The world is just dipping its toes, so to speak, in the new year, and 2011 is already shaping up as a dangerous time. Europe hasn’t solved its financial crisis; the US is vulnerable to state and local financial crises that could erupt without warning; China’s export-oriented growth model is unlikely to yield a second generation of rapid growth; Japan’s long economic downturn could morph into something more serious. Inflation is spooking the commodity markets and food riots are popping up here and there.
The shadow of sovereign risk hangs over the world as the new year begins. Having extended themselves to save banks and stimulate their economies, some of the world’s wealthiest countries are so indebted (and unconventional central bank programs are creating money so quickly) that people are losing faith in the entire fiat money system. Every advance in the price of gold represents a vote of no-confidence in the world’s political and economic leadership.
Meanwhile, every effort to organize effective international cooperation since the crisis began has ended in failure. The major world economies from established long time powers like the EU and the US to emerging powerhouses like China, India and Brazil consistently put their own national interests before international cooperation when the chips are down.
The institutions of global governance had a bad 2010. The World Trade Organization’s long-running Doha round of free trade talks has been petering out for years. The European Union’s leadership failed one test after another. The G-20 is following the footsteps of its predecessors — the G-7 and the G-8: nothing is accomplished at these global gabfests. The UN process to stop global warming has bogged down; the Middle East peace process has once again failed. The global institutions don’t work; it’s not clear how we can make them better.
These are big problems and, frankly, none of the world’s business or political leaders really know what to do about them. We are in uncharted waters; our economic theories and our political institutions are not able to guide us. The Nobel prize winning economists, the multimillion dollar CEOs, the chattering sages of the Davoisie, the soothing and slick politicians and the red-faced and ranting ones: none of them really understands the world we are living in. The smug pundits on the talk shows, the columnists in what’s left of the print media, even the know-it-all bloggers snarkily fisking their ideological rivals: none of them really knows what is going on, much less what the world needs to do.
That is the new normal. Life comes at us faster than we are ready; change happens at the world in ways we can’t anticipate and at a pace that we can’t always comprehend. The stakes are high, the risks are unquantifiable and the answers are unknown.
Not that inexorable doom is bound and determined to strike us down. The world’s leaders may not have a clear sense of how best to move forward, but billions of people all over the world are working hard to make their lives a little bit better every day. Economies are cyclical; recoveries are just as inexorable as the meltdowns. We learn from the crashes and panics and rebuild our financial systems on a better basis — and move on. The scientists are still working in the labs; entrepreneurs are still coming up with new products and new companies. The brainpower of the human race continues to grow by leaps and bounds: there have never been as many well educated people alive as there are today and they have never had so much help from computers, such flexible capital markets, such easy and cheap communication around the world.
Even at the level of macropolitics there are some bright spots and, oddly, at a time when the world’s pundits can’t contain their excitement about the decline of the United States, they have mostly to do with evidence of continued American power. The Obama administration’s approach to Iran has made progress. Tightening sanctions combined with the utter ineptitude of the Iranian regime’s economic management have weakened the regime politically. A powerful computer virus, equipment issues and an apparent campaign against the country’s nuclear scientists have dealt the program serious blows. Opinion in the region, graphically demonstrated by Wikileaks, has hardened against the mullahs. Tehran now has to calculate that its nuclear program will take longer than planned, that it will be significantly costlier than planned, and that Tehran will have fewer allies and less support than it once counted on.
The whole Axis of Anklebiters had a bad year. It was not just the mullahs of Tehran who ended 2011 in worse shape politically. The ‘Bolivarean socialism’ of Hugo Chavez continues to rot and disintegrate. The economy of oil rich Venezuela is slowly crumbling in a time of high oil prices; faced with declining political support Chavez has had to resort to ever more naked uses of force. North Korea got the shock of its life when South Korea stood up and threatened to hit back. The Castro brothers are freeing political prisoners and moving to dismantle significant chunks of the Cuban system.
The Wikileaks revelations have had the unexpected (and to Mr. Assange and his coterie of misguided activists, deeply unwelcome) impact of improving international understanding of and even respect for American diplomacy. When they think nobody is watching, American diplomats aren’t behaving as Noam Chomsky would predict: they aren’t plotting against the lives of human rights advocates, scheming to transfer the mineral wealth of third world countries to unscrupulous American corporations, throttling the free press, working to destroy Islam, promote coups and generally pursuing the goal of World Domination with icy focus and depraved indifference to human life. Rather, they by and large work to promote world stability and peace, encourage democratization, and struggle (ineffectively enough, much of the time) against the hatreds and corruption that turn so much of our world into a hell of injustice and violence.
Meanwhile by year’s end it was Mr. Assange who looked hypocritical and clueless as he denounced leaks of confidential material to the press. Didn’t people realize that disparaging and embarrassing information is confidential and should be kept that way?
And so, yet again, a year that the sages and the pundits described as the year of American decline ends with a “Fort McHenry moment” straight out of the national anthem:
And the rockets’ red glare, the bombs bursting in air
Gave proof through the night that our flag was still there.
The United States of America remains the only truly global power in a complicated and dangerous world.
There are some bright economic spots as well. There are signs of returning health in the world’s largest economies. As 2010 ended, the financial markets had largely recovered the losses they sustained in the gut wrenching months after the collapse of Lehman Brothers. Unemployment in the US seems to be slowly on the mend. Very slowly. The compromise of 2010, when Democrats and Republicans managed to produce a reasonable agreement on taxes, offers some hope for similar compromise in the future.
This is, however, likely to be a testing year in world politics. The political fallout of an economic turndown doesn’t come all at once. The German economy went belly up in 1930, but Hitler didn’t become chancellor until 1933.
We don’t face problems like that here in the United States, but the continued implosion of the blue social model is going to make life miserable for a lot of politicians and public employees in 2011. States like New York, Illinois, California and New Jersey simply can’t go on as they are. Taxpayers around the country simply cannot pay for current levels of government programs — as those programs are currently organized and run. The legal, health, educational and governmental organizations of the United States have been on unsustainable paths for some time; what is different now is that we are losing the ability to paper over the cracks in our social organization with borrowed money.
America’s ability to live up to its responsibilities in our troubled world isn’t just about prestige. It isn’t just about trying to do good for the folks out there. It is the key to the kind of open and peaceful world that Americans need to stay prosperous and safe.
Maintaining that ability now depends on our ability to manage the transition from an old and dysfunctional social model to something much more efficient. We need to harness the explosive power of information technologies and associated advances to transform (not tweak, transform) the way our governments, legal institutions, health care system, schools and universities work.
Making those big shifts at home even as we keep an eye on a turbulent world is America’s challenge for 2011 — and for many years to come. We need to get this right and not just for our own sakes. The rest of the world still needs the United States to keep the peace and show the way, and none of it will be easy.