January 28, 2012 Leave a comment
It is becoming increasingly popular to speculate that the West’s and in particular the US’s Golden Age is coming to an end. After years of dominating the financial system, giving the West disproportioned power over the rest of the world, the situation might be changing. This power has often attracted much criticism as it set the scene for imperialism as well as the ability to influence global events to fit with the Western view of the world.
The surge in power for the West started centuries ago and could be explained by understanding the relationship between religion, government system and how that contributes to individual innovation (Brilliantly explained in Niall Ferguson’s book Civilization). The current narrative, however, is that while the Western countries are now sinking in debt, they are looking for countries such as China, Brazil, Russia and India to bail them out, ultimately handing over a great deal of power.
This change in power, understandably, has a deep effect on the Middle East, since typically in politics, as some powers are rising and some declining, there is a consequential change in alliances and ideology. A very direct effect of the current alignment could be seen for example with the result of the elections in Egypt. If not understanding the relationship, it would seem very odd that the Al-Nour (extreme Salafi Muslim party) and Muslim Brotherhood (Hamas’ sponsor party from which it branched out) are calling to respect the peace agreement with Israel, while Hamas itself is calling to occupy all of Israel and rejects its existence (one would expect the movements to be aligned or the more extreme Salafis to oppose Israel at least as much as Hamas). It wouldn’t be wrong to assume that had the US not been supporting Egypt financially and influencing the Middle East, a war between Israel and Egypt would have broken out shortly after the election or toppling of the army rule.
Considering the US and West’s power over the Middle East, this shift in power should be very concerning for Westerners, since a financial shift could change reality very quickly. For example a shortage of oil supply or increase in price could break the already fragile economy, which is still very much reliant on the combustion engine for mobility (and existence).
One of the intriguing questions is how did this situation occur and how could the timing be explained. No doubt, plenty of books will be written about the topic offering different explanations as well as discussing the shortcomings and periodicity of the capitalist financial system. However, a simpler explanation would be the evolvement of the political systems in moving away from communism and towards capitalism and the time it takes them to readjust. The changing technology is also a major factor in the time and depth of this changes taking place (setting up a call center in India these days is arguably easier than it was to establish a new trading route for goods).
Regarding the timing, there is no surprise that while the new economies have suddenly opened their trade routes and technology made their integration easier, many of the funding from the Western companies, were diverted to the countries that could offer comparable services cheaper. The result was Western companies increasing profit, while developing countries showing a massive growth to their economies. Ironically, the capitalist push to increase profits and stay competitive is what led to the banking systems taking irresponsible risks, which ultimately led to the economic crisis in the West. As a result the West is now going to those previously weaker economies, looking for funding.
This shift of power is very apparent in politics as suddenly China, Russia and Brazil are rearing more economic power than ever before and affecting real outcomes. For example China and Russia have been voting against any actions to be taken as a response to the killings of protestors by the Syrian government, or against tougher sanctions against Iran. Turkey, which also showed great growth and economic stability in 2010, also defied the West and moved its ideology and investment towards the East. It should be noted, that this move coincided with some criticism by the Turkish government of the German handling of the Turkish population as well as the falling out with Israel (an event unimaginable, when Turkey had a dependent and weaker economy).
However, despite the grim outlook for the Western world, at times one must balance the headlines in the media with the facts on the ground, in order to fully grasp the situation.
Despite being an oil rich country and the economic crisis in the West, tough sanctions on Iran are starting to bite and the Iranian economy is showing signs of collapse by the rapidly growing inflation and consequential an even higher unemployment rate (Iran does not release official statistics). Some argue that the sanctions are inefficient and liken the situation to North Korea, who continued its nuclear weapon program, despite the sanctions, however, this comparison ignores the big middle class in Iran (which didn’t exist in the same way in N. Korea), who are motivated to protect their financial assets. The Iranians also do not have the same isolation from the Western world as the North Koreans.
Perhaps not directly or wholly related, but since taking a hard-line in politics, Turkey has also seen a massive decrease in its currency (60% decrease against the dollar from 2007 to 2011, taking into account that the dollar has taken a tumble in those years as well). There are many reasons for this change, however no doubt that decrease in investment and tourists has had an impact. Also, since 2005 Turkey’s external debt (i.e. total public and private debt owed to non-residents and repayable in foreign currency, goods, or services), has been rising rapidly from $16 billion in 2005 to $270 billion in 2011. While Turkey is still considered an emerging economy with a forecast to grow, it is obvious that its economy is tied with the rest of the world and it has to acknowledge that and act accordingly both economically and politically.
Egypt, Saudi Arabia, China, Brazil and other countries around the world are in a similar situation, in which while they have more prospect for growth, their markets are, dominantly, the Western world. This situation is not likely to change, until there is enough critical mass and infrastructure from countries completely independent of the Western world to trade amongst themselves. There are speculations that this is already taking place, however, it will take time until “new” countries on the scene match the innovation and knowledge of the Western world (political change in those countries almost certainly has to happen first).
So, while the West is losing ground and the reality for its citizens is almost certain to change somewhat, one mustn’t jump to conclusions or lament fate prematurely, after all, the US had the same fear in the 80’s when Japan was gaining ground.