by Bill Emmott, Penguin Books, 2004.
The editor of the Economist asks whether capitalism will survive in the 21st century and whether the USA will continue to make the world safe for capitalism and democracy. He discusses possible impediments such as Chinese ambitions.
(Reviewed by Kevin Barham in August 2004)
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The world changed fundamentally at the beginning of the 21st century as terrorism, war and financial collapse shook the West out of its complacency. So what happens next? This book, by Bill Emmott, editor of The Economist, attempts to answer that question by looking at the future of politics, economics, and war and peace over the next few decades.
The book has its origins in an essay Emmott wrote in The Economist to mark the end of the 20th century. The journalist, he says, is always in danger of over-interpreting the short term and under-rating longer-term trends. What we need is a longer view in order to understand the present and how we got here and to put current events, issues and preoccupations into their appropriate contexts. Only by looking back at the turbulent 20th century can we confront the future. That way, we can gain a sense of the forces that really matter in determining what lies ahead. While we cannot use the past to make predictions, we can use it to help us set priorities, and assign a more appropriate set of weights or levels of importance to our current preoccupations.
Emmott tells us that only two questions really matter when we are thinking about the 21st century. One is whether capitalism will survive, thrive and retain the current, unusual, allegiance that it commands around the world. The other is whether the USA will continue to make the world safe for capitalism and democracy to spread, by retaining its current clear pre-eminence as a political, military, economic and cultural power, and by retaining the desire to exercise its power as a force for peace and progress.
Today’s open, global market economy is a by-product of the existence of a general state of peace that seems sufficiently reliable or durable for companies and individuals all over the world to feel willing to engage in international trade and investment, and of the existence of a state of trust between most countries that is sufficiently reliable or durable for that trade and investment to take place according to a more or less agreed set of laws and financial arrangements. There is one explanation alone for the relative peace and prosperity of the past 50 years: the existence of a dominant power in economic, technological and military matters, namely the USA. The USA has been willing to exert its dominance across the globe whenever there was a serious threat to the general peace, and has been willing to exert leadership whenever there was a serious threat to prosperity. America’s behaviour has been far from perfect but it is like a ‘giant elder brother’, a source of reassurance, trust and stability for other weaker, members of the family, and a source of nervousness and uncertainty for any budding bullies. That is why the biggest geopolitical question for the 21st century, the subject of the first half of the book, will be whether American leadership will endure or whether it will decline.
Emmott believes that America will continue to be willing to use its military force abroad, that it will retain the ability to afford its international commitments and that it will remain economically vibrant. It may well continue its recent drift towards unilateralism but this will fall well short of an attempt to build an old-fashioned empire. American leadership will persist and offers a crucial hope to the rest of the world. But there will be frictions as people alternately accuse the USA of doing too much in the world or of doing too little. And much will depend on the outside world where the challenge will be the number of unruly, unstable countries.
In the long term, the biggest challenge to the status quo in the world and to American leadership will come from China. China will become most dangerous at a time when there is some sort of energy shortage and when it believes it might be denied access to that and to other natural resources. The biggest danger will occur if China contemplates military action to bring Taiwan back in the fold and bets that America will not intervene. This could be the most dangerous moment of the whole of the 21st century. Wars are often the result of miscalculation - if there is ever a war between the USA and China it is likely to arise from what would be the greatest and most fateful miscalculation in the history of mankind.
Against this background, Japan is likely to feel increasingly vulnerable in future, even if its currently weak economy revives. Emmott foresees a more nationalist Japanese government, with a more powerful and visible military presence in the region and even, in the end, a publicly acknowledged programme of nuclear research and development.
Emmott does not see Europe emerging as a political and economic superpower. Although the European countries will prosper economically as they develop and integrate with one another, their collective endeavour will, in his view, be characterised more by muddling through, a process hampered by their own contradictory policies and goals. The European Union is a success, measured by the continued desire of countries to join it, but it is a muddle, chronically lacking a common direction. It will therefore remain an envious but fragmented force. Muddling through, finding a way to accommodate each country’s concerns among an ever widening group of countries means it will not play a dominant role in the world, although it is the region’ s greatest talent for survival.
Emmott also looks at the prospects for curbing terrorism and the proliferation of weapons of mass destruction. 9/11 produced a big shock, he says, but it was in a long tradition of terrorist acts. What was new was the size and location of the attacks, in the heart of the West itself. al-Qaeda has provided America with a single lens for its foreign policy and, despite their qualms about such a lens, has made the Europeans and other allies more determined to quell the turbulence and the weapons proliferation. The most discouraging aspect is that it may have set a benchmark for future martyrs. Nevertheless, the strength of terrorism - its dispersion and ability to strike anywhere - is also its greatest weakness in the longer term for this is liable to unify all countries that feel vulnerable to it. Terrorism can be contained, even if it cannot be entirely quelled.
The second half of the book concerns itself with the future of capitalism. Capitalism is what brought, directly or indirectly, the improvements in human welfare seen during the 20th century. Since no alternative set of ideas has emerged to give hope to poorer counties that they can match the rich world’s progress, it is likely that capitalism will endure through the 21st century. But how technology develops, how well off we are in material terms, how big a problem the relative poverty of the developed countries will pose for the developed counties, how the planet’s environment serves to limit or enable our activities and circumscribe or enhance our lives, will depend on the way capitalism develops. Our feelings about capitalism will inevitably be mixed as our competitive impulses will always come up against our social and co-operative instincts. It means that capitalism will be forever under challenge, forever being questioned. How that challenge takes place and is met will make all the difference in the 21st century.
Capitalism has some major weaknesses. The chief of these is its instability, the way in which it swings wildly from boom to bust and back again. Capitalism also creates inequality of resources and power. While a well-functioning capitalist economy tends over time to make everyone better off, it also tends to make some people better off than others. Among those who do less well, it is inevitable that resentment will build up and that they will be drawn to different ways of organising things. Capitalism is also ‘unclean’. All economic activity, whether capitalist or communist, alters the environment. Capitalism will always give rise to awkward choices between those who would prefer the earth to remain unchanged and those who would prefer to have the jobs, incomes and profits that arise from change.
The one institution that has been supremely successful in bringing people together in a voluntary, collaborative effort to share their skills, knowledge and effort for a common purpose is the private company. It alone has found a way to blend direct financial incentives with the natural hierarchical instincts of the human tribe, and to ally both of these with the desire to work with other people and to derive self-esteem and confidence from the resultant sense of belonging. The paradox is that the private company, despite the benefits it brings, has always been viewed with hostility and suspicion.
One example of this suspicion is the fear that some people hold of world domination by big multinationals, often reflected in the claim that the world’s companies are now larger than many countries’ gross domestic product. The comparison is misleading, says the author, because they always use either a company’s stockmarket value or its level of sales turnover. The correct way of comparing companies and national economies is to compare their value added. That would make even the biggest companies look puny compared with all but the tiniest economies. The claim of corporate hegemony is also wrong because even small states retain fundamental powers - laws, judicial systems and enforcement by police and armies.
The very things that are driving many of the mergers and acquisitions also limit the danger of excessive corporate concentration. The opening of national borders that allows cross-border mergers at the same time increases the amount of competition by allowing in new firms to fight for markets. Other pressures militating against concentration include diseconomies of scale and scope as companies find it hard to maintain their vigour and innovativeness once they become huge organisations, and technological innovation which has the ability to disrupt whole industries around the world.
The only way in which the size of companies ought to be a legitimate concern arises from their potential ability to subvert political systems by direct bribery or by buying influence. In principle, in a liberal democracy, popular suspicion of companies ought to be tempered by a belief that democratically elected governments will intervene to ensure fair play. The best time to root out corruption and restore government’s purity and independence is when the economic and social times are good. But capitalism also brings bad times as well as good. The big danger is that when the bad times come, disillusionment with corruption and collusion between government and business could become explosive.
The author believes that government will offer some comfort in the face of capitalism’s instability and will make it less likely that future economic dramas will turn into crises. The real potential problem for democratic societies in the next few decades will be the divide between the lucky many and the under-class of the unlucky few. There will continue to a problem of a dispossessed, dispirited alienated under-class who will threaten the safety and living standards of the majority and which will at times be aggravated by the expansion of that group during economic slumps. The solution lies in improvements in public education and associated efforts to ensure that all parts of a country can share in the fruits of economic growth. The challenge for elected politicians will be to persuade their middle-class voters to pay for this educational investment even when it does not bring benefits to them directly.
This is the opposite of the questions posed by the inequality between the few rich countries and the many poor ones. The world has never been richer but the gap between the richest and the poorest has not narrowed. Whether or not countries like India and Brazil will see improved living standards depends primarily on what happens at home - in domestic governments that preside over open, competitive economies, sustain the rule of law, raise public money for health and education and spend it well, and build infrastructure and maintain peace. The rich, western world can help by fostering financial stability, maintaining open markets and global or regional peace, and helping to solve special problems such as AIDS.
The experience of the 20th century, when most poor countries stood still in economic terms, is not terribly encouraging. Yet there is also some cause for optimism. The conditions have never been more favourable for more countries to grow: world trade and investment flows are bigger and more open, technology transfer is rapid and widespread, global peace prevails. These conditions have been emerging since the 1970s but only really took solid form in the 1990s after the fall of the Soviet Union. Emmott finds it ‘dispiriting’ that anti-globalisation protesters have campaigned so quickly for restraints on growth and development. In reality, the argument between globalisers and anti-globalisers is about whether the poorer 5 billion people of the world’s population can get richer even as they become more numerous. The important thing, says Emmott, is to win the argument about globalisation and then to keep on winning it. The prize is huge - the promise for the 21st century of economic and social development for the world’s poor is real.
There is no serious disagreement between countries over whether greenhouse gas emissions need to be curbed. At issue is the speed, how the change is distributed around the world and how countries deal at home with the balance between losers and gainers. The best plan would be for users to switch to cleaner energy sources, for producers to invest more in research into those sources, and for developing countries to be given incentives to move to less carbon-intensive energy sources more quickly. The author believes that the actual plans deployed are likely to fall short of the ideal. But, given agreement on the direction of change, the gap is unlikely to be frighteningly large.
Technological change may well overtake the process. Fuel cells, which convert hydrogen into power and do not emit greenhouse gases, are well on their way towards large-scale commercial applications. By the end of the next century the world will likely have moved firmly out of the carbon age and even the oil age, into a new era dominated by different energy sources. This transformation of the energy business will have geopolitical consequences - those countries that depend on oil for a large part of their incomes will find the money and power seeping away from them.
Overall, the author believes that there are grounds for ‘paranoid optimism’ about the future. However, man is not perfectible, nor is government or any other big group. Along with justified optimism about economic, social and scientific possibilities for the future, we must remain paranoid. Things can go wrong, not just by acts of chance, but also because of the many acts of man that, deliberately or in error, threaten our liberties and freedom of choice, and that are liable through false claims of certainty to send us in new and dangerous directions, even in the most mature democracies.
A profound and persuasive analysis, this book presents one of the most authoritative world views currently available. It is obligatory reading for anybody who needs to maintain a global outlook.