There are many places on earth where one could imagine being in the centre of the world. Bahrain is certainly one of them. A small dot of an island in the Persian/Arab Gulf, it lies at the geo-political crossroads between the developed North and the developing South, the declining West and the rising East. There are important exceptions to this binary divide. Russia in the North is not much of an industrial power, while India in the South is becoming one. Brazil in the West is, in fact, a rising power and Japan in the East is becoming the land of the setting sun!
The exceptions draw attention to the norm. Nothing captured Japan’s agony better than the words of a former Japanese minister speaking last week at the Bahrain Global Forum hosted by the International Institute of Strategic Studies (IISS), London, and its newly opened Middle East office in Bahrain. Dr Heizo Takenaka, professor and director, Global Security Research Institute, Keio University, former minister for financial services and for economic and fiscal policy in the Koizumi government in Japan and a member of Mukesh Ambani’s global advisory group (which also includes former US ambassador to India Robert Blackwill and IISS Director General John Chipman), began his address paying tribute to China’s rise!
“The influence of China will grow much more quickly than we have been expecting.” Said Dr Takenaka, “Under these circumstances, we have to prepare for the new situation that will happen in about five or six years.” Five or six years! The imminence of China’s arrival on the world stage has been brought into sharper relief by the crisis in Europe.
Most Europeans are shell-shocked not so much by the Greek tragedy but by the European farce. The long time it took Germany and France to put together a reasonable package for economic stability in southern Europe has unnerved bankers, investors, analysts and all.
The global ramifications of Europe’s travails were also the subject of World Trade Organisation (WTO) Director General Pascal Lamy’s presentation at the Bahrain Global Forum. “Economic power is... being reshuffled within the WTO,” confessed Mr Lamy, “and on a day-to-day basis, for that matter, but not in terms of the decision-making structure of the organisation. Rather, in terms of the substance, shape and form of the regulatory framework for international trade.”
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This, declared Mr Lamy, “is one of the reasons why it is vital to conclude the Doha Round. The conclusion of the Round will be one of the world’s first confirmations of a changed economic power balance.” (Emphasis in original text of the speech.)
To be sure, what the world has witnessed in the past decade — and is experiencing at the moment — is not yet a shift in the global balance of power. It is as yet only a shift in the global centres of prosperity. It would be premature to assume that the “shift in prosperity” under way will automatically lead to a “shift in power”. In China, India, much of East and South-East Asia and parts of Latin America, we are witness to the emergence of “new centres of prosperity” that have as yet only the potential to become new engines of economic growth and new centres of political power. That anticipated shift has not yet happened.
Whether and when these new centres of prosperity become new centres of power are not very clear. Japan has been a new centre of prosperity for more than half a century and yet has never regained its status as a centre of power. Compared to Dr Takenaka’s pessimism, the key speaker from the US, Professor R N Cooper of Harvard University, exuded uncommon optimism and harped insistently on the continuing importance of the US and how its economy would return once again to become the global engine of growth for the next quarter century as it has been for the past half century.
The Bahrain Global Forum also asked the question whether, even if the new centres of prosperity were to emerge as new centres of power, the resultant “power shift” would only be in terms of economic outcomes, or also result in the emergence of new economic perspectives. After all, ever since the beginning of the industrial revolution, the West has dominated the global economy not just in terms of economic outcomes but also economic ideas. Will the emergence of new centres of economic power also imply the emergence of new centres of economic thinking? If so, that would have a profound impact on the way the global economy is governed.
As we go forward, and as institutions of global governance adjust themselves to new power and wealth equations, the debate will shift to the ideological implications of the changes under way. This has been best captured in the question whether the now-discredited “Washington Consensus” on economic policy will be replaced by a “Beijing Consensus”. Or, would the Middle Way of free market democracies like Korea, Brazil and India gain greater acceptance?
Just as the implosion of the Soviet Union and the centrally planned economies of Europe had a profound impact on thinking about state, markets and economic policy, so also the combined effect of the Asian and trans-Atlantic economic crises and the Great Recession has been to bring into question the existing paradigm of economic and financial policy.
We live in an era in which both the structure of power and the paradigm of policy are in transition and changes in both will shape the structure and content of the new global economic and financial architecture. The G-20, as yet an evolving concept that will have to congeal into a smaller and more representative group, is the womb in which this new architecture will take shape.