Constructing New Leadership

An area of obvious difference between the Brazilian and American experts in Rio de Janeiro at Cebri was the question of leadership actions by the rising states.  Much like the Obama Administration, many US experts urged that Brazil  – as other rising powers – needed to step up and take greater responsibility for global governance.  The Brazilians were skeptical of the variously expressed views by US experts that Brazil needed to accept a “pay-to-play” approach to leadership.  Like the US Administration many of these experts urged that Brazil  needed to take responsibility first – to shoulder the burden of leadership – and receive leadership benefits subsequently.  As David Shorr, the Program Officer of the Stanley Foundation, co-host of the Brazil meetings, suggested in the “Discussion Summary” “… the United States has not been totally convincing in making the case for urgent action and the un-sustainability of the status quo.” – Yes I know I haven’t done a full review of the Stanley Foundation-Cebri conference, notwithstanding an earlier promise – and it won’t be done here. But I will tackle it – really.

In struggling to construct a new global governance leadership in the  contemporary circumstances there is no more frustrating calculation than understanding the nature of the relationship between the US and China.  Here is the quintessential traditional power-rising power  conundrum.  This is the power transition in ‘spades’. How should China and the United States interact and to do so in a way to move forward on some of the growing challenges to global governance?

In Sunday’s NYT (November 28, 2010) Helene Cooper in “Asking China to Act Like the U.S.” explores the complex nature of the US-China relationship.  As Cooper suggests, the critical question “turns on a question that is, at its heart, an impossible conundrum: How to get Beijing to make moves that its leaders don’t think are good for their country?” What is evident is that increasingly in the China-US relationship, but also more generally in the rising power relationships, the US is apparently asking the new and diverse leadership circle to take actions that fail to be in conformity with their national interests.

Among others, Cooper turns to some of the realists – possibly neo-realists – in the Washington circle.  And you won’t be surprised these folks are hardly supportive of the current Administration.  One of the identified critics is David Rothkopf a former US official in trade and a former managing director of Kissinger Associates – and now a strategic consultant in the Washington beltway.  For Rothkopf the problem is clear – and so is the answer for that matter.  As Rothkopf sees it this Administration is, as he says, “…still struggling with a post-unilateralist hangover.”  Rothkopf concludes:

… the United States is heading into a future in which countries like China, with independent sources of power, are not reliant on or easily influenced by the United States, and so are pursuing their own national interests.

Given this, what does Rothkopf and others offer up – good old fashioned balance of power? So whether its dealing with global imbalances and exchange rate regimes or the problems of North Korea and nuclear proliferation, it would seem that Rothkopf urges a return to the past.  As he says:

… the United States must first determine the areas where China won’t bend, and work with Beijing to find compromises so that America is not in the impossible situation of trying to tell China to act against its own national interests.  … We have moved from the cold war era of bipolar reality through the brief bubble of sole superpower unilateral fantasy into a world of a new multipowered system which requires old-fashioned balance-of-power diplomacy.

Why “Washington” is appealing to the nineteenth and twentieth century tools of international relations – which seldom worked then – and are even more unlikely to work in the complex contemporary global governance world – is hard to understand.  It is familiar but promoting renewed rivalry and competition with the China’s and Brazil’ of the world hardly seem the way to fashion a new leadership.  And I don’t think it will.

What will?  I promise – really – to examine and answer this conundrum in an upcoming blog post.

The ‘Drug’ of External Trade

Notwithstanding the assurances from China on exchange rate and valuation, the current account surplus that was just announced by the Chinese government has jumped dramatically.  In a WSJ article it is reported that China’s second quarter surplus was $USD72.9 billion a 35 percent increase from a year earlier.  The announcement from SAFE (State Administration of Foreign Exchange) was that China’s trade surplus had reached $102.3 billion. This figure represents a doubling from a year earlier.

The second quarter numbers signaled a major rebound from the first quarter when the current account surplus was down 32 percent from a year earlier. It would appear with this announcement  of third quarter figures that China’s external current account surplus is returning to levels reached before the 2008 global financil crisis.

With figures reaching 7.2 per cent of gross domestic product that all the discussion of redirecting China’s economy to greater domestic consumption is to be kind – ‘premature’.  It would appear that China’s foreign  exchange reserve are now about $USD2.65 trillion.  This very large figure puts pressure on China’s authorities to address exchange rates and should be putting pressure on these officials to accelerate efforts to finalize “indicative guidelines” for the global imbalances discussions at the G20.

If not ‘currency war’ the expression coined by the Brazilians to describe the current global imbalances may be proven not to be wrong.

Moving to Sunnier – at least Warmer – Climes

Barely back from the Seoul Summit, I have had the good fortune to do a little temperature taking _ and I don’t mean the outside temperature – here in Brazil.  With the auspices of Cebri (Brazilian Center for International Relations) – one of the few policy think tanks in Brazil – and the Stanley Foundation from the US, Adriana de Queiroz and David Shorr led a lively dialogue session on Brazil.  The dialogue sessions went from Sunday afternoon through Monday late afternoon and covered a lot of ground.

And that will be the subject of the next blog post.

Whose Irresponsible Stakeholder?

My good colleague from the the Council on Foreign Relations, Stewart Patrick has recently examined the dynamics of global governance in his Foreign Affairs article, “Irresponsible Stakeholders?  The Difficulty of Integrating Rising  Powers” that appears in this November/December issue of the journal.  Now, I always thought that it was slightly patronizing for the United States to call on -in the first instance – China  to become a responsible stakeholder.  So, I find it even more patronizing to call the large emerging market countries the former G5 (Brazil, China, India, South Africa and Mexico) I assume “irresponsible stakeholders” though at least he use a question mark.  I mean really who defines responsible or for that matter irresponsible.  I suspect you can guess.

In any case leaving aside the characterization, Stewart explores the dynamics and architecture of the new global governance order – yes, I use the dreaded ‘global governance’ phrase as opposed to the apparently more acceptable – “multilateralism”.  For Stewart the objective of this US administration and presumably the follow on ones is:

Over the next ten years and beyond, the United States will have to accommodate new powers in reformed structures of global governance while safeguarding the Western liberal order it helped create and defend.

The fear for Stewart, and others, is that the global governance will become increasingly chaotic and that the rising powers will – not possessing the same norms and rules of the current global  governance leadership e.g. the G7 – become the new rule makers as opposed to the old rule takers.  Furthermore the United States will be required to alter its role in the world – leave behind hegemony for a far more multilateral/multi-partner (the current phraseology of the Secretary of State)  role.  The fear for Stewart, and indeed his boss Richard Haass CFR President, is that power will become increasingly diffused and lead to a rather dark scenario: “What if the new global order leads to an era of multipolarity without multilateralism?”

So what impact will the diffusion of power have in this situation?  The principal concern is that such a diffusion will exacerbate the strategic rivalry between the traditional powers and the rising powers.  While these powers may agree on certain policies they may not cooperate on others.  And such rivalry could complicate global governance. To that I say – well yes that will occur but that strategic rivalry will not simply polarize rising and traditional states.  I mean look at the most recent efforts to create a framework for global imbalances in the global economy.  At the G20 Seoul summit there certainly was contention between the US and China.  But the most outspoken critic of US proposals and in the case of the Federal Reserve – actions –  was Germany  – a traditional power and long time ally of the the United States.  And for good measure India was rather positive to the US suggestions and options.

The reality is the United States will have to get used to the pulling and hauling required in building a dominant coalition.  No more – or at least little – hegemony.  The US will be required to do the heavy lifting required of a ‘first among equals’ only member of the international system.  And the multiple identities possessed by all powers of consequence here – and not just the rising powers – will have to be engaged.  The US doesn’t need strategic partners, but it will face shifting coalitions in the context of differing issue areas.  As Stewart writes:

In this complex international reality, fixed alliances and formal organizations may count for less than shifting coalitions of interest.

Stewart is probably correct in assuming that the US will be required to form “partnerships of convenience.”  But it doesn’t necessarily mean that the US must follow the path – expressed by Richard Haass – of a la carte multilateralism.  The US will have to possess a little more “stick- to-itness.”  Less noticeable frustration in various forum would be helpful.  For instance the G20 is likely the ‘proper’ institutional setting for reforming the global economy. Crafting agreement among these diverse interests in this forum is not easy.  This not hegemony or even ‘hegemony lite’.

But as my old heroes – Firesign Theatre – of yesteryear used to say  – believe it or not over the radio:

Living in the future is a little like having bees in your head.  But there they are.

U.S. Weakness; Chinese Ambivalence

There’s a growing acknowledgment in global governance circles, that China represents a key player along with the United States – at least when it comes to the global economy.  It may not yet be a G2 but it is the key great power relationship in the global economy.  But there is more afoot here than just the emergence of the G2.

First, there was much punditry emanating from the Seoul summit concerning “Obama’s weakened position”.  Sewell Chan of the New York Times wrote a piece early in the morning following the G20 summit titled – “Summit Shows U.S. Can Still Set Agenda, if Not Get Action”.  For US media, in particular, the G20 summit showed the President’s growing limits, so they concluded,  from the President’s  Party losses in the midterm election. Aside from the questionable logic and causality it would seem that there was a fair degree of US agenda proposing yet limited summit progress.  But then if you stand back this grinding out of the collective process – as opposed to the US imposition of policy – is exactly what you would expect from a more multilateral global governance system.  It marks a fading of US hegemony for sure but the US administration has called for greater  collective responsibility and it appears to be exactly that – more evident.  But US media remains wedded, it seems, to multilateralism with an American face. They are bound to be disappointed.

And then there is the Chinese leadership.  China is in the game.  While China is not enthusiastic over developing a global imbalances framework and developing the mutual assessment process – MAP – China has entered into this global governance process.  But the slow progress in framework development does highlight China’s ambivalence over leadership.

Chen Dongxiao, the Vice President of the Shanghai Institutes of International Studies (SIIS) at the recent Shanghai Conference (October 21st-23rd) (This was a meeting that brought together experts from all the Asian G20 countries plus experts from Singapore, Vietnam and the United States.  The meeting was developed with the active partnership of SIIS, CIGI, The Munk School of Global Affairs and the Stanley Foundation)  described well China’s persistent ambivalence. On the one hand China believes the G20 is “a step forward in terms of enhancing the legitimacy and efficacy of the current global governance architecture.”

However, and on the other hand, China remains protective over its sovereignty and its insists that it control domestic economic policy. As Chen Dongxiao says:

There is a tension between China’s desire for the G20 to be an effective body and its interest to preserve China’s independence over domestic affairs.  This is the reason for China’s ambivalence, for example, over the mutual assessment mechanism that the G20 powers agreed the IMF would initiate after the after the Pittsburgh summit.  China believes the mechanism should be consultative and instructive in nature, while others believe it should have more authority to intervene in order to help coordinate policies more effectively.

The road to greater stability and the amelioration of global imbalances will be a long hard road.

The ‘Sunshine Summit’

Well you could almost hear the collective community sigh of relief in Korea as the G20 Leaders summit drew to an end.  President Lee  Myung-bak drew the curtain down on the Seoul summit and declared that  “for now, in conclusion, (the world) is out of the so-called currency war.”

Addressing his final remarks to the “citizens of Korea” but also “the citizens of the world”, President Lee painted an optimistic picture of the summit at its conclusion.  And on reflection he is probably right.  There was progress on the framework for global imbalances and the exchange rate policies.  There was agreement that the G20 countries “move toward more market-determined exchange rate systems,” and that the G20 would reduce excessive imbalances both surplus and deficit.  The G20 agreed that they would assess persistently large imbalances against indicative guidelines.

Now having constructed the framework the details need to be filled in here. The indicative guidelines have not been determined and in fact the G20 leaders tasked the Framework Working Group (FWG), with the technical support of the IMF and other international organizations, to develop the guidelines.  Later French President Sarkozy at his briefing indicated that the FWG would meet in Beijing in the spring.  Finally, the Declaration indicated that the guidelines would be initiated and undertaken under the French.

Many will conclude that the failure to provide a clear measure – reference the earlier discussion of 4 percent of current account surpluses or deficits – or to describe the range of indicators that would constitute the indicative guidelines is an evident fudging by the leaders of the effort to bring about rebalancing and a more stable financial and economic system.  But this is – dare I say – a work in progress – and collective progress was achieved.

Moreover, President Lee could take satisfaction from the Leaders Declaration that included growth-oriented development and financial safety net initiatives both new initiatives proposed by Korea.  In addition many of the earlier commitments began to reach successful resolution including IMF reforms as well as financial regulatory reform most especially Basel III.

For Koreans it was not unreasonable to regard this indeed as the ‘Sunshine Summit’.

Looking at the Round Table

So the pace of the leaders’ summit is quickening. Sitting here at Media Center in the COEX complex with the many press – international and Korean – I am watching the leaders enter the room upstairs.  The President of Korea Lee Mung-bak has just opened the second session for leaders and they’ve go into closed session.

The second session this morning at 10 follows from the working dinner of leaders last night that ran from 18 to 21.  Presumably the session looked at the global imbalances including currency, current account surpluses and deficits, indicative guidelines, etc.  This is the make-it or break-it issue of this Seoul summit determining whether this becomes the ‘Sunshine summit’ – or not.

Sitting Patiently

So we’re here at the Media Center for the G20 Seoul summit.  We wait patiently.  Leaders have arrived here at Seoul and are continuing to arrive all day.  The Leaders summit kicks off with a working dinner for leaders tonight (Thursday) – from 18:00 to 21:00 to be followed by apparently Sherpas and deputy finance ministers.

Korean officials have just briefed us that the wording is still in flux on the question of currency rates and imbalances – current account balances. The spokesperson did say that the wording may be different than the wording in the Finance Ministers statement coming out of Geyongju Korea (October 22-23).

We’re Back! – And Just in Time

A h0st of apologies to all of you that have wandered by, or targeted, this blog.  As you are aware it has been silent over the last few weeks. I want to thank my colleagues at CIGI for allowing me to blog Rising BRICSAM at their website.  But I have regained my independence and Rising BRICSAM is now back in the blogosphere.

If you’d like to search the archives – the earliest blog posts, and of course going forward, all those blog posts will be here.  If you are looking for posts from 2008 to October 2010 then you can find them at CIGI.

As for the just in time, it’s because, of course, we are just a day away from the Seoul G20 summit.  Fortunately I am here in the G20 media center in Seoul with colleagues from the Munk School of Global Affairs at the University of Toronto.  Also in attendance are colleagues from the The Stanley Foundation (TSF) and colleagues from CIGI.  And then there are the other 4,000 media that will be here at the media center starting tomorrow.

So hang on to your hats – this should be quite the ride for the next few days.  And I’ll try and report this to you.