Where To? – Russia at the Helm of the G20

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So a quick trip to Moscow!  Moscow you say – in December?  Yes indeed.  Russia took over hosting of the G20 Leaders Summit on December 1, 2012 and decided to declare a kind of G20 ‘Party’ of sorts.  To initiate Russia’s leadership in organizing the agenda for the G20 and to then actually host the G20 Leaders Summit in September in St. Petersburg, the Russian President and Russian officials called for a Sherpa meeting for December 11th but added additionally a B20 meeting, a Think20 meeting and a civil society.  There was much ‘hustle and bustle’ of the G20 sort.

And of course lot’s of thinking!  This from all the gatherings including the G20 business, civil society groups now identified as the C20 and experts from the G20 think tanks.  I couldn’t resist, therefore, picturing all that thinking.  So there I am on the official Russian website – presumably thinking quite a bit.

Now the Russian President in his first remarks as G20 Host struck this very broad consultative cord – which G20 leader hasn’t – but here is President Putin:

Russia is ready for the broadest possible cooperation on reaching the G20’s objectives.  In order to make the G20’s work more effective and transparent and increase trust in what it is doing, we will hold the broadest consultations with all interested parties, with countries not part of the G20, and also with international, expert and trade union organisations, and business community, civil society and youth representatives.  Practice shows that global measures are only effective when they are based on the views and take into account the interests of different groups.

All right so broad consultation it is.  But where are the Russians hoping to take the agenda for the G20 leaders summit?  In his remarks President Putin identified Russia’s G20 priorities:

  • Growth through Quality Jobs and Investment;
  • Growth through Effective Regulation; and
  • Growth through Trust and Transparency in Markets

With these priorities, so the President claims, G20 policy progress will occur with further efforts on:

  • A framework for strong, sustainable and balanced growth;
  • Jobs and employment;
  • International financial architectural reform;
  • Reforming the currency and financial regulation and supervision systems;
  • Energy sustainability;
  • Development for all;
  • Enhancing multilateral trade; and
  • Fighting corruption.

And the President identified two additional issues on the financial agenda:

  • Financing investment as a basis for economic growth and job creation; and
  • Modernizing national public borrowing and sovereign debt management systems.

In a column from Sergey Strokan a Russian journalist posted by Russia’s RT titled, “Uphill battle: Russia at the helm of G20“,  Strokan reports:

The key issue Russia’s G20 presidency needs to address is the restoration of investor confidence, adds Russia’s Finance Minister Anton Siluanov. In a situation, when economic growth in the locomotives of the world economy, including China, is still slowing down and the southern countries of the EU are in recession, global investor confidence is crucial for meeting the main global challenge of jump-starting economic growth, says Mr. Siluanov.

It appears the Russian Presidency hopes to hold – beyond the usual Sherpa and Finance Ministers and Central Bankers gatherings, a meeting of Finance and Labor Ministers as well as a meeting of Energy Ministers.

What can we make then of all of this?  First, as usual there is far too much G20-speak; for the ordinary citizen from the G20 and beyond, this appears like a lot of ‘gobble y-guck’.  It is hardly transparent to them.  Even to the G20-types there is much vagueness and a lack of clarity over the specific policy objectives – probably to satisfy large and disparate interests in the G20.  Then there appears to remain a conundrum at the heart of G20 policy – a key clash by G20 countries that appeared at the Toronto Summit – and remains to this day.  That is which lever should G20 countries pull – the austerity and fiscal consolidation lever, or the stimulus lever.  Now it is likely that the answer lies in timing and reflected in the specific conditions of various country budgets, job creation, debt accumulation and most critically economic growth.  But the fiction remains of an overarching  G20 policy agenda.

It would also appear that Russia can’t help but poke at the traditional economies with calls for monetary reform.  What is urgently needed is a more serious discussion over currency manipulation whether China’s or the United States or now with a new Prime Minister in Japan.  This is a tough issue but currency reform starts here.

And then there is hollowness of the consultation process.  While it is valuable to encourage the various interests – business, think tanks, youth and labor – it lies rather uncomfortably with a government that still retains legislation that requires foreign-funded NGOs to declare themselves as “foreign agents”.  It is dispiriting to witness this Janus-like behavior and the willingness of NGOs largely to ignore, this oppressive domestic behavior in the face of what appears a seat at the table – if a small one and far from the core table.

So the picture remains clouded but let’s see if the Russian presidency takes it upon itself to order transparency and accountability in the G20 agenda and policy process.  There is time yet.

Image Credit: Official Russian Website of the G20.

“What’s on Second”

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So let’s stipulate – I like acting like a US lawyer – that the US grand strategy  of the second term seems fixed on Asian rebalancing or  a ‘Pivot’, and that we have at least some acknowledgement in the halls of Washington that the new grand strategy is as much about economic diplomacy as political and military actions, as I wrote in the last blog post – ‘Determining Who’s On First‘.  Well how does this then line up the US-China relationship in the face of new leadership in Beijing?  That requires us to look at both the domestic and foreign policy stance of the new leadership.

On the domestic front are we likely to see significant economic and even political reform?  On the foreign policy front are we likely to see a more reflective and restrained Chinese strategy in the Asia Pacific in the light of the need to build or rebuild economic alliances and wider collaborative behavior?

Now a quick examination of likely domestic policy moves.  First, let’s dispel the impossible.  There was little likelihood, asymptotically approaching zero I’d say that these new leaders – from this generation of leaders – would on their own adopt democratic political reform.  As China expert Susan Shirk put it recently in the FT.com in the run up to the new Standing Committee choices:

This is a question of legitimacy and popular support for the party,” says Susan Shirk, a US expert on Chinese politics put it ft.com in “China wrestles with democratic reform (November 7, 2012): “They need to show that they’re moving in the direction of democracy but they are very fearful of losing actual control.

So their might be musings of reform – in fact there were such thoughts expressed by some in the old Standing Committee, but actual reform – not likely.  To seemingly underscore this, the two candidates most likely to favor political reform – Li Yuanchao the head of the Organization Department (and an early attendee to Harvard’s Kennedy School) and Wang Yang the Communist Party Chief of Guangdong Province – were both left off the Standing Committee. As Iain Mills, a freelance writer in China saw it:

Also of note was the public reappearance of ex-President Jiang Zemin alongside one of the instrumental figures in the Tiananmen crackdown, ex-Premier Li Peng. Although Jiang had taken on the state-owned enterprises (SOEs) and secured China’s accession to the World Trade Organization during his presidency, in terms of social and economic policy, the influence of this generation of leaders would seem to be highly retrograde. Jiang loyalists took senior positions in the Central Military Commission, while conservative factions appear to have blocked the promotion of reform-minded officials such as Wang Yang.

Okay so little likelihood of serious political reform.  But what of significant economic reform.  Certainly the previous leadership including Premier Wen Jiabao pointed to the need  to tackle the growing economic power and corruption of China’s State-owned Enterprises.  Now of course The Premier only began to talk about this at the twilight of his career.  And it would appear that the collective message, including from the new Chairman Xi Jinping,  is a broadly anti-corruption message.  Unfortunately this message is conservative and not reformist.  The anti-corruption message is an internal Party message to root out bad guys -if they can be found – and not indicative of major structural reform. Again Iain Mills reflections on economic reform seems apt:

It should also be noted that the renewed pre-eminence of conservative elements on both the Standing Committee and the Central Military Commission comes ahead of potential changes of the heads of key civilian institutions including the People’s Bank of China, the state-run power sector and the National Social Security Fund. How these institutions will be aligned and function under the new administration remains unclear. The broader picture, however, seems one of an economic reform agenda that will continue at a gradual pace, while hopes of major political reform have been pushed out to 2017 at the earliest.

Finally, what then of foreign policy action? Now it was positive that the new Chairman took over the the Central Military Commission.  It is evident that foreign policy has suffered from a number of voices.  China’s behavior in the Asia Pacific has seemingly become more assertive.  The pattern has yet to end.   A new policy to take effect on January 1st provides that border patrol police will have the right to board and expel foreign ships entered disputed waters in the South China Sea.  China has also begun to issue new visas that includes a picture including disputed territory in the South China Sea.  Various South China states including the Philippines and Vietnam have publicly objected to the new visas and refused to validate them.  Officials seem to be continuing policies that reflect the assertive China strategy in the South China Sea, not to mention the East China Sea.  In the face of little moderation, China policy, as described by Mills, appears to continue to be an assertive nationalist approach:

Beijing has often been unable to speak with one voice on major external events and has offered no clear articulation of how it would operate as the largest power in Asia. This vacuum, coupled with still-fervent nationalist sentiment in many quarters, appears to have been filled by those who favor a more forceful approach to enforcing China’s foreign policy objectives.

The assertive China approach has driven a number of ASEAN states to encourage a US return to Asia; it has even enabled Japan to play the military card with a number of Asian players.  There is little to hinder the new leadership if it chose to moderate its stance in the Asia Pacific.  Let’s watch closely for a more collaborative China approach of the new China leadership.

Image Credit:  Reuters

Determining Who’s On First

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The last couple weeks have concluded busy leadership contests.  The two contemporary great powers of the international system – The United States and China – both have chosen new leadership.  The methods could not be more different.  Many observers have commented on the dramatic contrast.  And the contrast is stark –  Barack’s democratic national election voted on by millions upon millions of American citizens, as opposed to the backroom horse-trading by unelected Party seniors concluding shortly after the 18th Communist Party Congress, with the traditional march on stage of the seven – all men – Standing Committee Members of the Politburo.

But this yawning gap in the reliance on popular will and accountability is no surprise.  This has been, and sadly continues to be, the CPC modus operandi.  Nor is it a surprise to witness the dramatic electoral slog by sitting Presidents – all to the good – and the US contenders “dukeing” it out – in this instance President Obama and Governor Mitt Romney – and billions spent by both sides in this electoral contest.  Instead let’s look at the expectations and consequences of the choices made.

Certainly, the reelection of Barack Obama keeps fixed in place – at least for now – the signature American foreign policy thrust – the rebalancing of US policy toward Asia – the so-called pivot. And indeed Obama’s first foreign sojourn has been to Asia and to the leaders EAS gathering in Phnom Penh.  And on the way Obama – a son of Asia in part – visited Thailand and more startling – Burma – indeed the first American President to make such a visit.  But it was at the EAS, the Leaders forum, where the United States made its presence known.  One of the agreements signed was with the ASEAN, a key player in Asia, where the US and ASEAN signed the “Expanded Economic Initiative” or E3 -an agreement as the White House Press release declares is:

… a new framework for economic cooperation designed to expand trade and investment ties between the United States and ASEAN, creating new business opportunities and jobs in all eleven countries

ASEAN at this time has a combined GDP of USD$2.2 trillion and is the fourth largest export market for the US and largest trading partner overall.

But this agreement signals a more nuanced and sophisticated foreign policy.  US policy has been so militarized over the last decades and in particular by the initiatives in Iraq and Afghanistan that many officials and observers fail to recognize today the critical nature of economic diplomacy.  But the US rebalancing is not just about – and indeed possibly not primarily about – repositioning of forces, though this is important as well.

It is more than evident that foreign policy officials, especially Secretary of State Clinton see that US grand strategy is about – economic diplomacy.  In fact just before the announcement of the E3 initiative between the US and ASEAN, Secretary Clinton delivered a speech at the Singapore Management University entitled, “Delivering on the Promise of Economic Statecraft.”  This important speech includes the ‘startling’ admission that:

For the first time in modern history, nations are becoming major global powers without also becoming global military powers.  So to maintain our strategic leadership in the region, the United States is also strengthening our economic leadership.  And we know very well that America’s economic strength at home and our leadership around the world are a package deal.  Each reinforces and requires the other.

Now in fact the myopia of the Washington beltway is rather breathtaking when you think about it.  Geez foggy bottom has discovered economic diplomacy.  It is not just about guns boys and girls.  I would gently point to my mentor, and indeed a mentor to many in the international relations field  – Richard Rosecrance – now at the Harvard Belfer Center that wrote way back in 1986  The Rise of the Trading State: Commerce and Conquest in the Modern World. The book focused in part on Germany and Japan that had chosen the path of territorial conquest only to discover post war – and following the enormous destruction brought by territorial conquest – that power and plenty and great power status could be acquired through trade, investment and commerce and without the resort to territorial aggrandizement.

In the context then of current US grand strategy then, as Secretary Clinton states:

In short, we are shaping our foreign policy to account for both the economics of power and the power of economics.  The first and most fundamental task is to update our foreign policy and its priorities for a changing world.  … Responding to threats will, of course, always be central to our foreign policy.  But it cannot be our foreign policy.  America has to seize opportunities that will shore up our strength for years to come.  That means following through on our intensified engagement in the Asia Pacific and elevating the role of economics in our work around the world.

Of course the path of US grand strategy is equal parts domestic and foreign policy.  The so-called ‘fiscal cliff’ and debt accumulation of the US do need to be addressed.  To counter China views of US decline, US domestic policy needs to repair its economy – and not on the backs of others.  But US economic initiatives of the sort that Clinton reviews in the Asia Pacific will be critical in raising US economic growth from the anemic to the robust and ensuring the US a continuing influence in the Asia Pacific.

But what about China and its new leadership?  Stay tuned.

Image Credit:  Daily Telegraph – dailytelegraph.com.au

A Turbulent and Yet Vital Country

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It is very hard to capture the essence of a place in a short visit to a far away land. I am still trying to digest all that I saw and heard while in South Africa over the last couple of weeks.  Although this trip was not my first visit, it was for me the most sustained time that I spent there.  And I had the good fortune to spend time at the University of Pretoria with good colleagues and also with: a variety of folks from the diplomatic community; as well as officials from the government of South Africa.

For those of us interested in global summitry, South Africa is a significant new player in the global governance game.  It is the first, and to this point only African state that participates consistently at the “high table” of G20 leaders.  Moreover, and I’d say most critically, South Africa is a turbulent yet vibrant member of the democratic community in global summitry.

Today South Africa remains the largest national economy in Africa, though growth has been increasingly a question mark for this most southern nation in Africa.  South Africa may be taken over by Nigeria in the not too distant future.   While I was in Pretoria  the government released two vital pieces of information.  First, and due to its most recent census, South Africa had reached a population of some 50 million people.  Second, as I mentioned in the previous blog post, “An Apparently Potent Flavor of the Month”  South Africa has acknowledged that its official unemployment rate has climbed to 25.5 percent.  Now that is a nasty piece of business but let’s not forget – and I was reminded about this in recent new reports – that Spain, yes Spain, part of the eurozone, has an official unemployment level about the same as South Africa.  Definitely food for thought.

Now a quick examination of the pros and cons on the national ledger.  Official statistics reveal that violent crime is on the decline, though what we here in North America at least call b&e is not.  In fact on that front what the South Africans call “smash and grab” is seemingly an ever-present reality. Indeed, one of my colleagues at UP, or as it is affectionately known and called – Tuks – has suffered through three incidents in just a year.  In fact this colleague was on the way to pick me up when an assailant put a brick through the car passenger window and lifted the bag and credit cards of my colleague.  The more than pleasant guest facility that I was temporarily housed in had a high fence surrounding the entire facility where swiping a card was required to gain entry.  Even more sadly the University, which was only about ten minutes walk from this same guest facility was completely surrounded by an equally high fence and there was absolutely no admittance without a card or by way of a thorough check and the guarded entries.  It was to say the least unnerving.

On the wider civil society front there have been stormy and even violent labor strikes recently.  The most notorious was the Marikana strike – mines near Rutenburg – where in August 47 people, mainly miners, where shot and killed by South African Police Services personnel.  Strikes have not ended in the mining sector though they have abated, but there have been recent strikes by agricultural laborers  that have led to hectares and hectares of vineyards being torched.  Not pretty.  The social unrest is real and disconcerting and it has allowed the most populist political elements to seek advantage.  Also not pretty.

But on the positive side, I would suggest that the democratic impulse  is a tangible and ever present sense in the country – among the elites and more importantly in the broader South African society. This is a vibrant democratic society.  In response to the Marikana shootings, for example, the government struck a public commission of inquiry.  Now it could be a “white wash” and possibly a serious effort of political deflection but the instinct and impulse is right – and it is evident that this is what the South African people expect.

On the democratic side, the real impediment to a deep and deepening  democratic entrenchment is the continuing stranglehold on political life, and the national government, of the current ruling Tripartite Alliance – the amalgam of the African National Congress (ANC) the Communist Party of South Africa (SACP)   and the Congress of South Africa Trade Unions (COSATU).  This ruling party, and government, is a consequence of the struggle against apartheid.  But the alliance now impedes – my political science is about to shine through, sorry – the “circulation of elites” and the holding accountable of office holders in particular.  Unfortunately, the stranglehold of the ANC alliance saps the prospect of democratic renewal and accountability.  While the DA or Democratic Alliance opposition has made gains – even holding provincial government – it remains viewed by the black majority as a white party.  The DA requires more change.  Thus, South Africans have to rely on the interplay of factions, including reformist factions, within the ANC to renew democratic accountability and to punish cronyism and graft.  It is not adequate. Extremist elements continue to call for a “second revolution” – threatening private property and in the end the rights of all citizens.  A truly bad business and unlikely to encourage investment in the economy from within or from without.

Storm clouds or not the democratic presence in South African life is palatable and to be nourished.  It was encouraging that colleagues saw the unique South African character. Notwithstanding the current Administration’s fantasies over the BRICS membership – and an unlikely South African leadership in it – colleagues and experts  were alert to the leadership and partnership prospects in the India-Brazil-South Africa partnership – IBSA.  South African leadership needs to see it as more than a development forum.  The democratic values at the core of this alliance gives this organization the critical foundation for these emerging powers and potentially a values driven institution.  And just within the G20 there are immediate partners – Turkey and Indonesia.  This is the way forward for South African leadership in global influence. Let’s encourage it.

 

An Apparently Potent ‘Flavor of the Month’

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Well I have been absent – my bad.  But I do have an explanation.  I am currently in South Africa at the invitation of colleagues from the University of Pretoria – Tuks as it was once called – and between preparation for leaving for SA – and indeed arriving here – time ran short.  But I am back now.

This should help to explain my absence.  An hour after arriving I was whisked to Witwatersrand University in Johannesburg and the Jan Smuts House where the South African Institute of International Affairs (SAIIA) is now located.  There experts examined, “Values in Global Economic Governance: Do India, Brazil, and South Africa Share a Common Vision?”

Hardly able to catch my breath, I was requested to join a gathering in the downtown the following day, where a panel was organized to discuss South Africa and its role in the G20.  Entitled, “South Africa and the G20 – Challenges and Opportunities” this panel was put together by SAIIA again and in this event the featured speaker at the panel was the Deputy Governor of the South African Reserve Bank, Daniel Mminele.

A third day and ‘lo and behold’ – a third panel.  Fortunately, this panel was organized by colleagues here at the Department of Political Sciences at Pretoria.  Here again the organizers put together a panel on the G20 and the featured speaker on this occasion – Alan Hirsch the Director General of Policy Coordination and overseas economic policy implementation in the South African Presidency, in other words – South Africa’s Sherpa.  The session entitled “The G20: Looking to the Future” included a number of officials from the diplomatic community including officials from the Russian and Mexican embassies as well as representative from the Open Society Foundation representing civil society.

So quite an opportunity to learn about the G20 and other global summitry institutions and how the informed and informing public here and select officials view current global summitry So what do I glean from all this conference activity?

Well South Africa continues to take its leading role in Africa seriously.  But there are signs of concern.  South Africa is struggling to raise economic growth.  And there are projections that Nigeria will overtake South Africa in the size of its economy.  Statistics from the government in the last few days reveal that unemployment has risen to 25.5 percent.  And who knows what the real number is.  Strikes are seemingly an ever-present phenomenon, especially in the mining sector.  Though wage increases have been accepted, employers have begun a series of public announcements identifying plans to down size to cope with the wage increases.  There are a series of government scandals over government provision of services from the delivery of textbooks to the public schools to the provision and tolling of new roads, and on.  And there are growing doubts over the Zuma presidency.  Where is the drive?  The goals?

In the midst of this, there is excitement – in the global summitry community – over South Africa’s hosting of the BRICS Summit in March.  This enthusiasm appears to have spread beyond officialdom to the media and public intellectuals and even beyond to the broader public.  Why?  It is not clear?  Part of it appears to be that the Zuma presidency seems to view BRICS membership and hosting as a part of the Zuma legacy.  While his predecessor highlighted South Africa’s involvement in the IBSA Summit – India, Brazil and South Africa – Zuma and his officials have turned their sites on the BRICS.  Indeed The SAIIA conference at Jan Smuts House explored the future prospects for South Africa in IBSA – tied together by the commitment to democratic governance – as opposed to the BRICS – tied together by – well no one is quite sure.  For the moment the public has been excited by the proposal to inaugurate a BRICS bank.  There has been much discussion of exactly how to put together such an institution and to what end would such a bank be created for at least in concept as early as the next summit.  South Africa has publicly announced that it would be willing to host the bank in South Africa – especially if the bank’s purpose was to fund infrastructure in Africa.  There is much loose talk that the bank could represent an alternative to the “old” institutions of the World Bank.  But that seems far-fetched and South African officials have been quick to tamp down such talk.

As many have suggested though the fascination here in South Africa with the BRICS appears to be that it represents an alternative club – without the traditional powers.  No UK, France or United States.  And including China.  It appears to resonate with the anti-colonial rhetoric of many in global south.  Interesting – but it is such an odd collection.

And the love affair with China is tempered here in South Africa by China’s actions.  In Pretoria there is much frustration.  China is completing a new and very large embassy here – in fact near the US embassy.  Workers were transported in from abroad and apparently 80 percent of material procurement occurred from China.  Reality beyond the rhetoric.

So there it is – enthusiasm for an alternative – but the hard reality of policy practices that may not secure favor.  Let’s keep looking.

“Creeping Urgency” Still

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The New York Times article today, “Leaders Say the They Expect Agreement on Aid for Spanish Banks This Year.” called leaders decision-making as “creeping urgency”.  So where are European Leaders?  Well kinda where they were months ago.   Leaders have agreed to set up a Eurozone bank supervisor, among other things, but the current agreement leaves unclear when the new bank supervisor will be fully in place.  That is critically important because without the bank supervisor in place, European Stability Mechanism (ESM) funds will not be available to struggling banks, especially in Spain.  So while the EU leaders will seek to “spin” the agreement as success, the lack of clarity around the regulatory startup is trouble.

And why is the date for the start of this new banking supervisor still so unclear?  Well, the problem is a German election in 2013 where German Chancellor Merkel doesn’t want to have to defend the use of ESM funds directly to the sagging banking sector in Spain.  So while the European Commission urged that the banking supervisor be up and operating by the start of the year – January 2013, it is pretty evident that European politics will not permit that.  So some of Europe’s most fragile banks are unlikely to be under this new European supervisor.  In fact Germany has insisted that the extension of regulation of Eurozone banks be done in stages.    That too appears to be a product of national politics.  The German local and state banks are not eager to be regulated by this new ECB bank supervisor.

And the determination to bring Greece into line in a austerity program that is well off track appears to have made no progress either.   And there other supervisory and budgetary issues that EU leaders have been unable to resolve.

Notwithstanding the “comforting” words of leaders in the Eurozone, the bank supervisory issue – that was generally perceived by officials and observers to be reasonably straightforward – is being delayed.   Leaders have to be assuming – at least hoping – that global markets will not render their own judgment on the failure of Eurozone leaders to resolve the continuing sovereign and banking debt issues.  That kind of gamble well may not pay off.

The only good thing that may arise from this lack of collective political will is that there is no immediate prospect of a G20 Leaders meeting.  Att least at the moment G20 leaders are not to gather until September 2013 though finance ministers and central bankers will gather well before this.  If such a summit were planned we could once again witness an agenda largely hijacked by Europe’s apparent determination not to take the necessary action to resolve the debt issues stalking at least Europe.

Meanwhile watch global markets!

Image Credit:  CNNMoney.com

 

So it is a Tentative “Thumbs Up”

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With our colleague Dan Drezner about to descend on the mighty University of Toronto, Dan was kind enough to alert me to a a recent Council on Foreign Relations Working Paper he’d just completed.  Entitled, “The Irony of Global Economic Governance: The System Worked” Dan, so he suggested to me, would be using this paper as the basis of his remarks here in Toronto.

On title alone I commented to him that he’d finally become an “advocate for global governance”. While Dan was unwilling to sign onto my admittedly rather exuberant characterization, he was willing to concede that he was more positive now than he’d been in the past.  Ah – at least some progress.

So let’s start with the conclusion.  Dan writes:

None of this is to deny that global economic governance was useful and stabilizing at various points after 1945.  Rather, it is to observe that even during the heyday of American hegemony, the ability of global economic governance to solve ongoing global economic problems was limited.  The original point of Kindleberger’s analysis of the Great Depression [The World in Depression] was to discuss what needed to be done during a global economic crisis.  By that standard, the post-2008 performance of vital institutions has been far better than extant commentary suggests.  Expecting more that an effective response might be unrealistic. …  The evidence suggests that global governance structures adapted and responded to the 2008 financial crisis in a robust fashion.  They passed the stress test.  The picture presented here is at odds with prevailing conventional wisdom on this subject.

Well amen to this last line of thought.  And although Dan reflects that effectiveness to date is no guarantee of the future, he suggests that it is at least as likely that a renewed crisis could foster a greater policy coordination effort, which seem to have waned in the immediate post crisis period.  As Dan concludes at the end of the Working Paper:

The post-2008 economic order has remained open, entrenching these interests even more across the globe.  Despite uncertain times, the open economic system that has been in operation since 1945 does not appear to be closing anytime soon.

Amen.

But it is hard slogging, as Dan freely admits.  Dan opens his analysis with the general critique that has accompanied the global governance efforts since 2008.  They generally recognize three items that reflect the failure global economic governance – though I would just refer to this as global governance period.  Critics, according to Dan,  have focused on the collapse of the Doha trade round, the breakdown of the macroeconomic policy consensus – this at the Toronto summit 2010 – and the escalation of the sovereign debt crisis as clear signs of the failure of global governance.  In examining each Dan identifies the rebound in fact of the global economy contrasting the Great Depression with the 2008 global financial crisis.  And in general Dan shows that the global economy has rebounded much better than was the case in the 1930s.

On trade – and as Dan belatedly suggests, the Doha Round was a spent deal well before the crisis; it had little to do with the global financial crisis.  But the trade institution world is probably not as healthy as Dan suggests.  That is because Dan kinda combines the growth of trade – the market, the trade regime and the trade institution, the WTO into one.   Trade flows have been growing and are robust.  The market remains largely vibrant.  The success can be laid at the doorstep of the global market and the trade regime – the GATT now the WTO and the explosion of the plurilateral regimes – yes the preferential trade agreements that have flourished since the Doha Round.  An open trading system, equal trade treatment and the willingness to accept trade liberalization remain the rockbed of the global trade regime.  This is the accepted set of norms.  While protectionism rose with the economic crisis – especially among the major developed states – it rose to a far less damaging levels that many feared. So whether a large emerging market economy or a traditional economy the open trading system remains a foundation for the the global economy.

But the institution of the WTO is not particularly healthy.  To the extent it is designed to promote trade negotiation – it abjectly is a failure.  It is evident that absence of a real operating institution is at the heart of the problem not just with respect to trade negotiations but with the operating of the market.  Now the judicial side is robust compared to any other international judicial institution, but the legislative and executive functions were inadequately addressed at the conclusion of the Uruguay Round – and it now costs this global governance institution mightily.  The universal decision rule structure is, as with most such universal representation structures – largely incapable of effective decision-making – ergo the Doha Round.

On the multilateral investment front, Dan correctly points out, there isn’t one.  Instead there is a myriad of bilateral and plurilateral investment protections regimes.  According to Dan the data shows that there is a marked slow down in the generation of these bilateral investment treaties.  That might be – though a number of interesting new agreements have been signed recently including a China-Japan-Korea agreement and a China-Canada one – but if you examine the number of ICSID or UNCITRAL investor-sate cases, – in the interests of transparency I should point out that have been involved in such cases for several decades – there has been an explosion of cases for the breach of investment protection.  The system is doing what was intended.  Also many free trade agreements incorporate investment protections into the comprehensive arrangements that are being concluded.

Where there is trouble is that a number of states – Venezuela in particular – have repudiated recent awards and the treaties of protection themselves.  Furthermore, states such as Australia have insisted that their courts are adequate to hear foreign investor cases and refused to sign new investor-state agreements.   Other states have created new model investment agreements that significantly narrow the scope of investor protection That does spell trouble.

On the macroeconomic and imbalances front, I do agree with his general conclusion that that the response was more robust than generally conceded by many journalists and experts.  But I am not sure this should be laid at the doorstep of the United States.  First many of the referenced statutes are purely national (that is not strange) but fail to really incorporate a wider collaborative standard.  Dodd -Frank which of course isn’t even fully implemented – and could largely be repealed if Romney replace Obama – hardly takes into account the concerns of other key financial centers.  As for Basel III there is was a much more collaborative effort of the G7 and G20 in its creation.

Some of Dan’s analysis suffers from a too narrow architectural framing as well.  Dan and I have drawn “swords” over the definition of global summitry and derivatively global governance because Dan sees summits as stand alone leadership settings – G20, etc.  Favoring an “iceberg theory” of global summitry, I see the structure of global summitry and governance as a galaxy or package of institutions – the leaders summit, ministerial meetings, transgovernmental regulatory networks of public and private institutions – all linked.  Many of the advances in such esoteric organizations such the FSB, the BCBS, IOSCO, etc., let alone the more formal Bretton Woods institutions such as the World Bank and the IMF are being tasked to produce surveillance and evaluative reports, and international standards at the direction of the G20 leaders/ministerial gatherings.  The architecture is a very decentralized structure but a linked one of  institutions and organizations.

Finally, and briefly the Eurozone crisis is not at its heart a global matter, though it has likely huge global consequences.  In fact in such a tightly wound interdependent world, it is hardly a surprise.  But the heart of the action has to be with the eurozone and the EU.  And it is the failure of will by key players, especially Germany and France, that have left the crisis on the front burner of global governance.

Now I think I will go off and hear Dan speak.

 

 

Between Hegemony and Balance of Power – The US in Asia

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Defining a contemporary grand strategy for the United States that is no longer hegemony but is not mere traditional balance of power, strategists have turned their attention to: “offshore balancing”.  Bizarrely this grand strategy has attracted a variety of strategists from across the ideological spectrum –  from neo-conservatives through offensive realists and realists all the way to liberals.  So what is this grand strategy that has become increasingly offered up for the United States – and why has it become attractive to such a variety of strategists?

One of the longtime proponents of  offshore balancing is Christopher Layne currently at Texas A&M.  Layne poses  this grand strategy (see: “Offshore Balancing Revisited” The Washington Quarterly Vol.25, N0.2 (Spring, 2002) as an alternative to hegemony.  As he suggests:

Offshore balancing is predicated on the assumption that attempting to maintain US hegemony is self-defeating …  Offshore balancing is a grand strategy based on burden shifting, not burden sharing.  It would transfer to others the task of maintaining regional power balances; checking the rise of potential global regional hegemony; stabilizing Europe, East Asia, and the Persian Gulf/Middle East.  In other words, other states would have to become responsible for providing their own security and for the security of the regions in which they live (and contiguous ones), rather than looking at the United States to do it for them.

Peter Beinart at the Daily Beast has proposed that offshore balancing emerges “when the money and bravado have run out.”  And realist Stephen Walt from Harvard makes the same point:

The bottom line is clear and unavoidable: the United States simply won’t have the resources to devote to international affairs that it had in the past.  … The era when the United States could create and lead a political, economic and security order in virtually every part of the world is coming to an end.

So if I can put it indelicately, what offshore balancing is really is, is “hegemony on the cheap”.  Thus Walt argues in “The End of the American Era” articles:

Instead of seeking to dominate these regions directly, however, our first recourse should be to have local allies uphold the balance of power, out of their own self-interest.  Rather than letting then free ride on us, we should free ride on them as much as we can, intervening with ground and air forces only when a single power threatens to dominate some critical region.  For an offshore balancer, the greatest success lies in getting somebody else to handle some pesky problem, not eagerly shouldering that burden oneself.

So whether it is from the right or the left the attraction is there – to maintaining stability but without the US shouldering the burden.  The strategy certainly has been advocated for the United States in the Middle East and in East Asia.

Walt has provided a short list of core principles (see “Rethinking US Grand Strategy: The Case for ‘Offshore Balancing'” PowerPoint Lecture August 2009):

  • US remains only great power in the Western Hemisphere (“regional hegemony) – more on that principle for another day;
  • US helps maintain balance of power in Europe, Asia, and the Persian Gulf;
  • US relies as much as possible on regional allies and “passes the buck” to them whenever possible;
  • Key: US deploys significant air/ground forces only when balance of power is in jeopardy;
  • US does not pursue regime change, nation-building, or other forms of social engineering;
  • US does not disengage: Offshore is neither isolationism nor a strategy for radical disarmament.

So there we are.  Now historically we’ve seen offshore balancing employed particularly by the British in Europe – more on this in the near future.  But it is evident that strategists are contemplating employing this strategy vìs a vìs especially Rising China in East Asia.

But how realistic is the strategy?  On first review this does not seem an advantageous approach notwithstanding the promise of less cost – highly attractive in age of austerity.

First, while shifting the burden to allies may seem attractive, it creates for lack of a better term a principal-agent problem.  Simply, it is much more difficult to try and influence others to do the balancing that otherwise you’d be doing yourself.  Allies may not do it leading you to have act – possibly catch up.  Or allies may prove to be too aggressive raising prematurely the real possibility of conflict that might draw you in, notwithstanding your desire to lower the temperature in the region and avoid conflict.

Secondly, and this is evidently the case in East Asia, your allies may have frictions with each other rendering it extremely difficult to obtain the united push back against the rising power that you’d like.  In East Asia the United States has security relations with both Korea and Japan.  But we find that the two are at loggerheads over the Liancourt Rocks – the Dokdo’s in Korea and Takeshima in Japanese.  In the South China Sea the United States is relying largely on Vietnam and the Philippines.  Here there are significant questions around the military capabilities of these “allies” in the contest with China.

So what appears to be beneficial theoretically, may not prove to be in practical diplomacy/security terms.  More on this soon.

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‘Take A Deep Breath’ But ….

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This past week Asia-Pacific leaders gathered in Russia’s east – at Vladivostok in fact – for the annual meeting of APEC.  Though President Obama was absent – the demands of the election season upon him – Secretary of State Hillary Clinton was there representing the United States.  Hillary in fact had been doing the rounds prior to the meeting visiting several ASEAN countries before meeting the Chinese leadership in Beijing.  It is evident from those meetings and other conversations that the US and China reside in quite different places when it comes, for example, to resolving the island disputes in the South and East China Seas.  As noted by various media sources there seemed to be little compromise on the part of the two great powers concerning these disputes.  Indeed China’s Foreign Minister Yang Jiechi asserted once again that there was “plentiful historical and jurisprudential evidence” for China’s claims to sovereignty over much of the South China Seas.

In some respects the island disputes represent the leading edge of current tension between the two and indeed in the region.  So, let me go back to examining the grand strategies of the US-China.  In my previous post I looked at the article by Aaron Friedberg in “Bucking Beijing:  An Alternative US China Policy”.  If I can summarize his position it is:  significant hedging and a serious commitment to balancing.  The strategy entails “push back” relying on a balance against China by the US with key allies and a military buildup accompanied by a firm and continuing US commitment.

So there we are:  a traditional grand strategy of balance.  So let me turn to the other article in the September/October issue of Foreign Affairs.  This article “How China Sees America: The Sum of Beijing’s Fears” is by Andrew Nathan of Columbia and Andrew Scobell of Rand. On its face this article – and the grand strategy that accompanies it – appears to tone down US strategy and to rely more on diplomacy.  It recommends this on the basis that China is not a revisionist state.  Implicitly they seem to suggest neither is the United States.  As the authors argue:

But widespread perceptions of China as an aggressive, expansionist power are off base. Although China’s relative power has grown significantly in recent decades, the main tasks of with Chinese foreign policy are defensive and have not changed much since the Cold War era: to blunt destabilizing influences from abroad, to avoid territorial losses, to reduce its neighbors’ suspicions, and to sustain economic growth. What has changed in the past two decades is that China is now so deeply integrated into the world economic system that its internal and regional priorities have become part of a larger quest: to define a global role that serves Chinese interests but also wins acceptance from other powers.

On the interdependence conflict continuum, China is much further along the interdependence/cooperation continuum.  As the authors suggest some international relations specialists in China see at least some compatibility of interests:

A small group of mostly younger Chinese who have closely studied the United States argues that Chinese and American interests are not totally at odds.  In their view, the two countries are sufficiently remote from each other that their core security interests need not clash.  They can gain mutual benefit from trade and other common interests.

But the authors also admit that these scholars are outnumbered by strategists – from the military, from the security services – and I suspect the Party who believe that the US remains committed to hegemony and containment of China and these folk “… believe that China must stand up to the United States militarily and that it can win a conflict, should one occur, buy outpacing US military technology and taking advantage of what they believe to be superior morale within China’s armed forces.”

Well if the view is dominant, then it would appear that rising confrontation is inevitable. Here however the authors return to interdependence and the belief that the mutual interdependence even vulnerability “carries the best medium-term hope for cooperation.  Fear of each other keeps alive the imperative to work together.  In the longer term the authors urge the two to create a new equilibrium of power that maintains stability but does so by admitting China to a larger role in the global system.

How can the United States do this – push and cajole China and the United States to this new place.  Well here are some of the elements:

  • The US has to draw clear policy lines without threatening China – pushing back where necessary to establish these lines of division.  This must be done with professionalism and not rhetorical belligerence;
  • The US should push for a Taiwan resolution that Taiwan’s citizens will accept;
  • The US must insist on freedom of navigation in the seas surrounding China;
  • The US must press for an open world economy and defend human rights;
  • The US must maintain its military predominance in the western Pacific, including the South and East China Seas;
  • The US must upgrade its military capabilities, maintain its regional defense alliances, and respond confidently to challenges; and
  • The US must seek a balance of common interests and avoid threatening China and do so by upgrading the mechanisms of collaborative management.

So sans possibly the rhetoric and the threatening behavior, this looks a lot like Aaron Friedberg’s US grand strategy.  In other words hedging and balance.  Well maybe there is no alternative.  But I think not.

Traditional grand strategy seems to suggest two poles – hegemony by the United States or balancing by the United States.  But there is another strategy – that interestingly enough – some realists and now some liberals and even some neoconservatives – suggest is the grand strategy in Asia – “offshore balancing”.  So let’s turn to that approach in the next post.

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The Fear of the “Boogey Man” And Other Thoughts – China as a Great Power

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I suppose it is partly due to US electoral season but the “China Threat School” has been rather busy in the last while.  Stephen Walt blogger  at foreignpolicy.com and professor of international relations at Harvard has noticed it as well.  In a recent blog post “Inflating the China Threat” he chronicles stories  from several mainstream media where the talk is all about China raising its nuclear deterrent capability.  As Walt argues:

The discussion is all pretty Strangelovian, of course, but nuclear strategists get paid to think about all sorts of elaborate and far-fetched scenarios.  In sum, those fiendish Chinese are doing precisely what any sensible power would do: they are trying to preserve their own second-strike deterrent by modernizing their force, to include the development of multiple-warheads missiles that would be able to overcome any defenses the United States might choose to build.

I won’t dwell in the ‘ghoulish world’ of counterforce, countervalue, first strike and second strike capabilities, but international relations’ experts remain dogged in their efforts to describe the Grand Strategies for the United States and China and to establish a path for both to avoid the rivalry, competition and even conflict that historically has occurred in great power relations with so-called power transitions.

It is that vein that I recommend back-to-back pieces by two American experts writing in the September/October issue of Foreign Affairs.  First there is the piece by Aaron Freiberg a professor of the Woodrow Wilson School of Princeton University who previously served in the George W. Bush Administration as the Deputy Assistant of National Security Affairs in the Office of the Vice-President – yes, the Darth Vader of the Bush Administration.  The article is “Bucking Beijing: An Alternative U.S. China Policy”. The other perspective is tackled by well known China expert Andrew J. Nathan of Columbia University and his co-author Andrew Scobell at the Rand Corporation – their article “How China Sees America: The Sum of Beijings Fears”.

It is now common to describe the China-US relationship as the most important relationship of the 21st century.  In this instance this common declaration is in fact – right.  But then how each should engage the other remains opaque. It is particularly difficult when when it comes to China.  The fact is China experts or others are unable to see into the “blackbox” of Chinese decision-making.  Most critically, we  have little idea of how the Chinese military influences China’s Grand Strategy.

But then we don’t really  have a good handle on what China’s Grand Strategy is, anyway.  Think how we’ve been speculating in the last few years on what China’s core interests are? Whether China since 2010 has exhibited a “new assertiveness”? Or what military modernization strategy China is following – and to what end?

Into that opaque environment the China Threat School wades in with relative ease.  For realistically in the face of such uncertainty a “hedging strategy” is not unreasonably a favorable option.

Now Aaron Freiberg’s analysis provides a sophisticated two-headed US hedging strategy. This strategy is two-headed because it requires the US to both balance China’s growing power and to seek economic engagement as well. As he declares:

Developing and funding a credible strategy for countering China’s [military] buildup and adopting a tougher approach to economic engagement will both be important. So, too, will be continuing to stand firm on issues of principle. … What China’s current leaders ultimately want—regional hegemony—is not something their counterparts in Washington are willing to give.  …  Short of Beijing’s genuine democratic transition, however, Washington will not willingly abandon its policy of balancing and withdraw from the region.

Freiberg then underscores the vital nature of  firm US actions in this region:

The stakes could hardly be higher. Since the mid-1990s, China has been piecing together what Pentagon planners describe as asymmetric “anti-access/area-denial” (A2/AD) capabilities. … Absent a strong U.S. response, Chinese planners might eventually come to believe that their growing A2/AD capabilities are sufficiently impressive to scare the United States off from intervening or provoking a confrontation in the region. Worse still, they might convince themselves that if the United States were to intervene, they could cripple its conventional forces in the western Pacific, leaving it with few options other than the threat of nuclear escalation. Maintaining stability requires reducing the likelihood that China’s leaders could ever see initiating such an attack as being in their interest.  A direct U.S.-Chinese military confrontation is, of course, extremely unlikely. But the aim of the balancing half of U.S. strategy must be to ensure that it remains so, even as China’s power grows.

It is a get tough/stay tough kind of policy – with effective military pushback from the United States and a credible commitment to allies in the region and avoid any incipient appeasement by these allies toward China:

In the absence of strong signals of continuing commitment and resolve from the United States, its friends may grow fearful of abandonment, perhaps eventually losing heart and succumbing to the temptations of appeasement.  …  When it comes to Asia, the United States does not have the option of what The New Yorker first described as the Obama administration’s penchant for “leading from behind.

So a renewed firmness – apparently that has slide in the recent Obama years. But suggests Freiberg there is the need to promote engagement with China as well.  But this economic engagement needs to be “righted”.  Freiberg declares:

Rather than treating engagement as desirable for its own sake, the United States needs to take a more clear-eyed and results-oriented approach. The place to start is trade. The bilateral economic relation- ship still provides benefits to both sides, but it has recently grown increasingly lopsided. Beijing uses its currency policy and subsidies of various kinds to boost its exports.

Here it is then – strong on defense, strong on balancing against the rise of China, and a tough but fair economic policy.

So let’s look across the divide to the piece by Nathan and Scobell.  Shortly.

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