Analysis: The return of "great power politics"
By Peter Apps, Political Risk Correspondent | October 8, 2010 8:15 PM IST
From currency battles to computerized corporate espionage, fractious international conferences to a new scramble for Africa, "great power politics" is back on the map.
The growing power of emerging economies -- particularly China, Russia, India and Brazil -- is redrawing the priorities of foreign and defense ministries, driving financial markets and reshaping the global business environment.
Speaking in Geneva last month, former Secretary of State Henry Kissinger compared the approach of powers "emerging into confident nationhood" to those of states in the 19th or early 20th centuries. Their rivalries eventually triggered the carnage of World War One.
The rise of China in particular is putting international relationships and systems into flux, Kissinger warned.
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"Chaos may occur but when it does it will sooner or later settle down to some new order," he said -- saying it was essential that statesmen managed this process well to "save humanity from untold suffering."
The global financial crisis of 2008 appeared to produce a fragile consensus on economic interdependence and regulatory reform at a G20 summit in London in April 2009. But that has all but broken down.
International Monetary Fund Managing Director Dominique Strauss-Kahn lamented fading global cooperation this week.
"I think it's fair to say that momentum is not vanishing but decreasing and that's a real threat," he told a news conference ahead of twice-yearly IMF and World Bank meetings.
"Everybody has to keep in mind this mantra that there is no domestic solution to a global crisis," he said.
Private sector analysts see the change even more starkly.
"Even a year ago, they thought they needed each other," said Elizabeth Stephens, head of credit and political risk at London insurance broker Jardine Lloyd Thompson. "Now, it's survival of the fittest."
Some say that was inevitable -- not least because of growing imbalances in the global financial system and upward pressure on emerging nations' currencies.
Governments are relying on export-led growth to bring jobs and ensure social stability, inherently producing rivalry over foreign exchange and access to resources. Everyone wants a competitively weak currency and guaranteed cheap fuel and food.
China is at the center of these tensions, due both to its currency, still effectively pegged to the dollar, and to its insatiable appetite for resources. But the unstable dynamics go beyond the Beijing-Washington axis, sometimes dubbed the "G2."
The last month has seen a host of signs of the new world rivalries and disagreements that may point to what is to come.
There has been the growing rhetoric over what Brazil's finance minister warns may be an "international currency war," with key economies vying to weaken their exchange rates.
Governments fear a domestic backlash if they are seen to blink first, potentially losing jobs to their rivals. The West wants rapid Chinese currency appreciation -- but Beijing is strongly resistant, warning it could unleash social turmoil.
Brazil this week effectively increased capital controls and other emerging economies such as South Korea are considering following suit to control currency rises.
Fears of a repeat of Great Depression-style currency and trade tariff struggles dominated the run-up to the weekend's IMF and World Bank meetings as well as Friday's G7 finance talks.
"If one lets this slide into conflict, or forms of protectionism, then we run the risk of repeating the mistakes of the 1930s," World Bank president Robert Zoellick told reporters.
In a more conventional national dispute, Beijing and Tokyo locked horns last month after Japan's coastguard detained a Chinese trawler skipper near disputed islands.
That escalated to an apparent de facto embargo of Chinese exports of "rare earth" minerals vital to Japanese industry before the ship's skipper was released.
Some see Japan and Asian nations' sovereign wealth funds following China and Middle Eastern powers in trying to lock down food, mineral and energy supplies in Africa and elsewhere. Those resource struggles may define the 21st century in the same way conventional wars defined the 20th, some say.
"We are now armed in a different way," said Michael Power, global strategist at Investec. "We shouldn't sensationalize this idea of a currency war -- but there is a modicum of truth that this is some kind of conflict."
He is not alone in that thinking. The U.S. Naval War College in Rhode Island is teaching mid-ranking officers more than ever before about finance and markets.
"There is growing appreciation for rising and resurgent powers and their abilities... to complicate U.S. freedom of action," said Nikolas Gvosdev, professor of national security at the college. "But there is also hope that effective US outreach to "middle powers" could help constrain China, Russia and others to be more cooperative."
In a clue as to another form warfare may take in the years to come, Iranian computer systems last month came under attack from what analysts said was likely a "state-built" worm aimed at its nuclear program.
Many analysts suggested Israel or the United States were the likely points of origin -- but cyber attacks offer an appealing deniability. A Reuters special report this week showed for the first time the scale of U.S. preparations to meet the threat -- seem largely from emerging powers such as China and Russia.
"While economic interdependence makes conventional hot wars between major powers much less likely, the combination of a rapidly changing geopolitical balance and technological advances on offensive cyber attack capabilities will make state-sponsored industrial espionage a more serious outcome," said Ian Bremmer, president of political risk consultancy Eurasia Group.
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