Craig Eisele on …..

February 24, 2012

Countries that Will Change the Global Economy as We Know it

Filed under: Uncategorized — Mr. Craig @ 7:59 am

About 20 years after the Soviet Union collapsed, China opened, India liberalized, and Brazil saved its economy with the Plano Real, and 10 years after a banker at Goldman Sachs labeled them the BRICs, those four economic rising powers have transformed how we think about the developing world. The centuries-old idea that there is an uncrossable gulf between powerful, rich countries and everyone else has been disproven not just by BRICs’ economic power but by their use of that power to help shape world events.

You might say that the glass ceiling has been broken. China, once the “sick man of Asia” and one of the world’s poorest places, now boasts the world’s second-largest economy and may someday soon even surpass the U.S. in wealth. Now that we understand the global hierarchy to be less fixed than it once was, who will rise next? The conditions for a rising power are so complicated and so reliant on outside factors beyond any one country’s control that accurately predicting them would be impossible. Still, some countries seem better positioned and better managed than others. Here are five of our choices for the next emerging economies, plus one outlier that could do well, if only it would pull itself together.

From TheAtlantic – shaping the national debate on the most critical issues of our times, from politics, business, and the economy, to technology, arts, and culture.

 

Turkey

Turkey

Burak Kara/Getty Images

When the Brookings Institute ranked the ten fastest-growing cities last month, three were Turkish (four were Chinese, but we can’t all be China). The country’s strong democratic institutions and entrepreneurial culture are driving booms in finance and construction, which are in turn growing cities that could become centers of manufacturing for export to Europe. Even as the rest of the continent declines, Turkish growth is surging; it famously hit 11% last year, surpassing China. And, a century after the end of the Ottoman Empire, the country is renewing its assertive foreign policy in the Middle East and Central Asia, positioning itself as a leader of the Muslim world if (or perhaps when) these regions develop. 

Indonesia

Indonesia

Wikimedia Commons

The world’s fourth-largest country with 238 million people, Indonesia’s economy has been growing rapidly since 1997. Unlike China, which depends heavily on exports, Indonesia sells mostly to its own people, meaning that it can better endure the U.S. and European crises. Debt is low, foreign direct investment is high, democratic institutions are young but solid, and the once-troubled country is stable after successfully curbing terrorism. A combination of China-style development and state-run enterprises, Brazil-style good governance, and an India-style rise from poverty means that Indonesia is well positioned to continue rising. 

Kazakhstan

Kazakhstan

Ken and Nyetta via Flickr

Long perceived as a global backwater and a post-Soviet satellite that never quite abandoned such Stalinist ticks as lifelong presidents who build statues of themselves, Kazakhstan is doing better than Borat would have you believe. Filthy rich in resources and sandwiched between China and Russia, the country is well positioned to profit off of Asia’s rise, especially as Middle Eastern turmoil makes this sparsely populated and stable country an attractive energy source. The mostly benevolent government is investing the revenue wisely, growing infrastructure and non-energy industries such as transportation and pharmaceuticals, while still avoiding overheating. As long as Asia grows, so will Kazakhstan. 

Democratic Republic of the Congo

Democratic Republic of the Congo

Irene2005 | Flickr

Corruption and war have made “Congo” synonymous with disaster, and while the country is still deeply troubled, it’s also making significant progress toward realizing its enormous economic potential. The Congolese mineral trade is fueling urbanization, a small but important middle class, infrastructure development, and a nascent telecommunications industry. If the country can hold on to political stability, there’s little reason to think its recent years of eye-popping growth won’t continue. Developing sufficient transportation infrastructure to make its agriculture more widely competitive could give the DRC’s growth real longevity. 

Mexico

Mexico

The case for Mexico is cut-and-dry. It is the 12th largest economy in the world, growing at its healthiest pace in a decade. Three out of every four export dollars comes from the United States, which distinguishes Mexico from developing countries like Turkey, which rely on the sick euro zone to buy most of its exports. Mexico’s trade comes from a blend of manufactured goods and natural resources, which makes it well-positioned to withstand fluctuations in commodity prices. The Brookings Metropolitan Policy program recently named Mexico City one of the most economically vibrant cities in the world, based on employment and income growth. (This slide written by Derek Thompson.) 

Nigeria (Maybe)

Nigeria (Maybe)

Getty Images Ltd. From 100 Places to Go Before They Disappear, published by Abrams.

Nigeria should be at the top of this list. It is by far Africa’s most populous country, its most oil-rich after Libya, and could soon hit double-digit growth . Nigerian demography and geography make it a great candidate for economic success. But the Nigerian government, beset by corruption and an increasingly rebellious northern half (that should maybe be a different country entirely ), is managing its resources poorly. Though Nigeria’s economy is booming, its absolute poverty rate has risen to 69% , with income inequality so bad it’s inspired a national protest movement. Inflation is expected to rise, further squeezing the middle class. Nigeria has all the right ingredients for BRIC-style growth, and it may one day put them together, but for now even its booming energy sector can’t promise economic security. 

Now see why America’s China strategy is wrong

Now see why America's China strategy is wrong

Nixon Presidential Materials

Why America’s China Strategy Is All Wrong and How to Fix It

Forty years ago, on a clear, cold afternoon in Beijing, I followed President Nixon onto the tarmac at Beijing’s Capital Airport. I have a belated confession to make. When I tried to sleep on Air Force One on the way to Beijing, I was jolted awake by a nightmare. I dreamed that Generalissimo Chiang Kai-shek would be standing there with his old political sparring partner and secret pen pal, Zhou Enlai. In my dream, Chiang stepped forward to greet his former friend and political backer Richard Nixon with a loudly sarcastic “long time, no see!” As we pulled up to the shabby old structure that was then the only terminal at Beijing’s airport, I peered anxiously out the window. Others were elated to see Premier Zhou emerge to greet us. I was merely relieved that he was there pretty much by himself.

It’s almost impossible today to recall the weirdness of that moment, when an American president who had made a political career of reviling Chinese communism strode without apology into the capital of the People’s Republic of China–a state and government the United States did not recognize–to meet with leaders that Chiang Kai-shek–whom we officially viewed as the legal president of all China–called “bandits at the head of a bogus regime.” I had entered the foreign service of the United States and learned Chinese because I thought we would eventually have to find a way to recruit China geopolitically. I was thrilled to be the principal American interpreter as our president led an effort to do exactly that. My job was to help him and his secretary of state discuss with China’s communists what to do about other, even more problematic communists.

Last Tuesday, on the precise anniversary of that February 21, 1972, personal introduction to Beijing, I was back there–not to try to rearrange the world again but to make Chinese financiers aware of specific investment opportunities in the United States. In 1972, it was necessary for the leader of the capitalist world to save China from Soviet communism. In 2012, the world looks to China to save capitalism, and the world’s capitalists flock to China in search of funds. How very much was changed by the forces Nixon and Mao put in motion that afternoon forty years ago.

There is no more Soviet Union; the bipolar world it helped define is gone, as is the unipolar American moment its collapse created. The famous Shanghai Communiqué of 1972 opened with a long recitation of the irreconcilable differences between the United States and China on almost every major international question of the time. Encounters between Chinese and American leaders now produce far less dramatic laundry lists of relatively minor and entirely manageable frictions as well as grumbles, growls and whines about highly technical issues that lower-level officials in both countries need to work on.

China has risen from poverty, impotence and isolation to retake its premodern place atop the world economic order. The People’s Republic is now a major actor in global governance. It is fully integrated into every aspect of the international system it once sought to overthrow and, in some ways, more devoted to that system than we are. Forty years ago, China’s backwardness and vulnerability were the wonder of the world. Now, the world envies and ponders the strategic implications of China’s rapidly growing wealth and power.

Reality, unlike ghosts in China, seldom travels in straight lines. But if current trends advance along current lines, as early as 2022 China will have an economy that is one-third to two-fifths larger than that of the United States. If China continues to spend roughly 2 percent of its GDP (or 11 percent of its central-government budget) on its military as it does now, ten years hence it will have a defense budget on a par with ours today. Even with the exchange-rate adjustments that will surely take place by 2022, $600 billion or so is likely to buy a lot more in China than it can here. And all that money will be concentrated on the defense of China and its periphery, whereas our military, under current assumptions, will remain configured to project our power simultaneously to every region of the globe, not just the Asia-Pacific region.

What sort of relationship do we want with the emerging giant that is China? The choice is not entirely ours, of course. China will have a lot to say about it. To the extent we pay attention to the views of allies like Japan, so will they. But we do have choices, and their consequences are sufficiently portentous to suggest that they should be made after due reflection, rather than as the result of strategic inertia.

Right now, the military-strategic choice we’ve made is clear. We are determined to try to sustain the global supremacy handed to us by Russia’s involuntary default on its Cold War contest with us. In the Asia-Pacific region, this means “full-spectrum dominance” up to China’s twelve-mile limit. In effect, having assumed the mission of defending the global commons against all comers, we have decided to treat the globe beyond the borders of Russia and China as an American sphere of influence in which we hold sway and all others defer to our views of what is and is not permissible.

This is a pretty ambitious posture on our part. China’s defense buildup is explicitly designed to counter it. China has made it clear that it will not tolerate the threat to its security represented by a foreign military presence at its gates when these foreign forces are engaged in activities designed to probe Chinese defenses and choreograph a way to penetrate them. There’s no reason to assume that China is any less serious about this than we would be if faced with similarly provocative naval and air operations along our frontiers. So, quite aside from our on-again, off-again mutual posturing over the issue of Taiwan’s relationship to the rest of China, we and the Chinese are currently headed for some sort of escalating military confrontation.

At the same time, most Americans recognize that our own prosperity is closely linked to continued economic development in China. In recent years, China has been our fastest growing export market. It is also our largest source of manufactured imports, including many of the high-tech items we take pride in having designed but do not make. And we know we have to work with China to address the common problems of mankind.

So our future prosperity has come to depend on economic interdependence with a nation we are also setting ourselves up to do battle with. And, at the same time, we hope to cooperate with that nation to assure good global governance. Pardon me if I perceive a contradiction or two in this China policy. It looks to me more like the vector of competing political impulses than the outcome of rational decisionmaking.

Of course, no Washington audience can be the least surprised that capitol confusion, intellectual inertia and the prostitution of policy to special interests, rather than strategic reasoning, determine policy. Why should China be an exception to other issues? But even those of us long calloused by life within the Beltway ought to be able to see that we’ve got a problem. Our approach to managing our interactions with China does not compute.

Actually, we have a much bigger problem than that presented by the challenge of dealing with a rising China. We cannot hope to sustain our global hegemony even in the short term without levels of expenditure we are unprepared to tax ourselves to support. Worse, the logic of the sort of universal sphere of influence we aspire to administer requires us to treat the growth of others’ capabilities relative to our own as direct threats to our hegemony. This means we must match any and all improvements in foreign military power with additions to our own. It is why our military-related expenditures have grown to exceed those of the rest of the world combined. There is simply no way that such a militaristic approach to national security is affordable in the long term, no matter how much it may delight defense contractors.

In this context, I fear that the so-called “pivot” to Asia will turn out be an unresourced bluff. It’s impressive enough to encourage China to spend more on its military, but what it means, in practice, is that we will cut military commitments to Asia less than we cut commitments elsewhere. That is, we will do this if the Middle East comes to need less attention than we have been giving it. At best, the “pivot” promises more or less more of the same in the Indo-Pacific region. This would be a tough maneuver to bring off even if we had our act together both at home and in the Middle East. But we do not have our act together at home. Our position in West Asia and North Africa is not improving. And some Americans are currently actively advocating war with Iran, intervention in Syria, going after Pakistan, and other misguided military adventures in West and South Asia.

So, what’s the affordable alternative approach to sustaining stability in the Asia-Pacific region as China rises? My guess is that it’s to be found in adjustments in our psychology. We need to get over World War II and the Cold War and focus on the realities of the present rather than the past.

Japan initially defeated all other powers in the Asia-Pacific, including the United States. We then cleaned Japan’s clock and filled the resulting strategic vacuum. We found our regional preeminence so gratifying that we didn’t notice as the vacuum we had filled proceeded to disappear. Japan restored itself. Southeast Asians came together in the Second Indochina War. ASEAN incorporated Indochina and Myanmar. India rose from its post-colonial sick bed and strode forward. Indonesia did the same.

But we have continued to behave as though there is an Asian-Pacific power vacuum only we can fill. And, as China’s rise has begun to shift the strategic equilibrium in the region, we have stepped forward to restore it. We seem to think that, if we Americans don’t provide it, there can be no balance or peace in Asia. But, quite aside from the fact that there was a balance and peace in the region long before the United States became a Pacific power, this overlooks the formidable capabilities of re-risen and rising powers like Japan, South Korea, India, Indonesia and Vietnam. It is a self-realizing strategic delusion that powers a self-licking ice-cream cone.

If Americans step forward to balance China for everyone else in the region, the nations of the Indo-Pacific will hang back and let us take the lead. And if we put ourselves between them and China, they will not just rely on us to back their existing claims against China, they will up the ante. It cannot make sense to empower the Philippines, Vietnam and others to pick our fights with China for us.

The bottom line is that the return of Japan, South Korea and China to wealth and power and the impressive development of other countries in the region should challenge us to rethink the entire structure of our defense posture in Asia. Unable to live by our wallets, we must learn to live by our wits. In my view, President Nixon’s “Guam Doctrine” pointed the way. We need to find ways to ask Asians to do more in their own interest and their own defense. Our role should be to back them as our interests demand, not to pretend that we care more about their national-security interests or understand these better than they do, still less to push them aside to take on defense tasks on their behalf.

We need to think very differently than we have done over the nearly seven decades since the end of World War II. To be sure, a less forward-leaning American approach to securing our interests in Asia would require painful adjustments in Japan’s and South Korea’s dependencies on us as well as in our relations with the member states of ASEAN and India and Pakistan. It would almost certainly require an even stronger alliance with Australia. Paradoxically, it would be more than a little unnerving for China, which has come to like most aspects, even if not everything, about the status quo.

It is not in our interest to withdraw from Asia. But, more than six decades after we deployed to stabilize Cold War Asia, we should not be afraid to adapt our strategy and deployments to its new post-Cold War realities. Both the strategic circumstances of our times and the more limited resources available to us demand serious reformulation of current policies. These policies cannot effectively meet the evolving challenges of the world the Nixon visit to China–forty years ago this week–helped to create.

 

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