The Coming Anarchy?

Ian Bremmer sounds the alarm:

Here are the two irreconcilable facts that shape the United States’ role in foreign policy: first, it is the world’s most powerful and indispensable nation, and will remain so for the foreseeable future, whether or not it is in decline; and second, the United States is unwilling to provide global leadership as it used to, because of domestic economic concerns and war fatigue stemming from two long campaigns in the Middle East.

This is where narcissism comes in. Focusing on the question of American decline is problematic because it means we’re applying an American lens to global problems. Whether or not the United States is in decline, the important thing is that in today’s environment, America is the last best hope for global leadership, which it is unwilling and unable to provide. The United States will not intervene on behalf of the Syrian people. It will not bail out Europe. It will not bomb Iran. These are the facts, decline or not.

This is, of course, a reference to Kindleberger's famous maxim of how the world descended into chaos during the period in between World Wars I and II: the British were unable to lead and the U.S. was unwilling to do so. The resulting anarchy was therefore a unnecessary tragedy which, according to Ikenberry, the U.S. learned from and was determined not to replicate following WWII.

Bremmer believes that that consensus within the U.S. has eroded and that there is no other global actor is ready/willing to step up to the plate. Here's Bremmer again:

Yes, this is absolutely the case. In the G–Zero, we see a combination of unwilling and unable leaders. The United States is dropping the baton of global leadership—and no one is willing to pick it up.

The implication is that, if this continues, calamity is likely in our future.

I'm in broad agreement with Bremmer in theoretical terms, but I don't see as much U.S. retrenchment as he does. The Obama administration may be many things but isolationist is not one of them. The foreign policy orientation of the party challenging Obama is not either. And while "there will be no Marshall Plan for Europe" this time, there is also less need for one. The Federal Reserve has taken many important actions to stabilize the global financial system, and it is not at all clear to me that intervening in Syria or bombing Iran would make the Middle East more stable rather than less. Nor is it clear to me that those options are truly off the table.

In other words, I think the last four years demonstrate that the current global order is actually remarkably durable. More durable than many believed. Global financial and security institutions have worked pretty well, or at least as well as they had previously. I see no reason to expect that to change in the next few years.

Partially because I think Bremmer gets the following wrong, even if I think he's thinking in the correct terms:

But political institutions need a big shock if they’re to be broken to pieces. The collapse of the USSR in 1991 wasn’t big enough; 9/11 didn’t cut it either. The financial crisis of 2008 proved to be the catalyst. So the question is, what comes next? Until the answer emerges, we are stuck with G–Zero—a transition period as the old order crumbles but nothing has yet replaced it.

I'm not actually sure the financial crisis was a catalyst for "creative destruction" (Bremmer's term, via Schumpeter) of the global order. It was a body blow, to be sure, but the structure of the system seems to have held. We haven't descended into anarchy yet, even if the residual effects are still percolating through. Moreover, the U.S. looks better positioned to remain central to the international system now than at any point since 2007 (or perhaps even earlier). So yes, there was a shock, but the center held, and now appears to be reinforcing itself. The wave appears to have crested, broken, and is now rolling back. So I don't expect to see the major changes that Bremmer does.

The World Is Still Not a Dyad

At the risk of redundancy, I'm wading back into the discussion of China's relative power growth vis-a-vis the U.S. that continues to occupy the IR/FP blogosphere. (I covered the last go-round here.)

Michael Beckley comes back at Eric Voeten, arguing that the answer to "Is American power in decline?" depends on how you define "decline". Beckley says that even if the relative per capita income gap between the two countries is narrowing, the absolute gap is widening, a useful point which is often lost in these discussions. Dan Nexon makes the point that Beckley is almost surely defining decline too narrowly, which is true even though Nexon's characterization of Beckley's argument is less generous than it could be.

But, again, all of this is quibbling over issues that, I think, are peripheral. Here's the question we need to answer before we can start really analyzing the roles of China and the U.S. in global politics: What are we referring to when we talk about American decline relative to China? I see two possibile answers:

1. The bilateral relationship: The ability of China to prevail in a conflict against the United States, or vice versa, or for one side to be able to significantly compel the other to take actions that they otherwise would not.

2. The systemic relationship: The ability of China to alter the geopolitical order that the U.S. has been cultivating since the end of WWII, or otherwise thwart the U.S.'s global ambitions, in a way that is different from the past.

It only makes sense to talk in circles about which statistic more accurately captures the relative bilateral gap between the U.S. and China if we're referring to the first of these. Yet I am quite sure that if I polled everyone involved in this discussion and asked them to offer up a subjective probability that the U.S. and China will war against each other in the next three to four decades, every single one of them would assign a probability very close to zero. This is true for several reasons. First, the presence of large nuclear arsenals in both countries which seem to have had, if anything, a pacifying effect on great power interactions since the Cuban missile crisis. Second, the U.S. and China are interdependent economically in large and growing ways, which also decreases the likelihood of conflict. Third, despite sharing many characteristics with previous imperial regimes the United States has no ambitions towards territorial expansion; neither, historically, has China. Neither have given any indication that this is likely to change. Nor is there any threat that a global Communist/anti-capitalist ideological movement, now more inconceivable than at any point since 1848, will re-emerge to challenge U.S. interests. Not even China wants that.

Therefore, it makes little sense to fret much about a traditional Sino-American conflict. Still, one might think that the ability of one side to coerce the other may be changing with the relative distribution of capabilities. This seems unlikely to me as well. The U.S. has been unable to compel China in a meaningful way for decades (if it ever had that ability); this has been obvious since the Korean War ended in a stand-off, and was codified when the mainland took China's seat on the U.N. Security Council in 1971. Similarly, China has not been able to compel the U.S. to take any significant actions that it otherwise would not. If whatever compellence power the U.S. might have been able to exert against China was defunct by the 1950s or 1960s -- despite the enormous disparity in capabilities between the two -- how long would it take for China to gain that ability over the U.S. even if current rates of growth were sustained indefinitely? Many decades, at least, and perhaps never. It would likely take some major technological break-through, or some other unforeseeable system-altering event. That is, it is inconceivable in the literal sense, and would likely require the destruction of the current geopolitical system as presently constituted. Deterrence capabilities have remained more or less unchanged over the past few decades, although the inclination to employ them may have lessened.

So what we're really talking about is the second of the two choices above. If that's the case, then why do we continue to employ monadic, or even dyadic, evidence to try to reach conclusions about a wider system? As should not surprise regular readers, I am skeptical that China's systemic power has increased very much at all over the past few decades. Yes, China is able to block U.N. resolutions that it doesn't like, but that's been true for forty years. Yes, China is expanding its trade and business networks globally, but mostly by going to places where the U.S. has few interests -- Africa and parts of Southeast Asia. While these investments have yielded some fruit, the process has not been seamless. Yes, China is collecting the world's malcontents -- Iran, Venezuela, Cuba, Burma, Sudan, North Korea -- but I'm not sure that's evidence in support of China's growing global clout. More like their desperation for friends of any sort. In any case the U.S. has done fine without close ties to these countries.

China has stockpiled trillions in financial reserves, but seems to have no purpose for them. They haven't been able to use them to buy much influence in the U.S.'s sphere. They haven't been able to employ them on investments that are likely to yield a high return, instead investing in U.S. Treasury bills and GSE securities. Any unwinding of those positions will impair China's growth model, which still depends on a dear dollar, and the erosion of the value of their remaining dollar assets. Those assets, in other words, are more an albatross than an opportunity. And if owning lots dollars makes one powerful, then the country that can create an unlimited supply of them must be very powerful indeed.

What China has not done, and not even attempted to do, is change or overthrow the key components of the post-WWII system: a global U.S. military presence, a series of international institutions, and a set of inter-locking alliance structures that facilitate international integration on security, trade, and finance. In each of these areas China has become more integrated into the existing system over the past few decades, which will make it harder to fundamentally alter that structure in the future. And while they have expressed some interest in marginal changes to the institutional apparatus, they've not pushed for qualitative changes nor have they been able to achieve many of their lesser aims. Nevertheless, China hopes to become more integrated into institutions like the WTO and IMF, not less. China wants more involvement with the other institutions from the G20 to the Basel Committee... this is the U.S.'s playground, and the games played there are played accordingly to the U.S.'s rules. At the same time that China's rise has attracted some countries, it has pushed other countries closer towards the U.S. Arguably the latter -- e.g. India, Japan, Indonesia -- are likely to be more important in the coming decades than those that have moved closer to China, which are mostly a collection of regimes in various states of collapse.

Does China's rise mean that nothing has changed, or will change in the future? Of course not. The rise of Japan and Germany changed some aspects of the international system, as did the waxing and waning of the USSR. It just didn't change the system itself. The question is whether China's rise will be accommodated by the existing system, or whether systemic transformation will take place. If the former is true then the influence of the U.S. is likely to surpass China for the foreseeable future. If the latter is true it may not.

All indications are that the former is true.

If China does continue to integrate into the current system, then that makes the system that much more durable. Which, in turn, further embeds the central position of the U.S. within the system. Which, in turn, could actually increase the power of the U.S. Put another way, the U.S. clearly has more influence over China's trade practices with China in the WTO than it had when China was outside of it.

So it's not about whether GDP growth is a better comparative measure than GDP per capita, or about CINC scores or anything like that. It's about who is better able to influence, control, shape, and mold the global political and economic systems. In order to play game China has had to accept the U.S.'s rules. To the extent that that persists little else matters.

Why Is the US Doing So Well?

So asks Ezra Klein:

Not in absolute terms, of course. Unemployment remains high. Growth remains anemic. Markets remain shaky. But Europe has been doing something very close to imploding for months now. So just as our financial crisis sent Europe into a tailspin three years ago, you might expect that the possibility of a partial or complete break-up of the Eurozone would have American businesses taking a chainsaw to their workforces and households stuffing their paychecks under the mattress in the expectation that 2012 will be a lot like 2009. And yet none of that is happening.

He then runs down some data and has some quotes from macroeconomists. I think the answer is given by this interactive graph from the BBC. In short, Europe is much more highly exposed to weakness in the US (Above picture) than the US is exposed to weakness from Europe. Click on a few of those European countries; almost none of them expose the US. The ones that do -- mostly the UK -- are in decent enough shape. Even the biggest exposures, from France and Germany, are much smaller than exposures of European countries to the US, and of course the US has a much larger economy and banking system than any one of those countries.

Thomas, Sarah, Andy, and I have some joint research that we've posted about before that visualizes the same data in a different way. Ours includes more countries as well as cross-time developments, shown in an animation. (We posted it nine months ago, so the BBC is way behind.) The point is the same: the world is much more susceptible to contagion emanating from the US than the US is to contagion from the rest of the world. This includes even Europe.

In other words, it's not enough to simply say that interlinkages in the global economy are important, and conclude from that developments in the EU will automatically determine the US's economic performance. The patterns of interdependence are even more important, and these give us reasons to be optimistic that the US may be relatively okay even if Europe goes belly-up.

Stagnation and Economic Geography

Noah Smith considers The Great Stagnation, and comes to similar conclusions as me [1, 2] but from a different starting point:

The basic idea of the theory is this: It is expensive to move products around. This means that if you have a factory, you want to locate it close to where your customers are, to avoid paying a bunch of shipping costs. Now consider two factories. The workers in the first factory will be the consumers for the second factory, and vice versa. So the two factories want to locate near each other ("agglomeration"). As for the workers/consumers, they want to go where the jobs are, so they move near the factories. Result: a city. The world becomes divided into an industrial "Core" and a much poorer agricultural "Periphery" that produces food, energy, and minerals for the Core. 

Now when you have different countries, the situation gets more interesting. Capital can flow relatively easily across borders (i.e. you can put your factory anywhere you like), but labor cannot. If you start with a world where everyone's a farmer, agglomeration starts in one country, but that country gets maxed out when the costs of density (high land prices) start to cancel out the effect of agglomeration. As transport costs fall and the economy grows, the industrial Core spreads from country to country. Often this spread is quite abrupt, resulting in successive "growth miracles" that get faster and faster (as each new industrial region starts out with a bigger global customer base). The evidence strongly indicates that agglomeration is the driver behind developing-world growth.  

But here's the thing: in the theory, the "old Core" doesn't keep getting richer. In fact, under some scenarios, it even gets slightly poorer while the "new Core" catches up. For a while, the negative effects of relocation trump the positive effects of progress.

So this could explain why we in the rich world are getting poorer. In the 50s, America was the only industrial "Core" that was not a pile of rubble. But since the 60s, we have seen successive "growth miracles": Japan and Europe in the 60s/70s, then Taiwan/Korea/Singapore in the 80s, then China since then, and now even India. In a New Economic Geography world, we would expect these successive relocations of manufacturing to hold down income growth in the U.S., even if technology was advancing as usual.

Smith calls this the "Great Location". I called it the "Great Redistribution". Smith emphasizes structural economic factors, while I tried to also incorporate political factors. But in general the two stories are congruous and probably complementary. (Arnold Kling has written a fair amount on this too.)

Cowen says in response to Smith that this doesn't tell us everything we want to know because "Median income begins to stagnate in 1973, before this trend is significantly underway". But I'm not sure about that. Is it just a coincidence that the Great Movement began right at the end of the Bretton Woods system? There was a series of perturbations in global markets related to the re-industrialization of Europe and Japan in the 1960s (as Smith notes). And even if the internationalist story can't explain everything, it can arguably explain more than a stagnation hypothesis, which can't account for the fact that average incomes have grown at roughly the same rates post-1973 as pre-1973. What has changed is the divergence between the mean and median of the distribution. This does not imply (to me, at least) a general economic stagnation, but rather a shift in how the economy is organized. Additionally, any account of changes to the US economy over the past 40 years that does not consider international factors is likely to be under-specified.

I had some of this "economic geography" logic in mind when I wrote my posts, but I honestly don't know that literature well enough to say much of anything about it other than the basic story that Smith laid out. That is, I'm sure people have empirically examined these questions in some depth; I just don't know where the consensus lies, if there is one. Clearly it's important enough, since a Nobel Prize was awarded for it. I'm just not sure what the state of that particular literature is.

Anyway, I'm happy to see international dynamics be brought into this discussion.

Black Swans and the Arab Spring

Nassim Taleb and IPE Prof. Mark Blyth apply "Black Swans" to foreign policy and the Arab Spring:

Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to "Black Swans"--that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.

Such environments eventually experience massive blowups, catching everyone off-guard and undoing years of stability or, in some cases, ending up far worse than they were in their initial volatile state. Indeed, the longer it takes for the blowup to occur, the worse the resulting harm in both economic and political systems. ...

Take, for example, the recent celebrated documentary on the financial crisis, Inside Job, which blames the crisis on the malfeasance and dishonesty of bankers and the incompetence of regulators. Although it is morally satisfying, the film naively overlooks the tact that humans have always been dishonest and regulators have always been behind the curve. The only difference this time around was the unprecedented magnitude of the hidden risks and a misunderstanding of the statistical properties of the system. ...

Humans fear randomness--a healthy ancestral trait inherited from a different environment. Whereas in the past, which was a more linear world, this trait enhanced fitness and increased chances of survival, it can have the reverse effect in today's complex world, making volatility take the shape of nasty Black Swans hiding behind deceptive periods of "great moderation." This is not to say that any and all volatility should be embraced. Insurance should not be banned, for example.

But alongside the "catalysts as causes" confusion sit two mental biases: the illusion of control and the action bias (the illusion that doing something is always better than doing nothing). This leads to the desire to impose man-made solutions. Greenspans actions were harmful, but it would have been hard to justify inaction in a democracy where the incentive is to always promise a better outcome than the other guy, regardless of the actual, delayed cost.

I don't have too much to say about this right now, but I find the basic argument very interesting. (For those without institutional access to Foreign Affairs, Blyth describes the basic principles in this audio interview.) It's not especially new, especially for Taleb, but generalizing the argument that economies, polities, and other social systems are complex adaptive systems is important. The central claim -- the more we try to keep a lid on volatility, the bigger the inevitable explosion -- may or may not be strictly true. It's the sort of claim that needs more empirical support than they provide in this essay alone. But the bigger argument about complex systems is surely true, and internalizing it is important for social scientists and policy makers. I expect this sort of thinking to guide a lot of future research in the social sciences.