Expanding prosperity contributed to the popularity of the doctrine [of harmony of interests] in three different ways. It attenuated competition for markets among producers, since fresh markets were constantly available; it postponed the class issue, with its insistence on the primary importance of equitable distribution, by extending to members of the less prosperous classes some share in the general prosperity; and by creating a sense of confidence in present and future well-being, it encouraged men to believe that the world was ordered on so rational a plan as the natural harmony of interests.
E.H. Carr, The Twenty Years’ Crisis</span> (Palgrave Macmillan: 2001), pg. 45.</d-footnote>
Politics are made up of two elements — utopia and reality — belonging to two different planes which can never meet. There is no greater barrier to clear political thinking than failure to distinguish between ideas, which are utopia, and institutions, which are reality.
E.H. Carr, op. cit., pgs. 87-88.
Stocks are near their all-time highs and show few signs of correcting anytime soon; debt markets appear frothy; the VIX is low — the capital markets are telling us that we’re living in “the best of all possible worlds.”
But in the real world, for a while now I’ve been nagged by this feeling of entropy in global affairs; that order and institutions are giving way to chaos and ungovernability.
Part of this feeling is a function of the pace of change in technology and global politics / economics. Several years ago, Walter Russell Mead (@wrmead) wrote about Henry Adams’s observation that technological progress accelerates exponentially, concluding that continual technological advancements have brought us to “revolutionary times.” In one of his many pieces worth reading, Mead argued that, “The world is changing faster than ever before; frighteningly, our institutions, our ideas and our politics can’t keep up.”
But the other part is acknowledging that we’re nearly 70 years into the post-World War II international system, and 25 years into the post-Cold War era. It all seems to be getting a bit long in the tooth.
Now it’s impossible to explore the concept of entropy in global affairs in a comprehensive manner for a recreational blog…especially during the World Cup. But I thought it might be helpful to try to approach the issue with an analytical framework I gleaned in a lecture hall one cold evening in Italy. What follows is not the answer, but one view. Nobody knows where we’re going — especially the political risk consultants.
Sitting in the auditorium of the SAIS Bologna Center one evening, I listened to one of the more memorable professors I’ve had deliver the first lecture in one of my core course requirements: Theories of International Relations.
While discussing Kenneth Waltz’s Man, the State, and War, the professor described Waltz’s “three images,” and how international relations can be viewed through three levels of analysis:
Let’s start micro and telescope out to the macro.
Human nature is unchanging. We know this. Greed and fear continue to motivate mankind, whether in casinos or international politics. But what do we know about the human experience? Is it getting better or worse?
We’ve had a heck of a run over the last 25 years. The unprecedented integration of the global economy, with its relatively free movement of goods and capital, led to an expansion of prosperity that is unparalleled in human history (see exhibit below). It is truly astonishing.
A recent Financial Times analysis relays, “In 1990 an estimated 1.9bn people, or more than a third of the world’s population, survived on less than \$1.25 a day, according to the World Bank. By 2010 that figure had fallen to 1.2bn, less than a fifth of the people on earth. In the 25 years since the fall of the Berlin Wall those earning between \$2 and \$10 a day have been the biggest beneficiaries of globalisation.”
The analysis went on to question whether, given reduced growth expectations for the global economy, the 40% of the world’s population that constitutes a “fragile middle” now risks descending back into poverty.
But not everyone has won from globalization. In The Reckoning, I laid out a few variables that indicated that life in the United States throughout the same period had been getting worse for many: a declining employment-population ratio, stagnant real incomes, and growing numbers of people living below the poverty line and lacking health insurance.
To get another view on individuals’ conditions, I pulled some data on substance abuse and suicide in the United States; the figures add weight to the view that Americans’ living conditions are declining (see charts below; open in new tab to enlarge).
These data are just for the United States, a country that confronts a number of socioeconomic and political challenges, but one that is not experiencing an acute national crisis.
In Greece, a country suffering from a series of acute crises, suicides reportedly jumped 17% between 2007-2009, 25% in 2010, and 40% in the first half of 2011 compared to the same period in 2010.
Or take Syria, where beyond the violence and atrocities reported in the news, 15,000 doctors are reported to have left the country after having been targeted for attack or imprisonment, with few medications and scant diagnostic equipment available for patients. In Aleppo, 36 physicians remain compared to 5,000 before the war began.
These conditions matter because they shape individuals’ psychology. A growing global pool of disenfranchised people creates greater opportunities for radicalization to take root. Advances in technology make it easier to discover (and be influenced by) news and narratives, and to experience a growing feeling of relative deprivation.
Writing of the emergence of the Anarchist idea at the turn of the 20th Century — six heads of state were assassinated by anarchists in the 20 years leading up to 1914 — Barbara Tuchman describes a world where:
No single individual was the hero of the movement that swallowed up these lives. The Idea was its hero. It was, as a historian of revolt has called it, ‘a daydream of desperate romantics.’ It had its theorists and thinkers, men of intellect, sincere and earnest, who loved humanity. It also had its tools, the little men whom misfortune or despair or the anger, degradation and hopelessness of poverty made susceptible to the Idea until they became possessed by it and were driven to act. These became the assassins. Between the two groups there was no contact. The thinkers in press and pamphlet constructed marvelous paper models of the Anarchist millennium; poured out tirades of hate and invective upon the ruling class and its despised ally, the bourgeoisie; issued trumped calls for action, for a ‘propaganda of the deed’ to accomplish the enemy’s overthrow. Whom were they calling? What deed were they asking for? They did not say precisely. Unknown to them, down in the lower depths of society lonely men were listening. They heard echoes of the tirades and the trumpets and caught a glimpse of the shining millennium that promised a life without hunger and without a boss. Suddenly one of them, with a sense of injury or a sense of mission, would rise up, go out and kill—and sacrifice his own life on the altar of the Idea.
Barbara Tuchman, The Proud Tower (Bantam: 1967), pgs. 72-73. Truly an excellent book. Also worth a read on this topic is Joseph Conrad’s The Secret Agent.
The world witnessed this same dynamic take place roughly 20 years ago with the emergence on the global stage of Al Qaeda, and one could safely assume that a number of the Islamic State in Iraq and al Sham (ISIS) militants capturing Iraqi cities were motivated by similar conditions. To wit, last month the world learned of a 22-year-old from Florida who made his way to Syria, joined an Al Qaeda affiliate, and detonated a suicide bomb in Idlib, killing himself and 37 people … sacrificing his life on the altar of the Idea.
Sticking with Iraq and Syria, there may be no better image for what’s been happening at the state-level — certainly in the Middle East — than ISIS’s bulldozing of the berm demarcating the 98-year-old border between the two countries. So much for Sykes-Picot; welcome to an environment with a smorgasbord of non-state actors and militant groups with their own ideas on how and whom to govern / kill.
Max Weber’s definition of a sovereign state was an entity that had monopolistic control on the legitimate use of force within its own borders. Surely the entropy within a number of Arab states calls this into question. “The Middle East is always a mess,” is a common refrain, but the latest news from Iraq is genuinely terrible, and I suspect nobody has a grasp on where this all will end. I am confident making one prediction: the violence could get truly horrific.
If you’re tired of reading / hearing / thinking about the Middle East, then look to Europe for additional examples. In September 2012, George Soros wrote an article calling for debt mutualization / fiscal union (i.e., Eurobonds) to solve the European debt crisis and strengthen the European Union. Here’s the opening line in his piece, which calls for states to relinquish even further sovereignty to Brussels / Frankfurt: “I have been a fervent supporter of the European Union as the embodiment of an open societ — a voluntary association of equal states that surrendered part of their sovereignty for the common good.”
While the Eurobond concept never took off, the idea was fundamentally flawed precisely because it offered a short-term, technical solution to a question whose answer is ultimately political in nature.
And it hasn’t gone away. For years, Europeans have been living in an environment of diminished sovereignty — both state sovereignty and popular sovereignty. Governments have been incapable of fixing the economic crises besetting their countries (such as youth unemployment), in part because they lack policy independence: they’ve surrendered monetary policy to the ECB. And in multiple instances, peoples’ votes have been ignored or overturned. As one observer recently wrote in the London Review of Books:
Europe is ill. How seriously, and why, are matters not always easy to judge. But among the symptoms three are conspicuous, and inter-related. The first, and most familiar, is the degenerative drift of democracy across the continent, of which the structure of the EU is at once cause and consequence. The oligarchic cast of its constitutional arrangements, once conceived as provisional scaffolding for a popular sovereignty of supranational scale to come, has over time steadily hardened. Referendums are regularly overturned, if they cross the will of rulers. Voters whose views are scorned by elites shun the assembly that nominally represents them, turnout falling with each successive election. Bureaucrats who have never been elected police the budgets of national parliaments dispossessed even of spending powers. But the Union is not an excrescence on member states that might otherwise be healthy enough. It reflects, as much as it deepens, long-term trends within them. At national level, virtually everywhere, executives domesticate or manipulate legislatures with greater ease; parties lose members; voters lose belief that they count, as political choices narrow and promises of difference on the hustings dwindle or vanish in office.
Perry Anderson, “The Italian Disaster,” London Review of Books, 22 May 2014.
The Euro has been saved, but not the European Union, as the notable success of populist, anti-EU parties in May’s elections demonstrated. And a number of countries’ economic challenges persist: unemployment, fragile banking systems, low growth.
The historian Antony Beevor has asked, “will a continent turn its back on democracy?”
The process of greater integration that began with the European Coal and Steel Community has served its purpose so far; the question is: at this point in time, does the surrendering of state sovereignty inhibit or contribute to greater peace in Europe?
It is the differential or uneven growth of power among states in a system that encourages efforts by certain states to change the system in order to enhance their own interests or to make more secure those interests threatened by their oligopolistic rivals. In both bipolar and multipolar structures, changes in relative power among the principal actors in the system are precursors of international political change … ‘The great wars of history—we have had a world war every hundred years for the last four centuries—’ wrote Halford Mackinder in 1919, ‘are the outcome, direct or indirect, of the unequal growth of nations…’ The critical significance of the differential growth of power among states is that it alters the cost of changing the international system and therefore the incentives for changing the international system.
Robert Gilpin, War & Change in World Politics (Cambridge: 1995), pgs. 93, 95.
Interdependence in the world political economy generates conflict. People who are hurt by unexpected changes emanating from abroad, such as increases in the prices that producers charge for oil or that banks charge for the use of money, turn to their governments for aid. So do workers, unemployed because of competition from more efficient or lower-wage foreign production. Governments, in turn, seek to shift the costs of these adjustments onto others, or at least to avoid having them shifted onto themselves. This strategy leads them to pursue incompatible policies and creates discord … If discord is to be limited, and severe conflict avoided, governments’ policies must be adjusted to one another. That is, cooperation is necessary.
Robert O. Keohane, After Hegemony (Princeton: 1984), pg. 243.
Opening the aperture to the international system, one could conclude that some of the state-level dynamics undermine order and a rules-based system. The principle of state sovereignty enshrined in the Westphalian Peace of 1648 has taken a back seat of late to a variety of exigencies both real and imagined (e.g., terrorism, The Responsibility to Protect, humanitarian intervention, red lines of assorted varieties, economic crises). The flames of entropy have been fanned rather than smothered.
Taking a look back over the last 25 years, the global environment can broadly be viewed in four phases, corresponding to U.S. Presidential administrations, which isn’t surprising because the United States has been the guarantor of global stability and protector of lines of communication. In extremely broad brushes:
It’s fairly clear that the trend has gone from the United States stewarding order and the international system, to exploiting its dominant power position to change the governments and conditions of sovereign states. One could well argue that these actions were necessary to create a stable international environment.
The point is that all these actions ultimately have led us to a period where the United States seeks a breather from its 25 years as the “world’s policeman” and seeks to husband its power after having changed the rules of the game. And that power may be in relative decline precisely when the global environment is becoming less benign, and rising / peer competitors (e.g., China and Russia) are becoming more aggressive toward their neighbors.
Beyond geopolitics, the international system can viewed through its institutions. This post has gone on long enough so I will just mention two: the Bretton Woods institutions of the IMF and the World Bank.
The IMF has gone from the overseer of the international payment system to guarantor of global financial stability. Following the collapse of the Bretton Woods system, in the last 25 years the IMF increasingly has been tasked with putting out financial crises around the world, often compelling governments to enact unpopular, austere policies in exchange for a financing / relief package.
And while in the early post-Cold War years, policy prescriptions tended to follow the so-called Washington Consensus with a push for capital account liberalization, the IMF recently accepted that capital controls may be warranted to reduce volatility during crises, suggesting that the international system may be getting less conducive to free capital flows. Moreover, there have been growing calls in recent years for the management of the institution to take on a non-European flavor — one perhaps more representative of the Funds’ developing country members.
As for the World Bank, it no longer is the largest lender to developing countries. Both China Development Bank and the Brazilian Development Bank (BNDES) lend more money annually than the World Bank. China, in fact, now lends more to Latin America than the World Bank and the Inter-American Development Bank combined, according to McKinsey & Company (see exhibit). And Alan Beattie recently reported that Brazil, Russia, India, China and South Africa plan to launch a BRICS multilateral development bank next month to finance infrastructure investments in developing countries, often without the onerous conditions attendant with World Bank financing.
We’ll see where all this ends up. Policymakers in emerging markets have expressed frustration at the United States’s unilateral approach toward monetary policy — Brazil’s Finance Minister, Guido Mantega, spoke of “currency wars” and the Reserve Bank of India’s Governor, Raghuram Rajan, has called for greater coordination and cooperation to avoid spillover effects—seemingly questioning the IMF’s ability to engage as an honest broker. The dominance of the World Bank in lending to developing economies is disappearing, along with the conditions for better governance, anti-corruption, etc. that came with its financing. New institutions are emerging. Maybe it’s all for the better.
Nothing is more revealing of the nature of the nineteenth century than the misguided complacency and optimism of 1913 and early 1914 and the misconceptions with which the world’s leaders went to war in August of 1914. The events of the following thirty years, from 1914 to 1945, showed the real nature of the preceding generation, its ignorance, complacency, and false values. Two terrible wars sandwiching a world economic depression revealed man’s real inability to control his life by the nineteenth century’s techniques of laissez faire, materialism, competition, selfishness, nationalism, violence, and imperialism…The hope of the twentieth century rests on its recognition that war and depression are man-made, and needless. They can be avoided in the future by turning from the nineteenth-century characteristics just mentioned and going back to other characteristics that our Western society has always regarded as virtues: generosity, compassion, cooperation, rationality, and foresight, and finding an increased role in human life for love, spirituality, charity, and self-discipline.
Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (1966), pgs. 1310-11.
This post opened discussing capital markets, with asset prices across-the-board defying gravity. Maybe the market has it right. Maybe this is the best of times and things will continue to get better — at least for owners of capital and assets. Might as well have a dance party on a deck. It would not surprise me to see the capital markets carry on in The Matrix with assets continuing to push to new highs … especially when the marginal buyer is likely playing with other peoples’ money (maybe yours).
I don’t know the future, but I wonder if the markets are pricing for Utopia; market participants certainly are complacent. I also wonder if tectonic change is afoot. Whether discussing man, the state, or the international system, global conditions betray a sense of entropy — of hope giving way to anger and fear, of order giving way to chaos, and all while the relative costs for changing the system that you and your parents grew up in are diminishing. Instead of compassion and cooperation, apathy, indifference and discord seem to be gaining traction. It makes me wonder if — not tomorrow, probably not next year, maybe not even in this decade — a world where people talk about asset prices will be a quaint memory.
But this process will bring about calls for order, rules and a new international system, as it has for hundreds and hundreds of years.
What form will the next system take? Which norms will it advance? Which polities will shape it? Nobody knows. And perhaps it doesn’t matter today.
The World Cup is on, the United States advanced from the “Group of Death,” and the kind folks at AB InBev remind us that these matches are best enjoyed over ice-cold Budweiser.
Where would we be without our bread and circuses?