And the BRICS Go Marching On
Among the few things we can be thankful for in the difficult years that have followed the 2008 financial crisis are that thus far at least, while American politics may have reached new heights of ridicule and ineffectiveness, they have managed to avoid further destabilizing the world. This is no small feat, considering the last structural shock to the American psyche on 9/11 resulted in two ill conceived and poorly executed wars. While the financial crisis of 2008 did not threaten the American sense of safety in the same way, it has created an existential crisis in American minds over the viability of our economic system in relation to other competitive models, and elevated the question of whether we might have overlooked the possibility that China is a strategic threat to American ideas and interests.
Even to those who would ultimately come to regret letting a desire for revenge trump reason, responding with force in the days and months after 9/11 made a certain emotional and strategic sense. It is worth noting that American politics, for all of its many failings, has thus far managed to prevent letting the financial crisis of 2008 result in similar reactionary measures. But if the American economy continues to struggle with high unemployment and an anemic housing market, how much longer can policy makers and politicians prevent an emotional response that might up-end the globalized world we all take for granted?
Our most innovative and forward-thinking minds recognize this possibility, one born not only of simple deductive logic, but also and more ominously, the historical parallels when unhappy nations made one bad decision after another, until a moment in time came when the most illogical of all human activities, war, seemed both reasonable and desirable.
At their core, these moments become increasingly possible when one nation finds its situation either getting progressively worse or languishing, while other countries against which it once saw itself the equal to, or more likely the better of, prosper. It is worth considering that precisely such a moment may be coming into focus as the American economy continues to slide while several emerging economies, most importantly China, continue to advance.
2012 may well mark the year where the Chinese system encounters several critical structural crises: the housing market bubble pops, the lending sector buckles, and inflationary pressures rage throughout the country. But let us equally consider the possibility that China ultimately proves it can weather this storm, as its economy has done in the days after the 1997 Asian financial crisis, the 2008 American crash, and the 2011 Eurozone problems.
Each of these moments could well have caused the Chinese economy to derail and yet, to the great credit both of China and of the international order which bound it to trade commitments and a system of monetary governance that benefited those hurt in these moments, the Chinese economy stuttered, then moved forward. While it is certainly possible that the Chinese economy of today may be more bloated and inefficient than at any previous moment in its recent history, it may also be true that China – like the United States before it – is simply going through the traditional cycle of boom and bust which are a part of a country’s evolution and coming into maturity.
Americans tend to forget our own history of over-building, excess capacity and inefficient government-sponsored infrastructure programs during the 1800s that contributed to long and painful depressions. Ultimately, the United States would absorb these errors, adjust, and move on. What allowed America to do this, to have this national culture of resiliency, was in part our belief that tomorrow held much greater promise than today. We no longer feel that way, and our insecurity is foreboding in the face of countries like those in the BRICS nations who have tasted the great good of a created middle class, and are willing to sacrifice and struggle to join it.
It is our insecurity that should most trouble us, because it suggests that absent the political will to make painful but necessary structural changes to our businesses and governments, even our standards of living, we may find ourselves at a moment in time where the most irrational of ideas appears to be the most sensible of options.
Yes, the BRICS nations as best evidenced by China, have overbuilt their economies. Yes, they are likely to severely stumble and some may fall off the wagon entirely (India and Russia seem to be the consensus choices here today). But what if China in particular goes on to prove it can withstand a structural crisis of its own making without disintegrating? What happens if that while China works through this, the economies of the western world continue to struggle, and, in what may be even more troubling news, what if the politics of these same supposedly developed nations ossifies, rewarding politicians who take increasingly extreme positions on domestic and international affairs? Where then would the world find itself?
Absent an appetite for reform, the American economy would likely be dealing with the implications not just to the American consumers’ deleveraging, but also the American government’s as well. News this week that the American public sector’s debt now equaled the country’s GDP makes the government’s ultimate de-leveraging process simply a matter of when, and imposed by whom (our own discipline, or that imposed on us by outsiders), rather than if. The possibility that over the next five years this process will be set in motion should worry us all, not least of which because it would force a fragile democracy, resentful of the relative economic vitality of its Chinese trading partner, to look at what options were left at our disposal for constructing a response.
The most politically accessible option will likely prove to be trade barriers, which while damaging to China’s economy, might also be increasingly irrelevant as the Chinese economy, and trade between it and other regional developing nations, grows to become increasingly important on its own right. Even more troubling is that should such steps by the American government prove to do little to better the country’s economy, the few remaining choices could be at once maddeningly illogical, and yet all that remains possible.
By this time, the American economy’s relative global weakness would stand in stark contrast to the American military’s relative dominance. This is a toxic combination: a fragile democracy frustrated at its own aborted attempts to restart its domestic economy would be tempted to use its one remaining strength in an effort to somehow re-ignite its prospects and re-focus its people.
None of this is inevitable and, as we look at things today, hopefully not even probable. But the increasing ineffectiveness of American politics and particularly the system’s current bi-partisan infatuation with rewarding politicians who take the most extreme of positions, is not comforting.
Among the many things that make America unique is not our ability to forever absorb these things. Like every nation before it, our political and popular culture has a finite elasticity that repeated stresses could in time deplete. At a nation’s limits lie dangerous moments of truth that have in years before, in nations other than ours, been severe enough to push the world into chaos. Perhaps never before has America’s domestic politics mattered more to maintaining peace and stability in the world, and yet frightfully enough, never before have they been more confused and disingenuous.
As the country heads into an election year, it is worth hoping that candidates and policy makers who can elevate and focus on substance – regardless of party or political stripe – will be rewarded by the public.