The Ukraine conflict may be
important in the re-shaping of a fractured world.
Individual trajectories
within the Western bloc will differ, in part because of internal divisions. The
most likely to peel off are Europe and Japan.
The US strategy appears to be to weaken Russia by
sacrificing Ukrainians and Europeans as actual or economic cannon fodder. Given
its high dependence on imported energy and sensitivity to fuel costs, Europe,
especially Germany and Italy, risk a severe economic contraction, damage of its
industrial base, loss of living standards and a banking crisis. Unsurprisingly,
industrial
leaders have written to the European Commission warning of an "existential
threat" from higher power prices. They highlighted the danger that
shutdowns pose to employment, taxes and ability to repay borrowings that would
be ruinous for Europe. Environmentalist are concerned variously about
recommissioning nuclear power plants and restarting dirty old coal fired power
plants.
(...)
If the US were to place
sanctions on China, then Australia and New Zealand would find it extremely
difficult to trade with their major trading partner without broad exemptions
which may not be forthcoming. The cost in national income would be substantial.
The problem is not
exclusively antipodean as Europe is
highly dependent on Chinese trade. In 2021, China was the third largest
destination for European Union goods exports (10 percent) and the largest
source for European Union goods imports(22 percent).
(...)
After having spent decades
championing free trade and capital movement and forcing the Washington
Consensus
on other countries (most recently on Sri Lanka and Argentina), the West are
busily implementing the very policies they derided – trade and capital
restrictions, price caps, subsidies, nationalisation and replacing market
forces with state controls.
For British statesman Lord Palmerston, countries had no eternal allies or
perpetual enemies just permanent interests. It is probable that Europe, Japan and
perhaps Australia and New Zealand will drift away from the alliance. The stance
on Ukraine may be an indication of the long-term trajectory. Already, large protests have taken place in the Czech Republic against continued support of Kyiv
and its effects on the cost of living.
(...)
The
UK's position perhaps provides a guide to America's fate. There are similar
economic susceptibilities -- high debt, lagging infrastructure, a hollowed out
industrial structure and problems of inequality.
(...)
In The Rise and Fall of
the Great Powers published in 1987, Paul Kennedy argued that great power
ascendancy and decline correlates to available resources and economic
durability. America's military overreach and military spending – greater than
China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and
South Korea combined– is unsustainable. Ungovernability, deadlocked body politic, elite
looting and absence of leadership add to the problems.
America and the UK revel in
the past.
But the facts suggest that
the US will join the UK as a failed
first-world state, a Somali with nukes. As historian Arnold Toynbee argued:
"civilizations die from suicide, not by murder."
(...)
Large systems do not fail
quickly. British power has been falling for a century. The roots of the demise of
the USSR can be traced back Stalin committing the Soviet Union, at the end of
World War 2, to an unwinnable direct competition with an economically superior
US.
(...)
But the signs are that a
critical point is approaching. Structures are unravelling. Economic growth is
stagnating. Resource scarcity, climate problems and resultant inflationary
pressures are rising. High debt levels may prove difficult to sustain. The
financial system is fragile. Global political, business and cultural elites are
increasingly detached from the concerns of ordinary people. Geo-political
tensions are high and the American-dominated unipolar world is under
threat from within and without.
The internal contradictions
of the existing order make change inevitable. The outcomes may be positive or
negative. At the edge of chaos, the exact shape of any transformation is
unpredictable and rarely simple. Great powers can undertake reforms, such as
those America undertook during the Great Depression, to reemerge.
© 2022 Satyajit Das All Rights Reserved
Satyajit Das is a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), A Banquet of Consequences RELOADED (2021) and Fortune’s Fool: Australia’s Choices (2022).
