By Syed Mohibullah Shah
Over the last 100 years, the world has lived through four different world orders. It has arrived at the same multi-polar order that prevailed in the beginning of the 20th century and is filled with uncertainties.
For much of the first half of the 20th century, a multi-polar world was shaping events that affected the rise and decline of countries. This ultimately plunged the world in two devastating world wars until the new order of a bipolar world led by the US and USSR emerged after World War II. The internal implosions from the Perestroika and the Glasnost and the Afghan war disaster led to the dissolution of the USSR and the end of a bipolar world. As the Cold War ended, the new world order of a uni-polar world was announced in 1991 and the US emerged as the sole superpower in the world. But, in the aftermath of the unending wars in Iraq and the Middle East at the turn of the 21st century and the financial crisis of 2007-09, the uni-polar world was weakened within the quarter of a century.
In the meantime, China continued its peaceful rise to become the second largest economy and arrived at the centre stage of a globalised world. Russia has updated and consolidated its strength during these 25 years and has once again risen to become a serious centre of power in Europe and Asia.
Since the benefits of a uni-polar world and the globalised economy had not trickled down to the masses during these 25 years, their anger and frustration brought about Brexit in the UK and triggered Donald Trump’s rise to power in the US. The effects are still reverberating through some other European countries. Their anger was essentially a vote of no-confidence in the model of economic and political governance whereby the benefits that the West reaped during the Cold War, the uni-polar world and the globalised economy had been monopolised and not fairly distributed.
The question whose answer will unfold in future is: will the focus of the upcoming tectonic changes be on reforming what a recent Harvard Business School study calls “America’s dysfunctional political system” – which is the biggest threat to the competitiveness of America’s economy? Or, will this anger and frustration be directed against external elements – countries and immigrants – and used to scapegoat them?
The outsourcing of production facilities by American companies to the developing countries is not an outcome of any love affair. On the contrary, it is driven by the economic logic of creating maximum value at the minimum cost. It makes obvious economic sense to produce a product of the same quality at a labour rate of $5 per hour in the developing countries instead of paying a labour rate of $25 per hour at an industry in the US. This outsourcing also benefits American consumers who would otherwise be paying five times more for the same product.
The problem does not lie with economics. It stems from politics as policies have not been framed for the fair distribution of benefits and the retraining of workers from non-competitive industries for the more competitive ones.
As the tectonic plates of the world economy are shifting towards Asia, history is also repeating itself. A turning point in the history of colonisation of the Subcontinent came with Clive’s victory in the Battle of Plassey in 1757. The battle laid open the Subcontinent to the ravages of colonialism. At that time, Asia was the richest area where 60 percent of the wealth of the world was situated, while the Subcontinent held 17 percent of the wealth of the world. Interestingly, the portion in the Subcontinent in the wealth of the world was equal to the combined wealth of the UK, France, Germany and the US.
Nearly 200 years later, at the time of Independence, the collective share of India, Pakistan (which then included Bangladesh) in the world GDP had shrunk to 7 percent. Meanwhile, the combined share of the UK, France, Germany and the US had gone up to 40 percent.
In the long years since the end of colonialism, much of Asia – excluding Pakistan – has learned the lessons that the route to power and prosperity lies through the productivity of its economy and the efficiency of its governance. Asia’s share in the world economy – which now stands at 40 percent and is projected to rise to 60 percent by the third quarter of this century – also suggests that the ravages of colonialism,which unfolded in the aftermath of the Battle of Plassey, have finally been undone. It suggests that Asia has regained the level of prosperity it enjoyed before its colonisation.
Asia’s rising share in the world economy has also opened doors which were earlier closed to it. When the Asian financial crisis hit several East Asian countries in 1997, the attempt, led by Japan, to create Asia’s own financial architecture in the shape of Asian Monetary Fund (AMF) did not materialise in the face of opposition from the West. It is believed that the West did not like the idea of a competitive financial institution that rivalled the IMF – which was created under the Bretton Woods system (the Washington Consensus).
By 2015, when China sponsored the Asia Infrastructure Investment Bank (AIIB) to finance $8.3 trillion worth of infrastructure over 20 years and integrate Asian and European economies, 57 countries (including Pakistan) signed as its founding members. Some of these countries included leading members of the Washington Consensus who signed against the advice of the US. China’s flagship One Road One Belt initiative is the largest investment of its kind and reflects Asia’s faith in the benefits of an integrated globalised economy.
As the tectonic plates of the world economy keep shifting towards Asia, the continent will increasingly attract the forces of cooperation, competition and even conflict. Many economic and political battles are likely to be fought over the Asian mainland for and against the rise of Asia as the centre of the world economy in the 21st century. If the multi-polar world of the early years of the 20th century is anything to by, small localised conflicts have the potential of going out of hands. For instance, the death of Archduke Franz Ferdinand in Sarajevo created a chain reaction that resulted in World War I. Is there any architecture that can peacefully negotiate this tectonic shift in the centre of gravity of the world economy?
A stronger vision, better vigilance and quality governance can safely navigate Pakistan through the unfolding uncertainties. Unfortunately, our foreign policy – from Ufa to Amritsar – has been comatose. Our idea of economic diplomacy does not see the world beyond our Gulf neighbours. Our personalised systems of governance – devoted to serving the rulers of the day – have not allowed the existence of visionary, merit-driven think-tanks to develop policy options and address unforeseen scenarios for the long-term interests of the state.
The age of uncertainty is upon us. Will we be able to develop the vision, wisdom and skills to safely navigate the state through uncharted waters? Will the state arrive at its rightful place as one of the important centres of the new multi-polar world?
The writer designed the Board of Investment and the First Women’s Bank.