SATYAHIT DAS: END OF EMPIRE-3 The US will join the UK as a failed first-world state

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.

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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).

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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.

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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.

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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."

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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.

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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).