Number Two

Geo-Political and Geo-Economic Dialogue

3 Interviews from the world "front"

By Jorge Nascimento Rodrigues, editor of Gurusonline.tv, October 2004

George Modelski, the geo-political guru, talks about the next transition period in the long world political cycle. | Charles Whyplosz, from Geneva CERP, explains why China must seat at a new G4 grouping of world powers.| James Boughton, the IMF historian, reviews the International Monetary Fund situation in its 60th anniversary.

FIRST STORY
with George Modelski, the "craftsman" of geo-political evolutionary History

«US can gain a second term in global leadership. It is not obvious that China will be the next politico-military challenger»

Professor George Modelski is a well-known scholar and international expert on geo-politics and geo-economy. Ph.D. by the University of London, professor emeritus of University of Washington, is a prominent researcher in the field of International Relations. He has held teaching and visiting appointments at the Australian National University, University of Chicago, and Princeton and Harvard Universities. In 1987-88, he was Fellow-in-Residence at the Netherlands Institute for Advanced Studies in the Social Sciences and the Humanities (NIAS). His recent books include "Leading Sectors and World Powers: The Convolution of Global Economics and Politics" (University of South Carolina Press, 1996), "Long Cycles in World Politics" (1987), "Sea Power in Global Politics 1494-1993" (1988), and "Documenting Global Leadership" (University of Washington Press and Macmillan, 1988). He conceived and operated a website about "Evolutionary World Politics", with the support of the Department of Political Science, in the University of Washington.
Recommend Links:
The basics of Modelski thought: http://faculty.washington.edu/modelski/globalization.html
Page of Evolutionary World Politics: http://faculty.washington.edu/modelski/
E-mail: modelski@u.washington.edu

Was Portugal in the XVth. Century the first global power in History, the first "globalizer"? Was this event a geo-strategic innovation in Human History?

Modelski: Yes, we can say that Portugal was the first global power in the history of the world system. Others did, of course, claim to rule over the "four quarters of the world", or "under heaven", and Genghis Khan and his sons came pretty close to gaining a world empire (but failed). But Portugal was the first actually to establish an enduring politico-economic structure at the global level.

«Portugal was the first global power in the history of the world system.»

How did the Portuguese, with a so small nation and few resources, accomplish such a global project?

Modelski: hat was a product of a series of major innovations: the organization of large-scale exploration as a collective research project (the earlier Chinese expeditions apparently had no research goals); creation of a global system of fleets, bases, and alliances, and of oceanic trading routes that supplanted the Silk Roads; and most of all, the first successful experiment with the institution of global leadership that evolved into maturity with the British system of the 18th and 19th centuries.

What was the main reason for the fall of the Portuguese Power? Incapacity of sustaining maritime mobility and power projection?

Modelski: The direct and immediate reason for Portugal's "fall" was the
Moroccan expedition of 1578 and its disastrous outcome at the close of the Portuguese cycle. That was a case of "imperial overstretch" that is a structural feature of the ending stages of each long cycle. But more basically, the innovations that launched Portugal on its course in the 15th century. (explorations, global networking, spice trade) had now become widespread and new innovations were called for, something that the Dutch supplied in alliance with England. Portugal did not really "fall" (despite a temporary loss of independence under Spanish rule from 1580 till 1640) but did continued successfully in the long run, mostly on the side of the "maritime" powers.

«The global powers all renounced European conquests in favour of influence at the global level combined with opposition to continental empire.»

Why the challengers of Pax Britannica (Filipe II of Spain defeated in 1587, Louis XIV, Napoleon, Bismark/William II, Hitler) in the West European Golden Era failed in their strategic intent? Can we figure out a "common" strategic error?

Modelski: In my view their error was their unwillingness to give up a policy of territorial expansion in Europe with their wider ambitions in the world. The (maritime) world powers in the global leadership role all renounced European conquests in favour of influence at the global level combined with opposition to continental empire. In their strategies, the challengers all prioritised the "classical" goals of empire while their opponents opted for the more innovative policies of global leadership that resisted imperial designs and pursued policies that advanced global problems.

The so-called clash of civilizations has an impact in power-law and evolutionary world politics?

Modelski: The "clash of civilizations" appears to me to be a contemporary problem relating to the Moslem world: both in its internal make-up, and in its relations with the rest of the world. I do not see it as a "general law" of world politics.

«It would be a mistake for the European Union to seek merely to create a continent-wide power centre not unlike the model of traditional large territorial (and imperial) states.»

The agenda setting of the European Union can be sustainable?

Modelski: The agenda-setting of the European Union seems to me to be sustainable if it is focused on cooperation within the framework of a global democratic community. It would be a mistake for it to seek merely to create a continent-wide power centre not unlike the model of traditional large territorial (and imperial) states.

The emergence of China as a challenger of the world power is a West media creation or a reality?

Modelski: The emergence of China as a challenger is a distinct possibility that this theory warns against. It is a possibility to be avoided because it might give rise, on the example of earlier cycles, to major warfare. But we have two-three more decades to avert such an outcome, and engage the evolutionary learning process to that effect. Chinese think tanks may be able to learn from the experience of earlier challengers.

«The evolutionary time's arrow points toward rising global organization capable of solving global problems, hence to a possibility of a peaceful transition. It is not obvious that China will be the next politico-military challenger.»

But, past history gave the idea that it is "inevitable" major confrontations through the decline of hegemonic powers and the emergence of another one. The present transition period will be different?

Modelski: I do not think that major global war in the next phase of global politics (that I situated in 2026-2050) is "inevitable". The main ground for thinking so is the growing evidence (including the power law) that global politics has evolutionary components capable of inducing changes in the global political system. The evolutionary time's arrow points toward rising global organization capable of solving global problems, hence to a possibility of a peaceful transition. The four past politico-military challenges (Spanish universal monarchy; the Sun King in France; French Revolution and Bonaparte, and the Reich in WWI&II) plunged the international system into great wars that delivered new global leadership for the century that followed (making for four long cycles of global politics of about 100 to 120 years each). The Soviet Union was an ideological challenger that did not fight a great war against the US, and does not belong into the same class. It is not obvious that China will be the next politico-military challenger.

«China's ability to develop a "world system of alliances" is as yet untested. Historically, the ancient Chinese empire has enjoyed "splendid isolation" from the "barbarians" outside its realm, and there's no record of alliances of equals but only tributary relations. Its Soviet alliance of 1949 fell apart within a few years. More generally, non-democracies have a poor record of international cooperation.»

But can China develop a world system of alliances in the next decades (as it begins with Brazil and Venezuela recently) that "circle" the present hiperpower, without provoking confrontation?

Modelski: The current phase of global politics is indeed one of "coalition-building". Yes, the recent collaboration between China and Brazil looks interesting, also with India and South Africa, in the context of world trade talks. This is one of the possible future "counter-alliances"; the earlier one being President Chirac's frequent invocations of "multipolarity", and the 2003 alignment of France, Germany, Russia and China in the UN Security Council. But notice that these are ad hoc coalitions taking shape within international organizations, in a form of "parliamentary diplomacy" (analogous to party shifts in a national parliament). But they are not (as yet) military alliances, or have a significant military component.

Might they turn into military alliances?

Modelski: That is hard to say, and difficult to envisage. China's ability to develop a "world system of alliances" is as yet untested. Historically, the ancient Chinese empire has enjoyed "splendid isolation" from the "barbarians" outside its realm, and there's no record of alliances of equals but only tributary relations. Its Soviet alliance of 1949 fell apart within a few years. More generally, non-democracies have a poor record of international cooperation.

Do you think that US and Europe must "accommodate" peacefully the emergence of China, for instance with a new G4 (US, Europe, Japan and China, as recently CERP of Geneva proposed) or a G10 (G7 plus European Union, Russia and China), in the IMF, etc?

Modeslki: Successful co-optation of China into a G7/8 system is a distinct possibility. But that would not preclude conflict (only reduce its chances) and would have to include India. And much would depend on China's internal development and the relative strength of the liberal, and the hard-line forces and indeed on its future political stability and possible transition to democracy.

So, you think, US can "secure" a second term as the hiperpower?

Modelski: As argued, global political evolution is currently in the phase of coalition building, and the relative strength of the rival coalitions put to the test in the next three-four decades will decide the future of world organization. The evolving odds are that the US will lead the winning coalition, and (following the British precedent) gain a second "term of office" in global leadership, but in an "enhanced:" system of global governance that is capable of coping with the global problems of nuclear and environmental survival. That is the most probable outcome implicit in global political evolution.

«Is the system moving toward another big war in the period, say, 2026-2050 (that might likely go nuclear) to determine the next global leadership? Probably not, but the possibility cannot be excluded.»

I thought that the British case was a "special" one, an historical exception…

Modelski: My argument in favour of a US second term: because, on balance, and as compared with alternatives, conditions in the next two three decades will favour it. Economic: continued US leadership of the Information Revolution. Military: no viable opponent at the global level (air, sea, space). Political: accumulated experience in dealing with global problems. Social: experience of democratic cooperation. That implies that the current direction of US policy will not continue for too long.

You mean the "preventive" strategy will go out of office?

Modelski: Yes, the policies of the current Administration, including those on preventive war, would seem to make such an outcome (the second term) less likely.

Michael Klare in "The New Geography of Conflict", argued that we can enter in a period of serial regional or even supra regional resource wars around strategic commodities (like oil, gas, water, or even other commodities). The risk of global conflicts will not rise with this scenario?

Modelski: The important point is to distinguish between the big global wars (on the analogy of WWI&II, viewed as one big war, like the earlier ones) and other conflicts, of which there can be quite a few. The big question is: is the system moving toward another big one in the period, say, 2026-2050 (that might likely go nuclear) to determine the next global leadership? Probably not, but the possibility cannot be excluded.

STORY NUMBER TWO

By Charles Wyplosz, director of the International Centre for Monetary and Banking Studies, in Geneva

«China must seat at a G4»

In September, the Swiss Center for Economic Policy Research released a "shock" Report calling for a new agenda-setting councils to replace the G7. Titled "International Economic and Financial Cooperation: New Issues, New Actors, New Responses", the Report calls for the establishment of a new grouping of world powers, a G4 to bring together the key currency countries - The United States, the Euro Zone, Japan and…China. Charles Wyplosz, of the Graduate Institute of International Studies and CERP, one of the authors of this Report, explained the new geo-economic and geo-political context.

CEPR Report: www.cepr.org/pubs/books/cepr/booklist.asp?cvno=P171
Charles Wyplosz website: http://heiwww.unige.ch/~wyplosz/
E-mail: wyplosz@hei.unige.ch

Do you think the present G7 control of IMF and World Bank is a blocking factor for any urgent shift 60 years after Bretton-Woods?

Wyplosz: I don't think that a change in the current arrangement is a matter of urgency. It has to happen, the sooner, the better. Since it must redistribute cards to make room for new significant countries, some of the current G7 members are bound to see their role decline, and naturally wish to resist, or at least delay, reforms.

How should the changing balance of power in this XXIst century be accommodated in the IMF and in the informal transnational key state groupings? The so-called emergent powers recently named the "BRICs" (China, India, Russia and Brazil) by Goldman Sachs must have a more suitable voting power and voice in the policies and strategies?

Wyplosz: In the long run, the IMF should belong to the countries that need it. The others should elegantly withdraw. This is not for the beginning of the century, though. Meanwhile, yes, voting rights should better reflect economic importance. At this stage, this calls for relatively minor adjustments, but over time the rebalancing of power could be substantial.

«As I see it, the G7 should be divided into these two groupings - a G4 and a G15 -, separating the tasks between them.»

How can we make the transition for a G4?

Wyplosz: That may be easy. There are four major currencies: dollar, euro, yen, and renminbi. These four authorities should develop working procedures. There are two problems: the euro belongs to many countries and China is not a market economy, not even a democracy. Maybe the new Mr. Euro could be called upon, along with the European Central Bank President, to represent the euro zone in the G4. As for China, somehow, it must be involved. Growing at 8% per year it is becoming heavy and its currency is increasingly the key to South East Asia, now a big economy.

Also how can we accommodate the growing role of a second tire of emergent countries like Mexico, South Korea, Singapore, Switzerland and Saudi Arabia petrodollars in trade flows financial networks and commodity markets?

Wyplosz: They are second tier. This is why we propose a new grouping for some 15 countries to deal with world issues, leaving the G4 to deal with currency issues. As I see it, the G7 should be divided into these two groupings, separating the tasks between them.

«The problem is that in few instances, politics has led to bad economic decisions (Asia in 1997-8, Russia in 1998, Argentina in 2001).»

Do you think IMF has been just too politicized to deal effectively with deep global financial crisis like the ones in the 1990's? If China or India runs into financial trouble has the IMF the political flexibility and resources to manage the situation?

Wyplosz: The IMF has been politicized, this is not denied even by the US. This was unavoidable. The problem is that in few instances, politics has led to bad economic decisions (Asia in 1997-8, Russia in 1998, Argentina in 2001). There has to be a limit on politicization, and that is when it leads to big policy mistakes, those that have a systemic effect. The resources of the IMF are enough to play its role of firefighter. They are not enough when the IMF tries to do more. In that sense, its limited resources are a good thing. The IMF must be small and efficient.

Can you explain why it's important a single chair for the European Union or two chairs (Euro Area and UK) in the IMF Board? The over representation of European countries is also a blocking factor?

Whyplosz: Europe is both over-represented and inefficient. Its over-representation is less a matter of votes than the fact that some European countries lead constituencies that include non-European countries (Latin American countries, Asian countries). Lack of effectiveness comes the fact that each country tries to have its own diplomacy at the IMF, allowing the US to divide and conquer. A single European representation would give the Europeans the incentive to agree and act as counter-weight to the US when the latter push politicisation too far.

Do you think it's time to finish with the dollar hegemony in peg systems and debt policies (since the Nixon Shock of 1971 against the gold standard)? The euro, the renminbi and the yen must have a more important role?

Whyplosz: The dollar is, and will remain for a long time, the major international currency. Not only is the US the most powerful and dynamic economy in the developed world, but also history matters. The dollar is the currency of choice all over the world. The euro and the renminbi will grow in importance, but very slowly. There is nothing that can be done about it; it is driven by demand, so why dream?

STORY NUMBER THREE

with James M. Boughton, the official historian of IMF

«European countries are now over represented in the IMF»

James M. Boughton is the IMF Historian, working at the Policy Development and Review Department, at the International Monetary Fund, in Washington DC. Boughton just published at the Finance & Development Magazine (Edition of September 2004) a reflection on the IMF at 60. "Anniversaries are a time for introspection. For the IMF, July 2004 marked the 60th anniversary of the Conference of Bretton Woods when was drafted and agreed upon the IMF's charter", wrote Boughton in this historical piece.
Magazine about the 60th anniversary of IMF: www.imf.org/external/pubs/ft/fandd/2004/09/index.html
Article of James M. Boughton: www.imf.org/external/pubs/ft/fandd/2004/09/pdf/boughton.pdf
E-mail: jboughton@imf.org

Do you think the present G7 control of IMF and World Bank is a blocking factor for any urgent shift 60 years after Bretton-Woods?

Boughton: The G7 does not control the IMF or the World Bank. At the IMF, the members of the G7 control about 45 percent of the voting power. That is not enough to exercise control, and in any case the seven countries do not always see eye to eye. Most decisions in the IMF are made by consensus, not be a formal vote. Any number of groups--the G7, the G24 developing countries, countries in Europe or Asia or other regions--all have the power to block change that they regard as harmful to their interests. The difficulty of achieving a global consensus on change is the real obstacle to reform of the international financial system.

«The real problems with inadequate voice and representation are with Asia and Africa: Asia because its quotas have not kept pace with its growth, and Africa because its relative economic stagnation has limited its ability to influence the debates and outcomes on how the system works.»

How should the changing balance of power in this XXIst. century be accommodated in the IMF? The so-called emergent powers recently named the "BRICs" (China, India, Russia and Brazil) by Goldman Sachs must have a more suitable voting power and voice in the policies and strategies?

Boughton: All four of the so-called BRIC countries already have seats on the 24-member IMF Executive Board. As their economies and their international trade grow in the coming decades, their quotas and voting power will also grow. The real problems with inadequate voice and representation are with Asia and Africa: Asia because its quotas have not kept pace with its growth, and Africa because its relative economic stagnation has limited its ability to influence the debates and outcomes on how the system works. Many critics have argued that European countries are now over represented in the IMF; any solution to the under representation of other regions will have to address that issue squarely.

Do you think the IMF has been just too politicised to deal effectively with deep global financial crisis like the ones in the 1990's? If China or India runs into financial trouble has the IMF the political flexibility and resources to manage the situation?

Boughton: The IMF is not too politicised, but it does need to adhere strictly to its principles and base its decisions primarily on its technical expertise. The IMF has the resources to deal with any likely financial requests from China or India, but it will be essential for those resources to keep pace with world economic growth if it is to be able to cope with the magnitude of imbalances that could occur in ten or twenty years as China, India, and other emerging markets continue to grow.

In the 60 years of IMF, can you refer the main shifting historical points?

Boughton: The IMF has responded to several major shifts in the world economy, including diverse economic growth in Europe, Asia, Latin America, and Africa over the past half century, and the enormous growth in importance of private financial markets. As a result of those developments, the fixed exchange rates that characterized the Fund's early years could no longer be maintained, and the IMF was called upon to oversee the functioning of more flexible exchange rate policies and to manage the economic and financial disturbances that can occur when policies get out of line. The oil crises of the 1970s, the debt crisis of the 1980s, and the financial crises of the 1990s all reflected the fact that rapid economic growth requires careful management to avoid spiralling out of control.

From an historian point of view what was the event that impressed you more in your study and reporting of IMF history?

Boughton: When the international debt crisis began in Mexico in 1982, there was a real possibility that the international financial system would suffer a major breakdown. A lot of very large commercial banks were at risk of going bankrupt if three or four important developing countries stopped paying interest on loans. Neither the banks nor the governments of creditor countries had the means to prevent a meltdown, and they came to rely heavily on the IMF to manage the situation through a combination of financial support to the indebted countries, policy advice and conditionality to strengthen those countries' economic policies, and the use of concerted lending requirements to ensure that the banks could not undermine the solution by trying to pull their own money out. The system survived, and after several years of painful adjustment, Latin America started growing again and money started flowing back in. It wasn't handled perfectly, and it probably took longer than it would if we could "replay the tape" and do it all over again, but all in all it was a pretty impressive achievement.

«Because the IMF is no longer a very secret organization, the public debate about it has really intensified, and the Fund has been subjected to very intense criticism.»

IMF action regarding its members in trouble must be more transparent and open, and in anticipation, or the traditional confidential way and acting as a fireman?

Boughton: To be effective, any international organization has to be seen as a legitimate expression of the world's collective political will. That is especially true for an institution that is as influential over national economic policies as the IMF is. An important step in the right direction is for the IMF to provide as much information as possible to the general public about its policies, its practices, and its decisions, so that there can be an informed debate about what works and what does not work, and about what is appropriate and what is not. At the same time, the IMF--as a major financial institution--has to be able to discuss policies and financial matters confidentially with its member countries. This is a difficult trade-off, but in the past decade the IMF has become far more open and transparent. Almost all of its analyses and decisions are published on its web site (www.imf.org). Because the IMF is no longer a very secret organization, the public debate about it has really intensified, and the Fund has been subjected to very intense criticism. That in turn is bringing more change to the way the institution works. In the long run, this type of interaction will be very beneficial, both for the IMF and for the world economy.

© Gurusonline.tv, 2004