Increasing instability in a world not flat

New Age - May 9, 2009

Dropping the curtains on the cold war stage has not brought in stability in a much-propagated unipolar world. It was told by a section of pundits that The World is Flat (a book by Thomas L Friedman, 2005). Competition for accumulation in the centre and near-centre of the world system and the near-complete globalisation by capital has intensified instability that is inherent in the present world order. Gone is the static, stable world created in the period of cold war. Sounds of bombing on the lands of former Yugoslavia torn into pieces that peace.

The cold war bled the Soviet Union white. Military competition with the US together with weaknesses and faults within the post-revolutionary society in the Soviet Union made its collapse. The United States, the surviving super power in the cold war, reaped dividends from that war. The cold war 'increases the demand for goods', as the Harvard economist Sumner Slichter told bankers in 1949, 'helps sustain a high level of employment, accelerates technological progress and thus helps the country to raise its standard of living.... So we may thank the Russians for helping make capitalism in the United States work better than ever.'

The Second World War pulled up the country out of depression and as the war came to a conclusion bounty came in to the country as prize of the war and of the post-war reconstruction in Japan and Europe. The regional wars in Korea and Vietnam played crucial role in creating the 'golden age' in the history of capitalism in that land of 'opportunity'. By that time military-industrial complex made its seat in the US economy well-entrenched and the economy got dominated by the military-Keynesianism.

Then the world economy, as Sweezy put, experienced slow growth and the 'great' globalisation had the Midas touch of monopolisation and finacialisation. The contradiction of huge surplus and no scope for newer investment brought to life speculation with financial instruments that instrumented the present financial crisis. To George Soros, the renowned investor, these are 'fancy instruments for investment'. A market, unimaginable in size, with complex forms of investment including credit-default swaps that made it possible for investors to bet on the possibility that companies will default on repaying loans came into being. 'Such bets on credit defaults', according to Soros, made 'a market of $45 trillion', an amount more than five times the total of the US government bond market, which was entirely unregulated and the risks of such investments were not acknowledged by the mainstream. And, he said: 'the system' was 'built on false premises.' Market fundamentalism, the dominant ideology in the market, relied on the helpful hidden 'hand' of market.

Then the present great financial crisis came, erupting in the United States in August 2007 and spread around the globe. It entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. The global stock-market witnessed $6.5 trillion losses on October 6 and 7, as measured by Standard & Poor's BMI Global, an index of major markets worldwide. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the International Monetary Fund estimated in a recent report. Whatever the amount, it was a trillions-dollar game by the speculators.

There are 'stories' on financial crisis from the other sides of the Atlantic and the Pacific. Iceland was on the brink of bankruptcy. Then a political crisis followed there. Tales of state standing beside bankers were told from the United Kingdom, France, Germany, Japan, Australia, India, Canada, Hungary, Ukraine, China and many other countries. Europe is going through severe economic problems. 'By any measure, the downturn is the deepest since the Great Depression of the 1930s,' the IMF said in its latest World Economic Outlook. 'All corners of the globe are being affected.' Xu Lejiang, chairman of Baosteel, one of China's giant steelmakers, said: The era of rapid growth for Chinese steel 'will soon be remembered as history.'

Time wrote in October 2008: The Chinese stock market has also been hit hard; it was down about 60 per cent in 2008. China's economic growth has been a critical factor for the US because working in tandem, the nations have served as the twin motors of world economic growth: American consumers have snapped up everything that the Chinese have manufactured, from toys to apparel, and in return the Chinese have helped to finance America's deficits by accumulating ever larger amounts of US debt. If their economy hits the brakes, Chinese will buy fewer GM cars, Chinese steelmakers will use less US iron ore, and Beijing may want to use its cash reserves for other purposes, including investment at home to stimulate its own economy rather than to bail out the US treasury. New York Times said in last December: An ensuing movement of China away from the dollar could drastically destabilise the entire US-dominated world economic order.

These tales are now being told and retold all over the media and academia. Now, sections of the mainstream search the pages of Marx. Dr John Sentamu, the archbishop of York, as The Telegraph, UK, of September 24, 2008 reported, denounced the 'Alice in Wonderland world of global finance' and condemned 'the financial traders who made millions by driving down the share prices as "bank robbers and asset strippers"' while Dr Rowan Williams, the archbishop of Canterbury, opined that Marx was right in his analysis of 'unbridled capitalism'.

Along with this hullabaloo in the lands of capitalist 'miracles', 'miracles' that spellbound many of our economists, there are countries with big surpluses that have set up sovereign wealth funds, state-owned investment funds held by central banks. These countries include Abu Dhabi, China, Norway and Saudi Arabia. They aim to diversify their assets from monetary assets to real assets, one of the major developments. These sovereign wealth funds were equal in size, in 2008, to all of the hedge funds in the world combined, were growing and were expected to grow to about five times the size of hedge funds in the next 20 years.

While discussing the 'Four Crises of the Contemporary World Capitalist System', William K Tabb wrote: 'In 2006, for the first time, emerging markets accounted for over 50 percent of global output. If they continue to grow at the rate they have, forecasts project a very different world by mid-century. ... A 2006 study by PriceWaterhouseCoopers projected that in the year 2050 the Chinese economy would be almost as large as that of the United States in dollar terms, and that India would be the third largest. A year later Goldman Sachs researchers predicted China would pass the United Sates in 2027 and India's economy would become larger than that of the United States before 2050. Investment bankers predict Brazil's economy in 2050 will be as large as Japan's, and the Indonesian and Mexican economies will be larger than those of the United Kingdom and Germany. PriceWaterhouseCoopers' researchers expect the "E-7" (Brazil, China, India, Indonesia, Mexico, Russia and Turkey) will be about 25 percent larger than the current G-7 and will be driving the growth of the global economy.'

Assessments made in these predictions may change due to the global economy's lurch into reverse this year and in the coming few years. The changed equation of economic power might bring in powerful factors that might even create greater forces of instability. In 2010, the IMF, in the context of the present financial crisis, has predicted that the US economy will be flat, neither shrinking nor growing while Germany's and Britain's economies will shrink by 1 percent and 0.4 percent respectively. Other countries, such as Japan, Russia, Canada and Mexico, are projected to grow again. And China and India should pick up speed. Tabb says: 'A renewed strength of the dollar could be a reflection of greater trouble elsewhere rather than economic recovery in the United States.' These will reverberate in the arena of world power equation.

China is now much more important with its rise as a world power. With inroads in Africa and Latin America China has become a permanent point of pain in the US establishment. There is concern in the US establishment of a China-Russia-Iran coalition The Time report said: China's huge currency reserves and its vast holdings of US securities make it a key player in the US financial markets. If the Chinese decided to shift any of their money out of the US or the dollar, it would cause a huge upheaval, potentially sending the dollar skidding and hurting markets even further.

India, building up a blue water navy, is an emerging market on the bent backs of millions of poor. The US is making efforts to establish a military alliance with India. At the same time, there is a process of partnership among China, India and Russia. India and China are in need of energy. Tabb wrote in Z Magazine: 'Russia is selling advanced military systems to India and China and cooperating on energy.' He continued: The Shanghai Cooperation Organisation emerging as a counter to NATO has brought together China, Russia, India, Uzbekistan, Turkmenistan and Kyrgyzstan while observer status in the SCO to the US was pointedly denied. The same status has been given to Pakistan, Afghanistan, Iran and Mongolia. The SCO has declared that the US should leave the Middle East.

'Something' is coming up as Beijing Consensus as it appears an alternative to the Washington Consensus. While the former is based on respect for sovereignty the latter uses economic threats and cruise missiles to spread 'democracy' and 'free' market. There is the possibility of a nuclear armed Iran where India has billions of investment in gas and oil. Iran's alliance with Venezuela is not an easy event for the US and Russia is selling arms to Venezuela.

The changing colour of much of Latin America, from white to pink and red, is a challenge to the famous Monroe Doctrine that defined the Western Hemisphere as a US sphere of influence, and the Roosevelt Corollary that reasserted the US's position as protector of the Western Hemisphere. The radical Bolivarian Alternative for Latin America is promoting regional solidarity in Latin America. The Banko del Sur (Bank of the South) has weakened the grip of the IMF and the World Bank in the region. Discussions for a regional monetary system in the region have been initiated. Cuba is not having a sense of US imposed isolation. It is surviving with its increasing friends after passing through the 'Special Period' as its leadership calls the tough time the island - country went through since the demise of the Kremlin empire.

The imperial ambition of Russia, possessing the third-largest hard currency reserves in the world, haunts the US dominated faction of the mainstream. Yuliya Tymoshenko, the Ukraine prime minister for nine months in 2005, wrote in the US ruling elite-journal Foreign Affairs, May-June, 2007: The policy of 'containment' of Russia is still applicable today. Russia straddles the world's geopolitical heartland and is heir to a remorseless imperial tradition. She tells about 'Russia's ... desire to recapture its great-power status at the expense of its neighbours.' It is a tone of anxiety and concern. Russia's foreign policy is troubling for the US. Moscow has given Tehran diplomatic protection for its nuclear ambitions, and Russian arms sales are promiscuous. Putin once spoke favourably about creating a 'gas OPEC'. A number of times one of its neighbours has experienced the power of suspending gas supply. Georgia had a bitter experience with Russian firepower recently.

Northeast Asia is 'one of the most dangerous places on earth' now. Kent E Cadler, a former special adviser of the US ambassadors in Japan, wrote in Foreign Affairs, January-February 2001 issue: 'Only there are the world's three principal nuclear powers (the United States, Russia, and China) and the two largest economic powers (the United States and Japan) still politically and geographically engaged - their interests entwined in a volatile arc surrounding Japan. As other global hotspots moved fitfully toward peace [?], Korea remained locked in conflict. South Korea has long been a geostrategic island... a bridge - to Russia, China.' It has been argued in The United States, Japan, and Asia (ed. Gerald L Curtis) that there are dangers if the United States and Japan go separate ways in dealing with China, a difficult partner to deal with in world affairs, as they did in the 1930s. Financial and economic interests of both the countries may compel them to deal with China separately. The 'loose balance of power' between Russia, China, Japan and the US in 'the Strategic Quadrangle', East Asia, is not going to be permanent with the building up of ocean-going navy by China, its thirst for energy and expansion of trade relations.

Then where does the sole superpower stand on the stage of geopolitical drama? It is an apparent ambiguous position. The sole superpower is the largest empire in the history of humankind. Its arms could reach every corner of the earth with the mightiest machine for war mankind has ever made. But the war machine now finds that the economy that was supposed to support it does not now carry that capacity. Its adversaries and competitors do not match it in terms of fire power but outperform it in the area of economy. Even its mighty machine is overstretched; it cannot twist arms of 'disobedients' as it did decades ago. These are few of the contradictions that made it more adventurous and aggressive. A few of its fight are turning fistfights with Frankenstein and shadows. Its navy has to degenerate itself into marine police at times as it has to engage with pirates. Today it is with a band of pirates near the Somali coast, tomorrow it will be in the Gulf of Mexico.

The war on terror, Sorors argues in his book The Bubble of American Supremacy: The Costs of Bush's War in Iraq, has put the US on a wrong track. This war, to Soros, is responsible for the decline of US political influence and military power. This is only the 'story' in the centre of the centre of the world capitalist system. Soros writes: 'We are at the end of an era.' And, in terms of economy, he says, the US will not be the world power when the current crisis ends. It is a period of considerable uncertainty and turmoil. Hillary Clinton intends to revitalise the mission of diplomacy in American foreign policy and called for a 'smart power' strategy in the Middle East. At her confirmation hearing before the Senate Foreign Relations Committee, she said: 'America cannot solve the most pressing problems on our own, and the world cannot solve them without America.' But, alas! Often the outward face of geopolitics does not provide the sulphurous roaring to the most mighty Neptune, often the tricks of desperation are neutralised by the sharp wind of the north (italicised words are from The Tempest).

There are other actors, minor and emerging, in the drama of geopolitics. They are making moves as their needs compel them and as their capacity permits. These needs and capacity are influenced by factors including economy and historical destiny. There are hotspots, bigger and smaller, in Europe and in other continents that are turning difficult to deal with in this round world. A tumultuous time indeed!

Farooque Chowdhury mainly translates. One of his edited books is Micro Credit, Myth Manufactured

Goodbye to Taching

CHINA’S THIRST FOR OIL

Geopolitical equations are changing with China's ever increasing thirst for oil, part of its quest for energy security. And, with the changes in class outlook to Mao's "On the Ten Major Relationships" Taching is no more a model to the ruling elites in Beijing with their increasing hunger for affluence.
A few news reports show the country's search for oil from corner to corner of this round earth: Brazil's president Lula visited China for strategic partnership, the Chinese National Petroleum Company (CNPC) opened Iraq's Al-Ahdab oil field in last March, China and Kuwait signed five agreements on areas including energy and finance in last May, an oil pipeline linking Russia's far east to China's northeast is set to start operation by the end of 2010, China and Russia signed seven energy cooperation agreements in February that included the pipeline, a long-term crude oil trading deal and a financing plan between China Development Bank and the Russia Oil Pipeline Transport Company, CNPC signed agreements with Costa Rica to upgrade Costa Rica's oil refinery and to conduct a feasibility study on a new refinery in November, 2008, CNPC to lend US $ 5 billion to the Kazakh state oil company for the joint purchase of a local major oil developer, Brazil agreed to supply crude oil to Chinese refineries along with an agreement for a US $ 10 billion loan from the China Development Bank, China agreed with Russia on a US $ 25 billion loan in exchange of 300 million tones of oil piped from Russia between 2011 and 2030, CNPC is constructing two oil refineries in Chad and Niger, the company agreed to buy Canada's Verenex Energy Inc. for US $ 390 million in its bid to boost its business in Africa, the United Arab Emirates (UAE) and CNPC concluded an agreement to build a $3.29 billion oil pipeline in the UAE, China signed contracts with Qatar and Yemen for long-term oil imports, a $1.76 billion buy-back agreement to develop an oil field in Iran was signed by CNPC, Uzbekistan and CNPC made a deal on joint exploration of an oilfield, a natural gas pipeline extending from Central Asia to China, passing through Uzbekistan and Kazakhstan, is being constructed. The list is much longer. CNPC had invested, by the end of 2007, in 73 oil and gas projects in 28 countries. Angola, Canada, Indonesia, the Republic of Congo, Saudi Arabia, Sudan, Venezuela, and many other countries are in partnership with China. Africa and Latin America are its major areas of energy deals. Sri Lanka is not away from the oil thirst from the Eastern power. B Raman, a former additional secretary, govt. of India, said in a paper titled "China's Oil Quest Across India's Cauvery Basin": "China's oil quest is set to reach the Mannar area of Sri Lanka adjoining the likely oil / gas bearing Cauvery basin of South India." In this paper for the South Asia Analysis Group he mentioned "Chinese energy foothold in this key area..." China's attempt to buy Unocal is an old story. James Woolsey, former director, CIA, termed the attempt as "a threat to US national security."
China, once an importer of oil, turned a net exporter in its Mao-led phase for self-reliance. Taching, China's most famous oilfield and a symbol of its
revolutionary reconstruction, and a few other oil fields eliminated China's dependence on foreign oil.
In 1976 China ranked tenth in the world with an oil output of 84.19 million tons. Before 1949, the victory of the revolution Mao Tse-tung led, China produced little oil. Then, the production increased. But, with the contradictions in a post-revolutionary society and transfers in class dominance in the society changes in relationships and priorities came as time treads the trade routes and transgressions are there by capital. The dominating ruling segments in Beijing need more and more with their growing affluent life style, dominance draws in dreams for deeper and further dominance, oil turns the lifeline, Myanmar and Sudan turn allies in the global game for grabbing oil. Major players in the global energy market were the United States, EU, and Japan. China, along with India, has now joined them as its economy boomed, an average annual 9 percent growth over the last two decades. The country is now the second largest importer of oil, after the US. It turned a net importer of oil in 1993. According to the International Energy Outlook 1999 total primary energy consumption in China increased from less than 18 quadrillion Btu in 1980 to 37.1 quadrillion in 1996. It was projected to reach 98.3 quadrillion Btu by 2020, a level near to that of the projected US demand. The International Energy Agency (IAE) projected, obviously before ‘The Great Financial Crisis’, China's net oil imports would surge to 13.1 million barrels per day (mbd) in 2030 from 3.5 mbd in 2006. About half of its oil imports are still from the Middle East, the identity of a region imposed by the colonial rulers, a region volatile. So the economy compels China to diversify its sources of oil, the life blood for growth. Here enters Africa, with only 9 percent of global proven oil reserves, Central Asia and Latin America in the oil map of Beijing. The Middle East holds 62 percent. But oil industry analysts hope that Africa holds significant undiscovered reserves. Still the US extracts much oil from Africa, a dominant presence there, 33 percent of Africa's 2006 exports while China's share was only 9 percent. China's biggest suppliers in Africa include Angola, the Republic of Congo, Equatorial Guinea and Sudan. Chad, Nigeria, Algeria and Gabon are also its suppliers. A June, 2008 backgrounder, titled "China, Africa, and Oil", of the Council on Foreign Relations said: "China is intent on getting the resources needed to sustain its rapid growth, and is taking its quest to lock down sources of oil and other necessary raw materials across the globe." There is widening gap between China's oil and gas supplies and demands.
China is now Africa's second highest trading partner. The US is in front of it while former colonial masters, Britain and France, fall behind it. China courts governments with debt forgiveness, trade deals, aid package, construction of railway lines, roads, dams, sends physicians, hosts thousands of African workers and students, cancelled $ 10 billion in bilateral debt, and pays bribes, as the Transparency International claimed, a corps perdu, desperate, attempt.
China does not like the US way of raising human rights issues claiming there is no universal standard of human rights. The US supports countries like Pakistan, Saudi Arabia and Egypt. China sells arms to Sudan. Chinese military trainers are in many African countries. Strategic interests are important to both the countries. The US and China broadly stand on the same plane, one goes for maintaining its empire while the other tries to establish it. An article in Foreign Affairs by David
Zweig and Bi Jianhai observed that China has successfully adapted "its foreign policy to its domestic". Swedish foreign ministry and senior researcher at the Defense Research Agency, Sweden, writes: "It seems that the US is genuinely concerned about the long-term consequences of competition with the two Asian giants. America's growing unease towards the Asian powers was reflected in the report titled 'Mapping the Global Future' published in 2005 by the US National Intelligence Council, a government think-tank which advises the CIA and senior US policy makers. The report states that 'the likely emergence of China and India as new major global players ... will transform the geopolitical landscape.' It adds that 'in the same way that commentators refer to the 1900s as the 'American Century,' the early 21st century may be seen as the time when some in the developing world led by India and China come into their own ... (and) will have substantial impacts on geopolitical relations."
Kiesow, in his article "Quest for Oil and Geostrategic Thinking" in The China And Eurasia Forum Quarterly, Nov., 2005, refers to Hitler's plan to attack the erstwhile Soviet Union in the summer of 1941 and writes: the plan "had as one of the two most important parts a push through southern Ukraine in order to get secure access to the oil fields in Baku. To secure the supply of oil for the German forces and to cut off the Soviet supply seems to have been an important reason for his opening of a second front." John K Fairbank and others in their book East Asia : Tradition and Transformation refers to the role oil played behind the Japanese attack on the Pearl Harbour. In September 1941 Japanese leaders decided to go to war with the United States if an agreement regarding oil was not reached by early October. Since American oil embargo against Japan, which had been introduced in July, was still not lifted in October, plans for war were made and on December 7 the Japanese attacked Pearl Harbour. Kiesow says: "The more dangerous side of the problem is the tendency towards geostrategic thinking that has appeared so conspicuously in the US, China and to a certain extent also in Japan, India and Europe." A RAND Corporation book, China's Quest for Energy Security by Erica Strecker Downs, said in its concluding part that the leaders in Beijing perceive the US as the primary threat to energy security and they are largely defensive. Beijing's policy is designed to minimize the vulnerability of China's oil supply to the US power. They try to avoid US control of sea lanes. So the emphasis to the Central Asian oil pipelines. At the same time China tries to strengthen its economic, political and military ties in the Middle East where the US is still the dominant military power. The aim is to secure access to oil from that region.
Other actors are involved in this geostrategic "game." The actors' functions are influenced by many other factors. Stakes and relations determine paces of actions of all these actors. Many of these carry characteristics of duality, sometimes under pulls and pushes of contradictory considerations imposing constraints. Variances in regions multiply these problems. Class character of the ruling elites in respective countries involved has a fundamental role to play and these class characters grow up out of the ruling elites' types of relations with production, out of the character of the involved capital. Other than these aspects there are organizations, emerging and international in type, Shanghai Cooperation Organization, Bank of the South, etc., that have a space to play, but also
influenced by the respective dominating capitals' characters that cannot overcome own needs and inherent historical limitations. A few multinational organizations are either expanding a la NATO or losing hold of grip like the IMF in Latin America. This complex matrix of reality and relations should not be missed while considering the changing geostrategic reality related to the increasing demand for fuel by bigger economies.
The present financial crisis in the world system is a basic aspect that will have influence on the geostrategic issues. None of the predictions made/ assessments done before ‘The Great Financial Crisis’ took into considerations the possibility of bursting out of the speculation bubble in the financialized global system and the impact this could have on the involved actors/capitals/organizations, state and non-state.
The RAND's book says: China's international oil and gas investments are unlikely to bring China the energy security it desires. China is likely to remain on US protection of the sea lanes that bring the country most of its energy imports.
This hunger for nonrenewable fuel, this "mindless" competition for accumulation will, first of all, have environmental impact affecting the people in related countries / regions, environmentally and economically defenseless, while this competition with all the seeds of taking a fierce face have the potential power for affecting peoples' common endeavour for a decent, prosperous and happy life. Defacing the planet is a near-certainty.
Newer equations will emerge with capitals forming and reforming newer alliances, giving up or trying to give up past allegiances and adopting bargaining positions, making friends, foes and the opposite as it is going for ages in the arena of geopolitics.
Despite the clouds accumulating over the horizon there are spaces and scopes for maneuver for "minor characters", smaller countries on the fringe, in this changing geopolitical drama. Exploring and exploiting the opportunities provided by moments of conflicts and competitions among the "main characters" will depend upon the maturity and farsightedness of the capitals involved in these economies on the margin. Whatever, happens with these capitals the peoples in these societies have possibilities for wider scope for exercising their democratic rights.

This article has published in Weekly Magazine Frontier, Autumn Number 2009