Financial crisis and world power shifts, pt.2

In this recent (introductory) post on this topic I wrote, “The US financial system’s current woes have accelerated the decline in American power in the world that has already been underway for several years now.” I think it’s important to specify that this decline has occurred both in the level of raw economic power the US can wield in the world and in its reputational or ‘soft’ power.
Regarding soft power, yesterday the folks at the Pew Global Attitudes Center sent out a report (Hat-tip Jim C) stating that,

    even before this fall’s financial crisis, a 24-nation Pew Global Attitudes survey conducted in March-April 20081 found that many in other countries already felt the U.S. economy was having a negative impact on their own country’s economy.

The figures they use to illustrate this are persuasive. If you scroll down to the second figure they have in the text there, “U.S. Economic Influence”, you’ll see that in no fewer than 18 of the 23 non-US nations surveyed, a significantly greater proportion of the public judged the US’s economic influence on their country to be negative, than those who judged it positive.
In some cases, the disproportion was huge. Look at Turkey (70% ‘negative’ vs. 4% ‘positive’) or Argentina (50% ‘negative’ vs. 4% ‘positive’.)


The Pew researchers note that David Rothkopf,who was a Deputy Under Secretary of Commerce in the Clinton administration, wrote recently that the financial crisis contains the seeds of “a new anti-Americanism.”
In that article Rothkopf wrote:

    An important dimension of this new anti-Americanism relates to Washington’s role as the architect, champion and primary beneficiary of a global system that was widely seen to benefit the few at the expense of the many.
    Much of the anger at the bailout and financial meltdown stems from the basic fact that we live in a world in which 1,000 people at the top control assets worth double those held by the bottom 2.5 billion, a world in which the top 10 percent own 85 percent of everything. And it’s a world in which that anger is likely to keep growing, because there are other dimensions of this crisis that suggest it could have a broader impact than any financial crisis in three-quarters of a century: This is only the tip of the iceberg.

In my Re-engage! book, one of the sources I found most helpful for the chapter on the shifting global balance was Kishore Mahbubani’s book Beyond the Age of Innocence. In it, he described the intense, often anti-American anger that built up in a number of countries in Latin America and East Asia in the late 1990s, after the earlier financial crisis that hit many of those countries in 1997-98. Now, we have an even bigger crisis, and the anger of non-Americans is probably both broader and a deeper than it was back then. (Of course, plenty of US citizens are pretty angry about the growing financial crisis, too.)
However, one of the most interesting findings of the Pew study cited above was what they discovered about the attitudes expressed in China and India. (After all, these two countries account for some 2.4 billion members of the human race, so they are hardly insignificant!)
In India, 25% of respondents said they thought the US’s economic effect had been negative– while 41% described it as positive. And in China, opinions seemed just about evenly divided: 18% said ‘positive’, and 19% said ‘negative.’
I think those findings are worth noting– and perhaps, especially the one about China. It is notable to me that so few Chinese expressed a negative judgment about America’s economic effect on their country. There seems to be considerable open-ness in China to, at the very least, a view that the economies of their country and the US are inter-dependent. That’s good news!
The news about attitudes in China and India is particularly significant because these countries are not just big, they are also two of the countries whose power in the world is riusing the fastest of any, these days.
I would love to see the results the next time a broad, multinational opinion survey of this kind is done. Attitudes in many countries regarding international economic and financial issues have most likely changed a lot since that one was conducted in March-April. (Seems like a long time ago now!) In his recent article Rothkopf quotes some pretty angry criticisms that policymakers in France and Germany have voiced, regarding the US’s economic policy and model, over the past couple of weeks.
But I’d be most interested to learn about the current, broad public attitudes (as well as elite attitudes) in India and China on these matters. Because it is my surmise that these two countries have been far better protected from the financial mayhem of the past 2-3 weeks than most other major national economies.
That’s because the banking/financial system in these two countries was never so highly “developed” as those in many other countries. The Chinese and Indian financial systems hadn’t got to the point of offering things like “credit deafult swaps”, or “collateralized debt obligations”, or most of those other high-falutin’ financial “instruments” that have led most of the “North Atlantic” (and allied) economies into their present dire crisis.
Now it’s true that, in the real-world economy of the trade in goods and (non-financial) services), both India and China are well tied in to the “North Atlantic” and other economies of the world. So they will both feel some significant effects from the current (and continuing) downturn in terms of their real economies, too. But what they are to a significant degree insulated from is all those “toxic financial assets” that are currently infecting all the world’s “highly developed” financial systems.
For its part, it’s true that China had, and still has, $500 billion of investment in US T-bills, and some $400 billion investment in Fannie and Freddie. But those investments are all now relatively secure (unless the entire dollar system collapses.) It has lost a little bit of money through investment in toxic financial houses, but relatively little.
My prediction regarding China’s economy is that as its markets in the “west” contract over the months ahead, it will start steering much more of its investment capital into accelerating the development of its own huge western interior, as well as into developing the economies of immediate neighbors to the west, north, east, and south. The country’s Communist Party leaders have already said they understand they need to develop western China a lot more, and to undertake other steps to reduce the many glaring inequalities that have arisen in their own country. So the west’s crisis will affect them, certainly. But it may drag them down far less than it drags down the other economies whose financial systems were– like that in the US– hyper-“developed” to a point of irrational riskiness.
And that means, regarding the global power balance, that the US will continue to decline relative to China regarding its economic power, quite possibly for some years to come. And it already has a huge deficit to make up, regarding its soft power.
All the more reason therefore, for those of us US citizens who welcome the end of Uberpowerdom and the shift to a more diversified and more equitable world, to do a lot more work trying to figure out what our country can be– in the world, and for its citizens– once we realize that clinging to the idea of always being “Number One” is expensive, counter-productive, and unrealistic.
We are, after all, less than five percent of global humanity.
So let’s get on with the exciting challenge of Re-imagining America. I’ve had a few more thoughts about that. But I’ll leave them for another post.

6 thoughts on “Financial crisis and world power shifts, pt.2

  1. Frank al Irlandi

    Helena
    the $25 Billion for the car makers doesn’t seem to have been enough.
    http://tinyurl.com/3odd88
    Now this has got to the point where the national security interests are directly threatened. Who makes the trucks and vehicles for the armed forces?
    Things will get really hairy once the aerospace companies come into play. Imagine what the airforce will say if Boeing gets into trouble?
    The purchase of Intel’s rival AMD by an Abu Dhabi company is an indication of things to come.
    AMD splits in two following Arab injection 3:47PM, Tuesday 7th October 2008
    AMD plans to spin off its manufacturing plants, following a mammoth investment from an Abu-Dhabi based venture capital company. The chipmaker will split into two companies, and Advanced Technology Investment Company (ATIC) will splash out Ј3.2 billion on the chip maker’s manufacturing business.
    ATIC will own 55 per cent of the manufacturing business – which will be temporarily called “Foundry Company”, and the move is expected to make AMD a stronger competitor to Intel.
    Currently, Intel sells about 80 per cent of the CPUs in the world’s one billion PCs, whereas AMD makes the rest.
    Another Abu Dhabi government company, Mubadala Development Co, will spend Ј178 million to increase its stake in AMD to 19.3 percent, from the 8.1 percent it already owns.

  2. Frank al Irlandi

    A Japanese insurance company went belly up overnight taking Japan and London stockmarkets down 10%.
    http://tinyurl.com/52mukm
    The IMF have upped their estimate of the costs to the world economy by 40% to 1.4 Trillion dollars.
    Sam Brittan seems to agree with Helena that money needs to be invested in rebuilding infrastructure. Snag is that the UK municipalities lost a Billion yesterday when the Icelandic banks went down.
    Keynes, thou shoulds’t be living …
    By Samuel Brittan

    Published: October 9 2008 19:24 | Last updated: October 9 2008 23:51
    “There are today many wellwishers of their country who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual … Now in certain circumstances all this would be right, but in present circumstances it is quite wrong. Suppose we were to stop spending our incomes altogether and were to save the lot. Why, everyone would be out of work. And before long we would have no incomes to spend … Now is the time for municipalities to be busy and act with all kinds of sensible improvements … I read a few days ago of a proposal to drive a great new road, a broad boulevard, parallel to the Strand, on the south side of the Thames, as a new thoroughfare joining Westminster to the City … But I would like to see something bigger still. For example, why not pull down the whole of south London from Westminster to Greenwich, and make a good job of it … at the same time providing hundreds of acres of squares and avenues, parks and public spaces … Is it better that men should stand idle and miserable drawing the dole?” From a radio talk by J.M. Keynes, January 14 1931 (reprinted in Essays in Persuasion).
    Why is the failure of banks and associated financial institutions a greater threat than would be the failure of other large businesses such as Ford or General Motors? There are two main reasons……

  3. Frank al Irlandi

    A Japanese insurance company went belly up overnight taking Japan and London stockmarkets down 10%.
    http://tinyurl.com/52mukm
    The IMF have upped their estimate of the costs to the world economy by 40% to 1.4 Trillion dollars.
    Sam Brittan seems to agree with Helena that money needs to be invested in rebuilding infrastructure. Snag is that the UK municipalities lost a Billion yesterday when the Icelandic banks went down.
    Keynes, thou shoulds’t be living …
    By Samuel Brittan

    Published: October 9 2008 19:24 | Last updated: October 9 2008 23:51
    “There are today many wellwishers of their country who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual … Now in certain circumstances all this would be right, but in present circumstances it is quite wrong. Suppose we were to stop spending our incomes altogether and were to save the lot. Why, everyone would be out of work. And before long we would have no incomes to spend … Now is the time for municipalities to be busy and act with all kinds of sensible improvements … I read a few days ago of a proposal to drive a great new road, a broad boulevard, parallel to the Strand, on the south side of the Thames, as a new thoroughfare joining Westminster to the City … But I would like to see something bigger still. For example, why not pull down the whole of south London from Westminster to Greenwich, and make a good job of it … at the same time providing hundreds of acres of squares and avenues, parks and public spaces … Is it better that men should stand idle and miserable drawing the dole?” From a radio talk by J.M. Keynes, January 14 1931 (reprinted in Essays in Persuasion).
    Why is the failure of banks and associated financial institutions a greater threat than would be the failure of other large businesses such as Ford or General Motors? There are two main reasons……

  4. Frank al Irlandi

    A Japanese insurance company went belly up overnight taking Japan and London stockmarkets down 10%.
    http://tinyurl.com/52mukm
    The IMF have upped their estimate of the costs to the world economy by 40% to 1.4 Trillion dollars.
    Sam Brittan seems to agree with Helena that money needs to be invested in rebuilding infrastructure. Snag is that the UK municipalities lost a Billion yesterday when the Icelandic banks went down.
    Keynes, thou shoulds’t be living …
    By Samuel Brittan

    Published: October 9 2008 19:24 | Last updated: October 9 2008 23:51
    “There are today many wellwishers of their country who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual … Now in certain circumstances all this would be right, but in present circumstances it is quite wrong. Suppose we were to stop spending our incomes altogether and were to save the lot. Why, everyone would be out of work. And before long we would have no incomes to spend … Now is the time for municipalities to be busy and act with all kinds of sensible improvements … I read a few days ago of a proposal to drive a great new road, a broad boulevard, parallel to the Strand, on the south side of the Thames, as a new thoroughfare joining Westminster to the City … But I would like to see something bigger still. For example, why not pull down the whole of south London from Westminster to Greenwich, and make a good job of it … at the same time providing hundreds of acres of squares and avenues, parks and public spaces … Is it better that men should stand idle and miserable drawing the dole?” From a radio talk by J.M. Keynes, January 14 1931 (reprinted in Essays in Persuasion).
    Why is the failure of banks and associated financial institutions a greater threat than would be the failure of other large businesses such as Ford or General Motors? There are two main reasons……

  5. Frank al Irlandi

    Suggestion for the new version of the blog.
    Perhaps they can fix the bug that eats comments. Tells you the page cant be found. Makes you resubmit the comment and then regurgitates all the results of the failed efforts all at once.
    Yours Embarrassed A Frustrated.

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