobbying that Australia was well positioned in that formation and that he could present himself as having a role to play in it.
It is fashionable now to say that a recovery is underway, but it looks more like a stabilising of the global economy after last year’s shock rather than a recovery. All of the problems that were supposed to have caused the crisis are still there. There is still bad debt on banks’ balance sheets and even the type of pay practices that governments have claimed were the cause are still going on. Governments have promised more regulation, while conveniently forgetting the problems suffered by the highly regulated European banks, but the main thing they have done is try to replace the collapsed credit system of the private sector with one in the public sector. In effect in order to fix a banking crisis, we now have a fiscal one. While the governments are hardly likely to acknowledge their role in creating this, the way this fiscal crisis is starting to creep into the political realm is through the growing disagreements over ‘exit strategies’ and a recognition that for some strange reason the recovery could be more painful than the downturn.
Australia’s deficit is neither here nor there. The problem is the US’s. Even there, it is not so much the issue that the US’s debt is set to approach a staggering 100% of GDP, not seen since WW II, but the problem of who will finance it. This is where the political problem comes in; declining US influence makes it harder to apply the pressure to get other countries to take the strain.
It is interesting to compare now to a quarter of a century ago when the US was struggling with a lingering recession and a sizeable current account deficit. Reagan had come to power with the task of rebuilding influence lost by defeat in Vietnam and the subsequent drift under Carter. Immediately he set about reviving a second ‘Cold War’ and so by making the Evil Empire the issue, underpinned US relevance by posing a problem only it could deal with. The pay-off was the Plaza accord of 1985, where the US effectively got the other Western Powers to devalue the US currency even if it screwed countries like Japan in the process. It was this calling on major Western economies by the US that led to the G7 being formed a year later.
Roll on a quarter of a century and the US is struggling to find the issue to recover its leadership. Bush tried the War on Terror, nobody followed, so the neo cons made a virtue of it by espousing the joys of unilateralism. Obama at least represents the acknowledgement that the US had to rejoin the pack but he still lacks the issue that would recover pre-eminence.
Climate change does not do it. The problem for the US is that, unlike the Cold War and the War on Terror, which made virtues of US military might, the climate change agenda turns the US’s economic dominance against it. As the world’s largest polluter, the US can never enter the climate change arena except on the wrong foot.
So instead we had the hugely convenient discovery of an Iranian nuclear plant just on the day the Pittsburgh Summit opened, allowing Obama to stand on the stage with other western leaders like Brown and Sarkozy to shake a stick at Iran. In doing so they highlighted the contradiction at the centre of the G20 summit. While ostensibly set up to allow the emerging economies a greater voice, it is kicked off by three developed nuclear powers reminding the emerging world why they can’t join them.
Yet while the US press has continued the story, it has died a death in other countries. As seen progressively through the two Iraq wars, the US may beat the drum but it doesn’t always mean the others will do much more than give vocal support. Furthermore, unlike the CIA stooge that ruled in Baghdad, the Iranian government is less likely to respond to threats. Nevertheless Obama has to find something to avoid becoming another Jimmy Carter.
This is the central contradiction at the heart of Rudd’s foreign policy and given the role foreign affairs plays, at the heart of the government as well. Rudd’s switch away from Howard’s War on Terror allowed Australia to better adapt to the new global reality, but that reality is US decline and loss of influence. Yet as we saw with Rudd’s triumph last week, Australia remains as reliant on US patronage as ever.
Posted by The Piping Shrike on Monday, 28 September 2009.Filed under International relations