Power and Economic Shifts in Global System

IPRI Review Meeting

Power and Economic Shifts in Global System

(October 29, 2015)

 Introduction

An IPRI Review meeting on “Power and Economic Shifts in Global System” was held at IPRI conference hall on October 29, 2015. The review meeting analyzed the trends related to the polarity of global economy, and the reconfiguration of global power centres, characterized by two simultaneous trends: the rise of new powers and the relative decline of traditional powers.

Salient Points

The salient points are as under:-

• Before the Second World War, there was a multipolar order in which the power was concentrated in a few major centers: England, France, Germany, Italy, Japan, the US and the former USSR.
• During the 1980s, the power centers were the US, Western Europe, the USSR, China and Japan. In the 1990s, the implosion of the USSR and the communist regimes along with the rise of Southeast Asia gave birth to a multipolar economic system with three dominant global power centres – the US, EU and Japan, around which gravitated other two economic growth poles – China and India.
• Later, with the advent of globalization, open global economy expanded. The expansion led to the change of international economic order, a relative decline in the economic power of the US, EU and Japan coupled with the accelerated economic power growth of the emerging markets – Brazil, Russia, India and China – a group called BRIC or BRICS (if it includes South Africa).
• In 2010, China became the world’s second largest economy, surpassing Japan[1]. According to the IMF World Economic Outlook, China had already overtaken the US in PPP (Purchasing Power Parity) terms. The study projects that Indonesia (9^th in 2014) and Brazil (7^th in 2014) could rise to amongst the top 5 largest economies by 2050 in terms of GDP at PPP. Other notable developments are that Mexico (11^th in 2014) and Nigeria (20^th in 2014) are projected to rank 6^th and 9^th respectively by 2050 in terms of GDP at PPPs. The UK is expected to drop from 10^th to 11^th by 2050.[2]
• The Chinese led ‘Silk Road Economic Belt’ the ‘Maritime Silk Route’ (often termed as the One Belt One Road – OBOR) would physically connect the markets of Middle East, Europe and the mega-cities of East Asia. The China-Pakistan Economic Corridor (CPEC), linking Gwadar to China’s Western city of Kashgar is also a part of The One Belt One Road would initiate economic activity in the region, and would give a further impetus to China’s economic growth.

Assessment

• The G7 (the US, Japan, Germany, the UK, France, Italy and Canada), plus Australia, South Korea and Spain are among the current advanced economies. The seven largest emerging market economies, collectively referred to as the E7 include China, India, Brazil, Russia, Indonesia, Mexico and Turkey.[3]
• In the 21st century, there is a gradual movement of international center of gravity from the developed countries to emerging economies and the BRICs countries constitute the leaders platoon.
• The emerging economies have stronger potential growth than the current advanced economies, if the emerging economies continue to follow broadly growth friendly policies i.e. sustained and effective investment in infrastructure along with free flow of technology and ideas.
• The economic prowess of a global actor determines its standing in the comity of nations. Former Director General of the WTO, Pascal Lamy, suggested to an audience in Melbourne in November 2012 that the “rising weight of influence of emerging economies has shifted the balance of power in the global trading system, and that there has been a redistribution of the geopolitical deck of cards on a global scale”.[4] The sharp rise in the share of world trade of the emerging economies, most importantly the global ‘trading power’ China and the growing clout of regional trading blocs have impacted the world politics. An increased South–South trade had contributed to a shift in the negotiating power of developing countries. China may well be the new engine pulling along the world economy. The country’s economic role in Africa, Brazil and Australia may become crucially important. Economist Thomas C. Schelling said: “Aside from war and preparations for war, and occasionally aside from migration, trade is the most important relationship that most countries have with each other … trade policy is national security policy”.[5]
• Asia’s Economic Boom Vis-à-Vis the West
  • The US has been economically overtaken by China. An ill-judged war in Iraq, the ‘war on terror’, the near meltdown of the American financial system in 2008, and the slow recovery of the American economy since then, has led many to question America’s capacity either to lead others or garner support for its policies abroad.
  • Asia’s weight in the world economy has increased manifold. Asia is home to an increasingly significant regional organization in the shape of Association of Southeast Asian Nations (ASEAN). Asia’s rapid economic growth over the last two decades has also been accompanied by a dramatic reduction in poverty. In East Asia and the Pacific region alone, the percentage of the population now living on less than US $ 1.25 per day has dropped from 55 percent to only 17 percent.[6]
  • In view of Asia’s growing clout, can it be speculated that the future economic order would be less dominated by the West than it would be by the giant economies of Asia? And the US is under geo-economic pressure from a rising new ‘mega-trader’ China and the time may have come for Washington to consider new ways of managing economic multilateralism.
  • Seen the US’s economic standing, the global power’s share of world Gross Domestic Product (GDP) is much less today than it was, say, 25 years ago but still the US and the EU account for well over half of world GDP in terms of value and 40 percent in terms of purchasing power.[7] Meanwhile, the most important international banks are in Europe and the US. The Europe and the US also play host to nearly all of the major business schools. The two together are also the world’s most important source of Foreign Direct Investment (FDI), and by far and away, the world’s most important markets too. The fact remains that nearly all the key rules governing the global economy are still held by the countries in the West.
  • As regards, the US interest in Asia, the former has shown a much greater degree of activism in the region. The US is a Full Dialogue Partner (FDP) of ASEAN (US-ASEAN trade is US $ 206 billion).[8] Other US initiatives to strengthen economic ties with the regional states include the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). These US led trade arrangements are aimed at reinforcing US business opportunities/links in the region.
  • On the military front, the US has the capacity to project power in every corner of the world. The US is still the main provider of security in Asia and Europe, and spends as much as it still does on ‘defence’ – about 45 per cent of the world’s total.[9]
  • Asia’s economic growth raise the region’s stature globally. However, the post-colonial identity coupled with the political/territorial disputes among the regional states, make the region the least integrated in the world. Many in Asia, India in particular, have problems with nearly all neighbouring countries. The ASEAN states fearful of China’s dominance support the US regional role. The ASEAN states have dispute with China over the claim of the South China Sea and they look upon the US as a balancer.

 Conclusion. Current global economic power structure has a multipolar dimension, shared between the US, EU, Japan and BRICs, with no balance of power between these poles, opposed by the strong ambition of rising countries. Many new states are assuming a bigger role in the world economy, but their rise is still hemmed by several obstacles. China confronts several basic problems at home and abroad (as indeed do the other BRIC countries). To conclude, the developed countries still retain the core position in the international power structure but the emerging economies have closed the gap on them. The US is no longer the single dominant superpower and needs to act more cooperatively in conjunction with China and a German-led Europe.

[1] Professor Ion Ignat, “Power Shifts in the Global Economy. Transition Towards a Multipolar World Order”, 24, (accessed October 15, 2015), http://seap.usv.ro/annals/ojs/index.php/annals/article/viewFile/637/577.

[2] “The World in 2050 Will the Shift in Global Economic Power Continue”, 3, 4 and 13, (accessed on October 20, 2015), https://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050-february-2015.pdf.

[3] “The World in 2050 Will the Shift in Global Economic Power Continue”, 6.

[4] Sanjay Baru, “Power Shifts and New Blocs in Global Trade”, The International Institute for Strategic Studies (IISS), UK, 11, (accessed on October 10, 2015), https://www.iiss.org/-/media/Silos/Adelphi/2015/Power-Shifts-and-New-Blocs-in-the-Global-Trading-System/AP450-02-Introduction/AP450-02-Introduction.pdf.

[5] Sanjay Baru, “Power Shifts and New Blocs in Global Trade”, 12.

[6] Michael Cox, “Power Shifts, Economic Change and the Decline of the West”, 379, (accessed on October 10, 2015), http://www.lse.ac.uk/IDEAS/pdf/Cox-Waltz.pdf.

[7] Michael Cox, “Power Shifts, Economic Change and the Decline of the West”, 373.

[8] Arvind Gupta, “India’s Approach to the Asia-Pacific”, cited in Asian Strategic Review 2014 US Pivot and Asian Security, ed. S D

Muni and Vivek Chadha, (New Delhi: Pentagon Press, 2014), 213.

[9] Michael Cox, “Power Shifts, Economic Change and the Decline of the West”, 376.

 

Amna Ejaz Rafi

Assistant Research Officer

Islamabad Policy Research Institute (IPRI)