The trauma of the 2008 crisis, having disproportionately weakened both the US and the EU, has set the stage for a new world order. The failed G20 meeting in Seoul, the dithering at the Nato summit in Lisbon, and the terrifying on-again off-again dance between Ireland and the EU all point to a global environment with no cohesive power centre.
Indeed, the G20 is simply a face-saver for the old order. Many of the earlier G7 members are much less relevant today, including France and Italy (which have to cling to the EU to have a voice), the UK (still pompous after all these years), Canada (who?), and even Japan (which, while still commanding a strong 6 per cent of world GDP on a PPP basis, continues to navel-gaze with Shintoist patience).
Today, the countries that matter and will increasingly call the shots are China, America, Germany, Russia, Brazil, Turkey and India. Importantly, since this new G7 was born out of the collapse of the old order — a direct result of its deterioration to “the freer the better” markets — the new world order will certainly be less about “freedom” and more about managed control.
Which makes China singularly the new leader. No less an “authority” than Forbes magazine has acknowledged this when it ranked Mr Hu, the leader of the Communist Party of China, as number 1 in its annual listing of the most powerful people in the world, ahead even of President Obama. (Incidentally, another of Mr Hu’s claims to fame is that he shares a birthday with me.) Even the chorus of old-G7 pundits, who for 15 years (and more) have been proclaiming China’s imminent come-uppance driven by its violation of “inviolable” laws of economics or its oppressive human rights policies or both, has gone quiet.
America, on the other hand, is in a dramatic funk, with well over half the US population locked out of the American dream. Given this, it is impossible for America not to turn left politically. I know the current knee-jerk is towards the right — the Tea Party, for instance — but this is just debris from the failure of the “free free” market system. The Bush tax cuts are history and, by 2016, after Mr Obama completes his second term, the new America will resemble old Europe, except with American innovation and energy — a formidable combination.
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Germany will certainly be traumatised managing the demise of the euro — and it is patently clear that that quixotic experiment is sunk. However, Germany’s fundamental strength is that it has always (or, at least, in the modern era) been proud to pay its own way and understands intrinsically that a more socialist capitalism works better over the long term. It will, in time, regain its vigour and become one of the central forces of the new G7.
Russia remains blinded by its cold war positioning, and continues to use its trump card — energy — to trade for influence. However, with the new G7 skewed towards commodity users, Russia will need to change its stripes if it is to retain and grow its influence.
Brazil, which has graduated high in the class in the self-confidence sweepstakes, represents the hopes and dreams of South America as also people of colour from Africa and even as far afield as Asia — football builds brand. Equally importantly, Brazilian politics appears to have become exemplary of the new pragmatism — both market-leaning and socially sensitive.
Turkey, the bridge between the old world (the US and Europe) and the new, is today more important as a model for modernising Islam. The socially conservative government, which clearly understands its critical status in contemporary geopolitics, is also market-savvy enough to drive sustained growth.
India brings up the rear, despite being third (of the seven) in terms of GDP on a PPP basis. This is because we still do not know who we are from a geopolitical perspective — witness the stupidity of Mr Obama’s visit during the Diwali holidays. I guess we need some more years of red hot growth to get our per capita GDP to where we will demand — and get — less venal domestic politics, which is the minimum we need to more effectively manage our undeniable importance in the world.
Clearly, with such a diverse new power structure, the nature of globalisation itself will change. It will be driven less by the needs of technology, armaments and finance, and more by the needs of large commodity users. In the medium term, commodity prices will moderate, which will support the dollar. In the short term, the resolution of the euro problem will keep uncertainty high, likely leading to more market crises.
High volatility and a strong dollar over the next few years.