Jonathan Todd

HSBC commissioned the Futures Company to report on the key considerations for European business of Asia’s rise. The final product,  Looking East: The Changing Face of World Business, tells a daunting story. Globalisation has entered a new stage and the sooner its lessons are absorbed by European businesses, politicians and policy-makers the better.

Globalisation brings opportunities and threats. While this observation has become cliché, it remains true. But the nature of these opportunities and threats is rapidly changing. Failing to keep pace with these changes threatens the health not just of European business but also European society. Mrs Duffy confronted Gordon Brown with some of the insecurities generated by globalisation. These insecurities may become more visceral if the next stage of globalisation is not properly responded to.

Asia’s role in this next stage is, to use a vogue word, unavoidable. Indeed, Asia’s continued rise is far more so than George Osborne’s budget; much of which was ideological choice, not unavoidable necessity. As we fret about whether these choices will reduce us to a double-dip recession, China grew at a rate of 11.9 per cent in the first three months of 2010 and India is expected to grow at 8 per cent this year and next. European growth rates may crawl from the wreckage of the credit crunch, but China and India, along with much of the rest of Asia, have rapidly returned to a gallop.

A key plank of the last government’s response to the credit crunch – the promotion of new industries and new jobs -  was a variant on a well-trodden European reaction to globalisation: stressing high skills, R&D and the fruits to be reaped by British industry on the innovation frontier. But what if Asia is reaching this frontier before Europe? While low value production may have shifted from places like Mrs Duffy’s Rochdale to Asia, Europeans have tended to seek reassurance in the view that cutting edge skills and technologies would save their bacon (even if ever less of it is consumed in places like Rochdale).

This view now seems, at best, a simplification. “Globalisation and the integration of the world economy isn’t turning out the way many people expected”, claims Joe Ballantyne of the Futures Company. Take some of the supposedly new industries proclaimed during Peter Mandelson’s tenure at the Department of Business: electric cars, nanotechnology, wind technology. No doubt these industries will continue to be eulogised by the coalition. But the HSBC report flags up examples of new technologies in each of these fields being pioneered in Asia.

These developments expose as outdated a view of globalisation that sees the West as the innovators and Asia as the producers. The outsourcing of production jobs caused the CBI to declare six years ago that by 2014 there would be no jobs for unskilled workers in this country. Asia’s growing innovative capacity places the skilled workers of Europe under the kinds of competitive pressures that the unskilled have known for a generation or more. 75,000 people graduate from Chinese universities each year with higher degrees in engineering or computer sciences; 60,000 in India. Given the ascent of a highly-skilled, entrepreneurial and innovative Asian middle-class, the extension of the CBI’s logic may be that in ten years time no jobs for unskilled or skilled people will exist in this country. But this zero-sum thinking wasn’t right six years ago and certainly isn’t right now.

Instead of fearing Asia, British firms should seize its opportunities. These exist both in terms of demand and supply. Sluggish growth in Europe and America means that if the low value of the pound is to fire an export-led recovery it will be via satiation of Asian demand. The HSBC report notes that half of Unilever’s sales come from developing markets and the company’s Indian branch – Hindustan Unilever – is one of India’s biggest consumer-goods companies and its biggest advertiser. Mumbai wants its champagne chilled. And rightly so.

But what else does it want? British firms, whether established global players like Unilever or much smaller concerns, should be asking this question. Markets have always been conversations. Our firms must now listen to and engage with new consumers. “Successful businesses will need”, according to Ballantyne, “to understand how the dynamics of cultural change play out across different markets”.

As well as servicing Asian markets, British firms should consider what impact Asia’s rise will have on their supply chains. It will be no surprise if demand for raw materials continues to rise. It may be more of a surprise to observe, as the HSBC report does, that Microsoft’s biggest R&D facility outside America is in Beijing. This facility continues an infusion of Asian and American knowledge heralded by an influx of Asian science and technology graduates to Silicon Valley. British firms that fail to structure themselves in ways that leave them open to the best new Asian thinking risk falling behind. “Innovation will need to become more global in focus”, says Ballantyne. This means seeking new kinds of partnership with Asian businesses and universities, as well as, pace Theresa May’s immigration policy, always being able to recruit the best Asian talent.

The HSBC report is not the only sign recently that globalisation is changing shape. Strikes have swept China. The low wages and poor conditions that gave Chinese production facilities an edge over facilities in places like Rochdale seem increasingly unacceptable to Chinese workers. This may limit future outsourcing to China. Equally, the HSBC report leaves a sense of China, like the rest of Asia, increasingly being less a repository for outsourcing and more a generator of new ideas, techniques and products.

This doesn’t mean that British business can no longer generate such things. But to do so they shall increasingly need to be abreast of Asian developments. The role of government is to support and incentivise firms to do so. For example, the competitiveness guru Michael Porter has recently argued that a carbon tax would drive innovation in the green economy. This drive is likely to build upon ideas pioneered in Asia. Smart government – not big government or small government – should unlock this potential. If David Cameron doesn’t deliver this, he’ll discover his own Mrs Duffy soon enough.

The striking thing about the most powerful person in the world, as he approaches one year in office, is how, err, lacking in power he appears.

Disappointed and, according to Mark Lynas, insulted by the Chinese in Copenhagen.  A Health Care Bill that isn’t yet on the statute; is much delayed on his original timetable; and, by his own admission, is only “nine-tenths of a loaf” - some would say that half a loaf is nearer the mark and it comes with lashings of pork barrel whatever way you look at it. An Afghan strategy that even he doesn’t seem wholly convinced by and the backdrop to which Andrew Sullivan commented upon by saying:

“Obama arrived in China last month as a fiscal supplicant, not the leader of the free world. He cannot corner the Iranian regime without Russian or Chinese support. He cannot even get Israel, a country receiving $3 billion a year in aid and protected by America’s veto at the United Nations, simply to cease its construction of settlements in East Jerusalem or the West Bank.”

All of which simply serves to illustrate my point: How devoid of power the most powerful can be. That’s not to excuse any disappointments that President Obama may have caused or to defend his record (though, there is much more to defend than the increasingly naysayer conventional wisdom suggests). It is simply to place his presidency in context.

This is a context in which his power is more obviously finite and constrained than has been the case for most modern US presidents. Internationally, this is the consequence of the “unipolar moment”, first proclaimed, I think, by Charles Krauthammer in 1990, waning (or, perhaps, being more obviously exposed as the hubristic delusion it always was). Domestically, this is the bitter fruit of what appears to Paul Krugman to be an increasingly dysfunctional Senate. This is a dysfunctionality that means that the Democrats control the presidency and both Houses but are still held to ransom by (dilute to taste) filibustering, partisan, pork barrel-seeking Republicans.

The international dimensions of this are well illustrated by Philip Bobbitt.

“What if Iran simply agrees to limited inspections, and continues enrichment to the point where weapons-grade nuclear material is created? What then? … Israel has resumed the construction of settlements in the West Bank, and it seems clear that Abbas cannot sustain domestic support in the face of the challenge from Hamas if he goes back to the negotiating table without even a temporary freeze on settlement expansion. Obama has little leverage on this issue—as his predecessors also found—but has committed himself to the proposition that “talks must begin and begin soon.” Or what? … Having previously announced it would not renew talks in the six-party format, North Korea has now indicated to the Chinese that it would re-engage in that forum, provided the US simultaneously opens bilateral talks. The US has insisted, quite sensibly, that regional multilateralism is the best way forward. But what if North Korea continues to refuse?”

The growing worry is that the Iranians, Israelis and North Koreans – not to mention the Chinese, Russians, the Taliban and others – have concluded that “nothing much” is the answer to every “What then?” In other words, as the Economist notes:

“The doubters argue that, however decent and articulate, Mr Obama is gaining a reputation as someone who can be pushed around. This month, after the president pandered to China by refusing to meet the Dalai Lama, China pushed for more by banning questions at his Beijing press conference with Hu Jintao, its president. When Mr Obama demanded that Israel stop all work on its settlements in the occupied territories, Binyamin Netanyahu, its prime minister, defied him and still, staggeringly, won praise from Hillary Clinton.”

It is even said that this praise from Clinton lays the groundwork for her to run against Obama for the Democratic presidential nomination in 2012. This argument goes that she will need an issue on which to split with Obama to do so and support for Israel would fit this bill. It is to be hoped that this argument is nonsense. But the mere suggestion that the President does not command the absolute and complete loyalty of all of his team implies weakness in a manner as profound as the swipes and pushed envelopes that have come his way via China, Israel et al.

The counter to this line of argument is also provided by the Economist:

“Mr Obama has pulled off the urgent tasks of starting to withdraw troops from Iraq and resetting America’s dysfunctional relations with Russia. He has boosted the G20 as a new global forum. This week Israel announced a partial settlement freeze. With health-care reform under his belt, he will soon be able to turn to world affairs with his status enhanced. Besides, you could hardly accuse Mr Obama of timidity. In three speeches in Prague, Cairo and Accra, he set out a new foreign policy that rejects the Manichean view of his predecessor. He means to negotiate deep cuts in nuclear weapons, make peace between Arabs and Jews, engage Iran, heal the climate and establish America as the strongest and most upright pole of a multipolar world. Yes, this work lies ahead, but how much can you ask in a year of war and recession?”

Health care reform is, just about, under his belt and it is hard to argue with the view of the Obama camp that this reform needed to be taken on in the first year of his presidency before mid-term elections which are likely to further undermine his ability to impose his will upon Congress. His presidency moves into a new phase with this reform behind him. However, perhaps, there are lessons to be learned for this next phase from the protracted way in which this reform was secured.

While the dysfunctionality of the Senate bemoaned by Krugman may make it all the harder for Obama’s will to prevail, it is important, no matter how great this dysfunctionality, that Obama exerts a will. In other words, he needs to lead. The tactics of how he does so can be debated, but the President does need to show genuine leadership. As Clive Crook writes:

“Mr Obama promised to strive for consensus. On issues such as energy policy, healthcare, education and immigration, there is no reason why moderates on both sides cannot make common cause. That is something many Americans long for. It was the great hope independents had of Mr Obama. In his first year, he rarely even tried. He simply chose not to exercise this kind of leadership.”

I must confess that I am both surprised and disappointed by the absence of such leadership. I anticipated that it would be forged on the radical centre (or center). Crook is right to worry that the absence of leadership that works towards such radicalism threatens “a drubbing in 2010 that will do for Mr Obama’s agenda what the wipe-out of 1994 did for Bill Clinton’s”.

While a drubbing can be averted, it is likely that the mid-terms will weaken the Democrats in Washington. This underlines the importance of strong leadership from the centre, of the kind which Crook described thus:

“On health, on energy, on public spending, independent voters want him to exercise centrist leadership, as he promised he would. Can’t he even pretend? For the sake of his Democratic majorities, he had better show voters he is listening, even if his allies in Congress are not.”

But there are plenty of willing allies for Obama in Congress who want the Democrats to behave in this way. A key example being Mark Warner, excellently profiled in the Washington Post this week. That he defines his philosophy as “radical centrism” should be a massive hint that this is the kind of Democratic Senator that Obama needs to work with and through to build consensus, bi-partisan if at all possible, for his agenda. It may be indicative of where things have gone wrong for the Democrats and Obama in the past year that the sense that Warner feels a little left out in the cold by his party pervades the Washington Post profile. It cites John J. Castellani, president of the Business Roundtable, an association of chief executives of large U.S. companies, saying of him:

“Obviously, in 2008, America voted for change. But they are maybe finding out now that they didn’t want to vote for big government spending that’s unchecked, or government intervention to a very, very low level into the economy. Mark Warner really represents that kind of middle ground that wants government to help solve problems but not so much interfere with all areas of the economy.”

There is nothing that Democratic Senators like Warner would like more than to work with the President on this middle ground to get America’s economy growing as strongly as it can do in 2010, control public debt and to seriously correct the US’ disturbingly high unemployment. These are causes which, if approached in the right way, these Senators are likely to be able to build bi-partisan support for. Moreover, in terms of the Democrats avoiding mid-term meltdown, we really are looking at a case of “it’s the economy, stupid”.

Obama should be Bill Clinton-like in recognising the political centrality of the economy and also take some lessons from another great Democratic pragmatist: LBJ. While we can all join Anthony Painter in hoping that Afghanistan does not see Obama transformed into Barack B Johnson, Obama should seek to be - pace E. J. Dionne Jr - LBJ-like in terms of working Congress and building up support for his policies amongst Congressmen.

So: insofar as his domestic agenda is concerned, the course which I would recommend to President Obama in 2010 is to reach out to the nation and Congress, particularly colleagues like Warner, through centrist leadership, with a strong focus upon improving America’s economic outlook. This will be the best way to be economical with (indeed, grow) his political capital (which is now dangerously low after the ending of his all too brief honeymoon in the White House). Furthermore, the policies of true radicalism are invariably to be found in policies that are that are the stuff of such leadership, rather than the stuff of Democratic or Republican sacred cows. Essentially, independent voters remain the key demographic (and the biggest threat to Obama being a two term President would come if the Republicans selected a candidate more capable of reaching out to them than someone like Sarah Palin) and the policies which appeal most to these voters are also the policies which will do most to change America in the ways that it should change.

Improvement in America’s economic prospects is a key linkage point between his domestic and international agendas. Niall Ferguson claims that noting that “the yawning US current account deficit was increasingly being financed by Asian central banks, with the Chinese moving into pole position, was, for me at least, the eureka moment of the decade”. He’s right to see this as such a moment and to see this as “the decade that tilted east” and away from the supposed uniploar dominance of the USA.

Given that the Chinese are re-cycling the massive trade surplus that they are running against the US to finance the US current account deficit, part of the correction to this – and an end towards which Obama can work with the likes of Warner – is to reduce the Chinese trade surplus by growing American exports. Another part is to control public debt. There are great opportunities for the American (and British) firms that come to satisfy the wants and needs of the rising middle classes of the BRIC economies, who have got rich (or richer) by producing the exports that are the stuff of the trade deficits (and maxed out credit cards, etc) experienced by both the US and the UK.

But the imbalances in the “Chimerica” economy are too substantial to be corrected by the innovations and efforts of American exporters alone. We’ve have all, allegedly, become Keynesians in the past year or so, but while there has been much talk of fiscal stimulus, there has been much less of the deep concern which Keynes had about surplus economies, which lead to the creation of the Bretton Woods system (though, this system did not conform to the plans Keynes actually had).

There is, perhaps, no better indicator of the way the world has changed than that today the relationship between the Chinese economy (running a massive trade surplus) and the American (running a massive trade deficit) directly parallels the relationship between the American (running a massive surplus) and the British (running a massive deficit) at the time in the 1940s when Keynes’ concerns about surplus economies fed into the debate which resulted in Bretton Woods. 

It is no coincidence that what Derek Scott has described as the “re-emergence of genuine capitalism, including large-scale private sector capital flows” has come about in the decades after the demise of Bretton Woods. This development has been broadly welcome, lifting millions of people in places like the BRIC economies out of absolute poverty. But Bretton Woods increasingly seems something that if it doesn’t exist, as is obviously now the case, is in need of (re)invention. What is required, in essence, is some global mechanism to correct for the imbalances between surplus and deficit economies that are the real story of the economic crisis. 

Andrew Sullivan is, of course, right to lament that ”Britain in the late 1950s had a friendly superpower to whom she could surrender global hegemony. America has no such luxury”. In contrast, the future seems one of contested modernities, with values and visions that would please most Americans and Europeans being ever more marginalised. One of the great dangers that I perceive in coming decades is that the ”west” will react to this by lashing out in ever more ill-advised and dramatic ways. It is again hard to argue with Niall Ferguson’s argument that great episodes of violence occur at the end of empires and the end of America’s empire seems much closer than its beginning.

This would seem much more likely if the “right nation” were to swing back to the right under a President Palin or similar in 2012. The alternative to World War III under Palin, given the absence of a friendly superpower, is to now fashion a multilateral world in which it is much more likely than otherwise that American (and European) interests and values will be best served in the decades to come during which the notion of a unipolar world will be as laughable and out-dated as the excesses of the British Empire now seem (or, at least, the notion of an American unipolar moment may be so, but the Chinese Charles Krauthammer may be closer than many would wish).  

The creation of the global institutions that will form this multilateral world and attempt to steer our Chinese century, now a decade old, is one of the great tasks of Obama’s presidency, and will most probably be passed on to the next president, whether they are as under-qualified or ill-prepared to execute this task as Sarah Palin or otherwise. Obama has made a solid start in this regard, not least through the beefed up role of the G20, but there is much more that remains to be done and, given the significance of the imbalances within the “Chimerican” economy to literally almost everything else, I would commend something along the lines of a Bretton Woods Mark II as a prime candidate for the next round of global institutional building.

The window of opportunity for success in such building is rapidly closing. While the Copenhagen conference itself may be the stuff of such a multilateral world, the outcome of this conference suggests that the Chinese are more interested in looking forward to a very different kind of unipolar world from that envisaged by Krauthammer than working in and through multilateral institutions (i.e. one that would be the stuff of the Chinese Krauthammer’s world view). As one developing country foreign minister said to Mark Lynas: “The Athenians had nothing to offer to the Spartans.” The obvious way to change this dynamic is for the Spartans to have more to offer the Athenians, which, to my mind, takes us back again to the importance of strengthening the American economy, and in turn to Obama working productively with the likes of Warner.

It might seem inane and obvious to propose that America seek to strengthen its economy, but Niall Ferguson is also right that this will require a serious plan for the management of public debt, which may very well require the slaying of some spend-and-tax, Democratic sacred cows, meaning that strong centrist support and leadership will be needed to carry through such a plan. Not least as China’s population is more than four times that of the USA, in the longer-term, it also seems likely to require a immigration system that both provides the labour needed by the American economy and commands the broad support of the American electorate. Such a system is again something which centrist leadership is best able to deliver. 

It might also seem inane and obvious to argue - as I do when I argue that the US should seek to improve its economic performance relative to China and the importance of American exports to Chinese growth - that the negotiating position of American is improved by increased American strength and prestige, but this cuts to the core of many of pivital exchanges confronting America. It is as true around the G20 table as it is in the counterinsurgency battle with the Taliban or battles of will with Iran, North Korea or anyone else. 

The way in which these exchanges are likely to play out could be walked through in game theory models (and such models probably exist in the State Department and elsewhere) but, as any game theorist knows, threats are only of consequence if they are credible. It is clear that American strength is declining as compared with the heady days of the alleged unipolar phase and it is also clear that Obama seems less eager to use force than a Palin or a Dubya (which might be what, ultimately, leads us to the nightmare of a President Palin). However, it is equally clear that America is not without force and influence. To bring this to bear in the great exchanges that confront Obama, a willingness to use this force and influence has to be credible. That’s to say real and seen to be real. In other words, as Obama himself put it in a section from one of his speeches citied by the Economist: “Rules must be binding. Violations must be punished. Words must mean something.”

So: insofar as his international agenda is concerned for 2010, I suggest that President Obama continue to work through and towards the kind of multilateral institutions that will best protect American (and European) interests and values when the world is very much less unipolar than it has been, but without having this faith in multilateral institutions confused with American weakness and seeking to ensure that American strength is brought to bear credibly on all the vital engagements with China, Iran, Israel, North Korea, Russia, Afghanistan, Pakistan et al ad infinitum that confront the US.

This is an agenda that Europe should warmly support. However, it has all too sadly been the case that, while Obama is the President that Europe dreamed of, European governments have been far too slow and unwilling to support Obama in material ways.

If Europe really wants the change that Obama promises, this must change. If liberal America (or liberal anywhere) really wants the change that Obama promises, it too must change. It should stop moaning about Obama and start supporting him. Indeed, all with a stake in the change that Obama seeks (i.e. everyone), should come to genuinely be the change that they want to see in the world. After the poetry of his victory, the prose of the presidency can seem a painful hangover, but change never did come easy.

 ”We tend to think”, as Michael Tomasky notes, ”that Rosa Parks sat on a bus, Martin Luther King gave some great speeches, decent Americans recoiled at racist violence on the nightly news, and boom, change happened. The reality was that nine long years passed from Parks’s act of civil disobedience until Lyndon Johnson signed the civil rights bill – nine years of often mundane and inglorious work.” (That is, of course, by no accident or coincidence the same LBJ that I praised earlier in this blog). “And even then, the civil rights bill didn’t really fix the problem of African Americans being denied the vote, so Congress had to go back the next year and pass the voting rights act.”

Change is tough. But change is already here. “Measured against what different groups of voters thought he had promised – everything they desired – the administration’s performance looks poor”, argues Crook. “Measured against what voters were entitled to expect, it looks much better.” That provides much for liberals to take solace in as they redouble their support for Obama and the Democratic candidates in the mid-terms, but it is what is at stake in terms of the future that should really motivate them in seeking to fortify their President. I am scared of the climatic scenarios painted after the failure of Copenhagen and would be very scared indeed if I came from the Maldives, but the prospect of World War III should scare us all very much more no matter where we come from.

In making recommendations that seek to avert this outcome and bring about the most possible positive change under President Obama, I have probably argued for things which may annoy some liberals or people on the left: “radical centrism”, focusing on the economy, controlling public debt, not being afraid to be prepared to use force to enforce the rules of a multilateral world. I’m sorry if I’ve upset anyone in these ways, but, may be, one lesson of Obama’s first year in office, contrary to what his campaign may have left some people thinking, is that it isn’t possible to please all of the people all of the time.

No one would read Max Weber’s Politics as a Vocation and ever think this possible. However, if this classic text were as widely read and understood as it should be, then, possibly, the kind of leadership from Obama and support for this leadership, which I have argued for here, would be more readily forthcoming. Perhaps, this might be a little worthwhile reading for many of us in what remains of the Christmas holidays.

Given today’s high-profile CBI conference, it seems an opportune moment to ask a fundamental question about the British economy which follows from two basic facts about the current economic situation. These facts are these: First, we have a weak pound, which makes British exports relatively more competitive. Second, the fabled BRIC economies are showing their resilience by leading the charge towards global economic recovery. So, the basic question: How can the British economy take advantage of the weak pound and enjoy a British economic recovery based on strong export growth? What can we produce that the likes of Brazil, Russia, India and China, as well as the developed world economies, want?

The rise of the BRICs means that we need to give new consideration to where exactly our comparative advantage now lies. But the latest figures suggest that the British retain more of an appetite for spending than talents for producing. This brings welcome reassurance that British consumers now feel confident enough to start spending again, but suggests that, in spite of the pick-up which the weak pound provides, we seem set to return to the habits which have had us be amongst the surplus economies in the global imbalances that have been one of the characteristics of recent years. 

Increased British exports would aid prospects for jobs and growth in the UK, while also going some way to correcting for these global imbalances which are one of the underlying drivers of the financial crisis. We need innovative and imaginative solutions to this challenge, which the British economy confronts in the context of a world in which political and economic power is shifting ever more from west to east; from non-BRIC to BRIC. As is so often the case, there are opportunities as well as threats contained in this shift, particularly for the British businesses able to provide the nouveau riche of the BRIC middle classes with the goods to suit their newly affluent and aspirant tastes.

 I have previously asked: Must Europe wither? And now one of the most articulate and leading pro-European voices in the UK, Charles Grant, has had cause to ask: Is Europe doomed to fail as a power? Today seems a particularly sobering day for Europeans to reflect on such questions as the US and China this morning began a two-day “Strategic and Economic Dialogue” in Washington DC, led by Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner and their Chinese counterparts. This illustrates the “obvious danger” identified by Philip Stephens ”that the US and China will bypass Europe by creating a G2″. The New Republic ask: “Which China will be sitting across the table from Clinton and Geithner today?” But Europe is an after thought and tomorrow it may be even more so. Europe needs to much more urgently wake up and smell the coffee than the scant coverage of these debates in the mainstream of European media suggests.

I think I am noticing something of a theme in the Economist of late. On 28 May they noted:

“How times change. When George Bush’s treasury secretaries first visited China, Wall Street was booming, America’s economy was growing and the president’s emissaries routinely lectured their Chinese hosts on the need for freer financial markets and a more flexible yuan. But as Tim Geithner, the current treasury secretary, prepares to make his maiden trip to Beijing on May 31st, Wall Street is synonymous with greed and failure, America’s economy is on its knees and it is the Chinese who have been doing the lecturing. With America’s budget deficit soaring and the Fed’s printing presses running at full speed, China is complaining loudly of the risks that inflation and depreciation pose to its huge stash of dollars, and arguing for an alternative to the greenback as the world’s reserve currency”.

This came after 21 May when the magazine revisited the notion of decoupling: “emerging economies (have) become more resilient to an American recession, thanks to their strong domestic markets and prudent macroeconomic policies”. This was a popular thesis a year ago but lost ground as the global slump hit. However, the Economist argues that the idea may be regaining credibility, with China key to this regained credibility.

“China is exhibit A of this new decoupling: its economy began to accelerate again in the first four months of this year. Fixed investment is growing at its fastest pace since 2006 and consumption is holding up well. Despite debate over the accuracy of China’s GDP figures (see article), most economists agree that output will grow faster than seemed plausible only a few months ago. Growth this year could be close to 8%. Such optimism has fuelled commodity prices which have, in turn, brightened the outlook for Brazil and other commodity exporters”.

Anatole Kaletsky has also noted the significance of economic linkages between China and Brazil, as well as China and South Africa.  

“Commodity-producing countries such as Brazil and South Africa have obviously benefited from China’s overtaking of the US and Europe as the world’s main consumer of raw materials. As long as the Chinese economy keeps growing, Brazil is assured of demand for its iron ore and soya, South Africa for its platinum and coal. Thus the success of the huge fiscal stimulus package announced by the Chinese Government in December has turned out to be much more important for these countries than similar measures in the US or EU”.

So, as Kaletsky puts it, this has meant that America has sneezed but much of the world seems germ-free. The role of China in this trend might suggest that in contrast to decoupling, we are witnessing a coupling of economies to China rather than the US. Kaletsky goes on, however, to make an observation that is more supportive of the decoupling thesis:

“Even more important than the growth of trade with China is that many of the emerging economies, including Brazil and South Africa, have had the financial resources to implement their own independent stimulus packages”.

This capacity of emerging economies to take forward their own stimulus packages appears to be part of a changed world order, with China – twenty years after Tiananmen Square – pivotal to this changed order. Yet, as Martin Jacques, will argue in a new book that he will launch with an event at the RSA on 22 June, “we have barely begun to understand what life will be like when China rules the world”. The blurb on the RSA website about this event goes on to state:

“For well over 200 years, we have lived in a Western-made world, one where the very notion of being modern is inextricably bound up with being Western. The twenty-first century will be different. The rise of China, India and the Asian tiger economies means that, for the first time, modernity will no longer be exclusively Western. The West will be confronted with the fact that its systems, institutions and values are no longer the only ones on offer.

“The central player in this new world will be China. Continental in size and mentality, China is a ‘civilization-state’ whose characteristics, attitudes and values long predate its existence as a nation-state. Although China is clearly influenced by the West, its extraordinary size and history mean that it will remain highly distinct, and as it exercises its rapidly growing power it will change much more than the world’s geopolitics. The nation-state as we understand it will no longer be globally dominant, and the Westphalian state system will be transformed; ideas of race will be redrawn”.

This is why Jacques argues that we are moving into an era of contested modernity. But Kaletsky still frames the rise of China in somewhat western terms by observing:

“The story of South Africa and Brazil in the past decade (has enabled a) transition successfully to pluralistic, liberal free-market democracies.

“Whether China ever manages a similar transition is, of course, the great historical question of the 21st century. But if it forces China to direct economic development towards the needs of its own citizens, rather than the tastes of US consumers, the financial crisis is likely to accelerate China’s evolution into a pluralistic market economy, rather than slowing it down”.

“Car ownership in China – an important badge of middle-class status – is only 2-3 per cent”, as the Financial Times recently observed. The economic development of China will expand this middle-class, which may lead to the kind of transition that Kaletsky envisages. That said; China has already changed massively in the past twenty years but the grip of the Communist Party upon power in China seems more secure now than it did at the time of Tiananmen Square. Why? 

“As a result of the effective combination of governance reforms and co-opting the rich and the middle class”, the Financial Times explains, ”few analysts believe the party will face a serious threat over the next decade”. These governance reforms mean that the Communist Party is a very different beast from what it was twenty years. Change in China is likely to be such that it will face further calls to evolve in coming years. This will lead, claims the Financial Times, to “pressure to introduce deeper political reforms”. But will these reforms lead to China taking the kind of transition to western democratic norms as foreseen by Kaletsky or will they result in the Chinese producing a governance model that takes the “highly distinct” form anticipated by Jacques?

As well as the internal management of the increased power held by China, there are, of course, questions to be asked about the external use of this power. On the eve of Barack Obama’s much heralded speech to the Muslim world, for example, it is interesting to note that the Economist also recently concluded: “If China is at all serious about joining America as a global leader, this is the time for it to shoulder its responsibility by helping to punish Mr Kim”. Mr Kim, of course, is the leader of North Korea. Things which definitely can’t be decoupled are the nuclear ambitions of North Korea and Iran. The ambitions of the later are a key point of context to Obama’s speech. However, the coupling of North Korea and Iran also, in turn, couples together the efforts of the US and China to respond to the ambitions of North Korea and Iran.

This is a profound change to the world order but is to say nothing of the ”neo-colonialist” tendencies that some see in Chinese “land grabs” in Africa. We have grown used to the empire of liberty, as a current Radio 4 series describes the US, dominating a unipolar world order but, perhaps, we should be preparing for another empire, quite possibly with less regard for liberty, as liberty is generally understood in the west, to be a significant player in a multipolar world of contested modernity. Given that we have elections to the European Parliament tomorrow, one wonders what Europe’s role will be in such a world. Sadly, marginalised, I fear, unless we can quickly raise our game very dramatically.