THE DANGERS OF GLOBALIZATION WITHOUT A GLOBAL POLICEMAN

Barely a day seems to go by without a news item worrying about growing challenges to the post-Cold War order. Russian revanchism in Ukraine, China’s assertiveness in the Far East, the prospect of the two countries cozying up to each other in an anti-Western coalition – all point to the end of the thaw that prevailed in international relations after the mid-1980s. Indeed, Vladimir Putin recently announced that at new Cold War was looming.

 

Could this new era of East-West hostility be as dangerous as the original Cold War? On the surface, it would seem not. Communism was a global ideological challenge to the West. Nowadays Russia and China can appeal only to nationalism. Economically, China is far more powerful than during the Cold War but Russia is correspondingly weaker. Their combined economies remain a fraction of those of America and its allies.

 

The most important difference between now and then is that for most of the Cold War, the communist counties lived in a state of virtual economic isolation. Under Stalin, Russia’s total foreign trade was under 1% of GDP. Now it is over 40%. In 1970, China’s foreign trade was 6% of GDP. Now it is over 50%. Both countries are thoroughly integrated into the world economy.

 

In theory this should make for peace. Ever since the great liberal thinkers of the nineteenth century, it has been argued that trade is the best antidote to war because it increases the cost of conflict. By the beginning of the twentieth century, it was being claimed that the rise of global trade meant that economies were so thoroughly intertwined that a war would be disastrous, if not impossible.

 

But sadly, these arguments did not work. In 1914, Germany went to war with Britain and Russia in spite of the fact that they were its largest trade partners. One hundred year later, at the World Economic Forum in Davos, Prime Minister Abe pointed to Britain and Germany when be observed that strong trade ties, such as those between Japan and China, might not prevent countries fighting. His words generated much criticism, but historically he was right.

 

The problem with trade is that it cuts two ways. It may discourage war by raising its cost, but it also creates economic insecurity. Dependence on trade makes countries vulnerable. They can be subjected to sanctions in time of peace, and blockaded in wartime. The result is a classic prisoner’s dilemma: cooperation, or every man for himself. Pre-1914 Britain and Germany failed to resolve this dilemma. As their trade continued to rise, so did their sense of insecurity, and they pursued a naval arms race, building enormous fleets to defend themselves from blockade while threatening their rivals. In August 1914, Britain went to war because Germany invaded neutral Belgium. But the deciding issue was not so much outrage at Germany’s ruthlessness, as the danger that the German navy would gain control of the Belgian seaports, putting at risk British command of the Channel.

 

The war confirmed the worst fears about the dangers of globalization. Both sides set about exploiting the other’s reliance on imports by blockading them into submission. Countries became wary of economic interdependence; and as postwar attempts to restore the global trading system faltered, they sought to become self-sufficient. The cure was worse than the disease. Economic isolationism led to the collapse of world trade, and with it, the world economy. Moreover, economic security turned out to be a chimera since, given the distribution of the world’s resources, security for one could only come at the expense of others. Germany could become self-sufficient only by capturing Russia’s oil and wheat. Japan could do so only by conquering Southeast Asia, cutting off America’s supplies of rubber. The search for economic independence resulted not in peace but in a second world war even more devastating than the first.

 

The only way that global trade could be made safe was by establishing a global policeman. After 1945, the United Nations was supposed to fulfil this role, but given the limits of its authority and the veto power of its largest members, it was never likely to do so. By a twist of fate, the Cold War resolved the problem. The communist bloc lived in economic isolation, while in the West, fear of the Soviet threat ensured that countries were willing to unite under an American military umbrella. The result was a massive recovery of world trade without the insecurity that had led to two world wars. For the first time, the dilemma of trade dependence was solved by Pax Americana.

 

The end of the Cold War marked the triumph of the Western economic model. Integration into the global economy was understood to be the only viable route to prosperity. But there was an unresolved question: The global trade system worked only because of the Pax Americana that muted the insecurities of trade dependence. Would the ex-communist countries accept these unwritten rules of the system?

 

For a while it seemed that they might at least tacitly acquiesce, but by now it has become evident that this is not the case. Both China and Russia have made clear their absolute rejection of Pax Americana and are showing every intention of asserting their dominance within what they see as their traditional spheres of interest. The result is that we are starting to witness developments that have an ominous resemblance to the first half of the twentieth century.

 

In the Far East, China’s inreasingly aggressive foreign policy and its apparent determination to remove American influence from the area is having the effect of returning the region to a pre-1914 mindset. This can be seen not only in a zero-sum competition for control of the resources of the China Seas, but also in China’s concern that the American navy’s control of the sea lanes could threaten it with blockade, and in its neighbors’ fears that China’s rising power could eventually threaten them with the same fate, resulting in naval arms race that is spreading throughout the region.

 

In Eastern Europe, Russia’s actions in Ukraine threaten the post-Cold War order by tearing up treaties and redrawing borders by force. The West’s response has been to impose sanctions, taking advantage of Russia’s new vulnerability as a result of its integration into world economy. The outcome, however, is a trade war that is damaging the economies of both sides, and the prospect of Russia’s seeking refuge in self-sufficiency, further denting world trade and economic growth. If events in the Far East evoke the era before 1914, in Eastern Europe they seem to hark back to the 1930s.

 

It is not easy to formulate a successful response to these challenges. Containment, the strategy that worked so well when China and Russia were economically isolated, risks making them more determined to pursue their goals, further undermining the global trading order. It needs to be balanced by renewed attempts to bring the “revisionist” powers into the fold by giving them a greater stake in the system, under which, after all, they have hitherto prospered. This may not be easy, or even possible, but it is far better than the inexorable return of the destructive dynamics of globalization without a global policeman.