It would be a truism to say that the world order that we have been used to for the last 40 plus years is changing. Towards the 1980s / early 1990s, the Soviet Union broke up, the USA became the undisputed and only superpower (the counter weight of the Soviet Union led by Russia was lost), India almost went bankrupt and had to pledge its gold holdings (for a speedy international loan) followed by a reforms agenda and globalization became the mantra of economic & commercial success – countries and corporates.
As is said, in the fruits of success lie the seeds of destruction. Over a period of time, the USA got cocky and careless. The American superpower age had begun and in trying to police the world and keeping its own citizens happy and prosperous, the USA started getting overextended on its debt (money owed to outside countries) obligations. The US dollar which was considered a safe haven and countries bought USA treasury instruments, is now facing challenges.
The fast pace of the world with technology innovation made centuries turn into decades. Empires of the past lasted for 2 to 3 centuries. Almost all of them collapsed because of inability to manage the unhappy territories of the large empire that they had built and/or financially stretched for governance. Voices of dissent came from all over the world. China, which had converted itself into the world’s factory floor, began running balance of payments surpluses with the rest of the world. The developed nations of the world (USA, Europe, Russia, Japan, Canada) had to make space for a new entrant China.
India unlike China was not as quick to seize opportunities that were opening up as the world trade opened and became rules based and supposedly more orderly – under an organization called the World Trade Organization. The Indian constitution distributed powers of economic and financial management between the centre, the states and what was called the concurrent list. While improvements occurred in the central list (industry, banking, insurance, highways, monetary Policy) the states were slow to release political domination of issues under their control like food, labour, education, communications and transport, local government, etc. As an example, even today the amended labour codes are not implemented across the country. Different states are implementing different segments with no across the state uniformity.
As was to be expected the rules for world trade under WTO were made by the developed countries including China and Japan and the interests of the developing world were largely ignored and their internal concerns not paid heed to. Structures like the UNO (United Nations Organization), World Bank, IMF (International Monetary Fund) which came up in the 1950s consequent to World War 2 became structures whose modus operandi was outdated, the control remaining in the hands of developed nations (veto power, vote power, disciplining power, etc), unwilling and unable to address the issues of the mass of humanity which was not developed in the economic term. Countries like Brazil, Indonesia, Iran, Saudi Arabia, Argentina, Venezuela, South Africa, Nigeria, Ghana, India, etc (all with different politics and governments) which had large economies (though not as powerful as developed economies) whose cumulative GDP output was a significant per cent of world GDP – felt neglected and pushed aside. The seeds of what is called ‘Global South’ (relatively not too well to do developing nations) began sprouting. Whether the seeds will bloom or wilt only time and quality of their national leadership will tell.
Politically, the weapon of economic sanctions was developed by the USA and nato countries. Developing countries whose path was found undesirable became pariahs and sanctions were imposed on them resulting in those nations being almost cut off from world trade and world financial facilities. While the sanctions were justified for some dictatorial regimes, they started being implemented against those that questioned the world order and structure as it was developing or who did not side with you.
What the western developed world (USA & Europe) may not have visualized was that Russia and China were not going to sit quietly in the corners assigned to them. Russia was to flex its muscles politically (Crimea, Ukraine, MidEast / Israel, etc) and China decided that it would be the worst form of capitalist (give ‘cheap & long term’ loans for projects not really required), get Chinese corporates to build and when the default occurs take control of the project. The East India company playbook is being played out more aggressively. The USA aid programme was shown as a second in this economic aggression.
Nations in the China neighbourhood were left to defend their territories from China who was making no bones on wanting back supposed Chinese territory. Russia was out to take back territory which threatened its defence and which had a significant Russian population. Conveniently, the two have formed an informal axis against the USA and nato. To pile pressure on Russia and its adventurous behaviour in Ukraine, the bogey of democracy in danger was raised and in the most undemocratic manner everybody was expected to support USA / NATO in the fight against Russia. You could not say ‘not my battle’, though throughout the terrorist actions in Kashmir over 4 plus decades Europe sat out counseling peace, understanding and mediation. The same Rules and action methodology don’t apply now for Ukraine. Shamelessly, Ukraine is being propped up with the intent of weakening Russia.
This sanctions methodology, weaponizing world trade (particularly energy transactions with Russia), not permitting financial transactions thru international payments system ‘SWIFT’, carries the danger of countries being forced to look at alternative trade products and payments methods. The tariffs battle initiated by President Trump (also against friends and allies) could be a magnet for an alternative way of working foreign trade.
The hegemony of western financial settlement systems could break. Trade blocs of developing nations could form for trading with each other, local currency and barter trade could flourish and in place of US Dollar hegemony in foreign currency markets – nations of the BRICS bloc (Brazil, Russia, India, China, South Africa) could come up with an alternative international currency arrangement. There are plenty of nations watching this economic and financial game unfold and may decide on multiple foreign trade options.
As one empire/super power declines and another rises (China with Russia support) there will be a vacuum in political and economic leadership. That vacuum will dispel but there will be intermediate confusion and drift.
In my view, India is better poised to handle the challenge. Our political and bureaucratic leadership is reasonably strong at the Centre, we have a young & ambitious youth population profile, a very large middle class in urban and rural areas and a domestic market which absorbs most of our output. Our economy is not exports dependent. Our demand market is largely within. We have a true circular economy – produce and consume within. Currently, that is a big advantage. The big dis-advantage is dependence on imported oil requirements.
Change is on in the world and we need to know how to manage it.
Disclaimer
Views expressed above are the author’s own.
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