Wallerstein-the next 5 years

Lots of fodder for discussion here...

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Fernand Braudel Center, Binghamton University
http://fbc.binghamton.edu/commentr.htm


 
Commentary No. 81, Jan. 15, 2002

"The 21st Century - The Next Five Years"


The next five years are crucial ones for the
geopolitical position of the United States. In
Washington these days, they apparently think that all
the significant decisions about the next five years
are being made in Washington. Washington's program
seems to be the assertion of U.S. military
invulnerability everywhere. The present U.S.
government believes that, once this is established,
the basic economic interests of U.S. enterprises will
thrive, and that attacks on U.S. citizens and
installations will come to an end - that is, that the
U.S. will once again be invulnerable.

The fact is, however, that three kinds of basic
decisions are being made outside the United States,
and each can affect Washington's self-interested
scenario quite drastically. The first is being made in
Europe. The launching of the euro currency has been
incredibly smooth, to the surprise of many people.
Indeed, it has gone so well that now Sweden and
Denmark will probably join in 2003 and Great Britain
in 2004. At that point, others will clamor to join the
euro-club, although they may not be admitted
immediately.

This has both economic and political consequences. The
economic consequence is that the euro will become a
world reserve currency alongside the dollar. The fact
that the dollar has been the only reserve currency
since the ending of a fixed dollar-gold ratio 35 years
ago has been of enormous economic benefit to the U.S.
and has permitted it to live far beyond its means. The
geopolitical consequences of having a second reserve
currency in the world seem obvious. Financial
dominance has always been the last stronghold of an
erstwhile hegemonic power.

Can Europe be derailed? Maybe, but at this point it
would be difficult. The European Union (EU) has
decided to hold a Convention to engage in the revision
of its cumbersome structure. It has confided the
leadership of the preparatory work to Valéry Giscard
d'Estaing, who is probably the ideal choice for the
job. He believes in his task; he has prestige
throughout Europe; and he has great political and
diplomatic skills. He is unlikely to be intimidated by
the U.S. government in pursuing his task. What Europe
needs to do, obviously, is to create a structure that
has a minimum of two features - a politically
responsible central decision-making authority; and the
end of national vetoes of basic decisions. 

No doubt, this will take a lot of hard negotiations,
as each government, fearing being outvoted in the
future, seeks to use its present power in the EU to
preserve its long-run interests. But strengthening the
EU structure is quite doable, and the atmosphere is
quite favorable at the moment. The odds are that, in
five years, there will be a restructured EU, and one
that has enlarged itself as well. For the first time,
furthermore, the East/Central European states will
come to believe that being part of the EU is more
important and more useful to them than being part of
NATO.

The second major locus of decision-making is in the
world market. While I do not believe that the "market"
is some magically autonomous entity, I do believe
there are limits to the ability of particular states,
even ones as powerful as the United States, to control
what will happen. The big question is whether the
present recession will be a passing blip, ending
within a year, or will turn into a significant world
deflation, lasting at least five years. 

Everyday, the newspapers across the world are
publishing the views of government officials, bankers,
economists, and other assorted pundits. I have been
reading a lot of these opinions in the last year, and
all I can say is that they go in every conceivable
direction. There is no consensus whatsoever. For what
it's worth, I think we are much more likely to see a
serious world deflation than to see a quick resumption
of stock market inflation. If this is right, everyone
will feel its effect. The question for the Triad (the
United States, EU, and Japan) is not whether each will
feel it, for this is obvious, but how each will do
relative to the other.

I suspect the U.S. will fare the worst, for two
reasons. One is that the U.S. boom of the last decade
was based, more than that of any other part of the
world, on the psychology of confidence about the
future. And once that confidence is pierced, I believe
that the pendulum will swing more in the U.S. than in
Europe (which in the past decade didn't show the same
kind of irrational confidence), and Japan (which has
had a decade to shed its own psychological folly). 

The second reason is those "underlying economic
variables" to which economists like to point. It is
always being said that the U.S. is particularly strong
in this regard. I do not believe it, for one central
reason. I consider that the U.S. sustains the largest
drain on its capital accumulation by the size of its
"cadres" and the income levels of its top managerial
strata. Europe and Japan are far leaner in this
regard. If there is a serious deflation, serious cuts
will have to be made in this domain. And the political
consequences of "demoting the yuppies" will wreak
havoc with the U.S. political system.

Then there is the third arena of decision-making - the
poorer regions of the world. By this, I mean
essentially everywhere outside the Triad, including
South Korea and Taiwan, including India and Israel,
including Brazil and Mexico, including Canada. For all
of them, Argentina is the face that haunts them today.
Will we see cacerolazos in other countries? Let me
remind you what has happened in Argentina. As
"collateral damage" of the world economic downturn,
Argentine workers are hungry and unemployed, and the
Argentine middle class is justifiably terrified that
all its savings are disintegrating (a bit like the
pensions of the employees of Enron). It is this
combination of despairs that has created the volatile
and almost anarchic situation in Argentina today.
If it were just a matter of Argentina, the U.S. would
shrug its shoulders, and so would the world.
(Actually, that's what seems to be happening at the
moment.) But this sort of upheaval is contagious
amidst an economic deflation. Indonesia might be a
good next location for such a development in terms of
its economic situation. And the political consequences
are most unpredictable, not least in Indonesia.
Everywhere that such breakdowns occur, we shall
probably have a populist upheaval whose character
(left or right) may be unclear, at least at first. We
may get military coups, of uncalculable stability. We
may get governments clinging to power by dictatorial
means that are ugly. But whatever we get, we will
surely not find ourselves in a world free from
"terrorism."

So, actually, the picture looks fairly gloomy from the
perspective of Washington. Washington has not yet
woken up to that.

Immanuel Wallerstein

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