Institutions created by human beings necessarily reflect the pre-eminent preoccupation of their time. The present, the post-Second World War global order, anchored in the United Nations and the Bretton Woods institutions, the International Monetary Fund, the World Bank and now the World Trade Organisation, has survived for over seven decades. This is partly because these institutions responded to the imperative of history when they were created to prevent succeeding generations from being subjected to the scourge of war and the need for post-war economic reconstruction.
Two events
Is this present global order still ‘fit for purpose’? Much can be said for both sides of the argument. One thing is, however, clear. An alternative order or vision is not on the horizon. It is useful to bear this in mind whilst evaluating two developments. The first is the underwhelming first hundred days of the Donald Trump presidency which finds itself in an internal civil war situation with both the ‘deep state’ and the ‘fourth estate’ and provides cause for anxiety to some that it may be unravelling. The second is Beijing’s spectacular Belt and Road Initiative (BRI) extravaganza.
Some initiatives result in the building of institutions that are viable and establish their relevance over a period of time. Others, such as the ill-fated League of Nations, start badly and then fail altogether. Those based on flawed thinking find it even more difficult to take off. The present global, post-1945, order can broadly be characterised as having evolved in two phases, the pre-1989 and post-1989 phases. The disintegration of the Soviet Union, the end of the Cold War and the advent and what seemed like the triumph of globalisation resulted in some intellectuals like Francis Fukuyama to go somewhat prematurely into a celebratory dance.
Brexit and Mr. Trump’s victory appeared to some observers to change all that. As I observed elsewhere, it was far too early in 1989 and still too early in 2017 to celebrate the premature demise of globalisation, free trade, human rights, the Washington consensus and interventionist mindsets. All that Brexit and the Trump presidency signify is that Western industrial democracies have still not come to terms with slow rates of economic growth.
Still the only superpower
Does this provide an opening for an alternative order to come into being? Some rebalancing will most certainly take place. But no fundamental alteration and restructuring of the existing global order appears, at this point of time, to be realistically on the horizon. Any suggestions that the Chinese are taking over or that the two world’s largest economies have now resolved all their differences cannot but be somewhat fanciful.
The U.S. is not only an $18 trillion economy but also has by far the largest industrial military complex and a lead in technology and innovation that it will take several decades for China, the second largest economy, to catch up. The U.S. provides global leadership in terms of global public goods. Even allowing for some set-back through mismanagement, it is inconceivable that these global public goods could be provided by even a transforming China.
This brings us to the BRI extravaganza. When the initiative was first announced in 2013, it was clear that the motivation was to find external outlets for the surplus infrastructure building and manufacturing capacity that had been domestically created and for which demand was now petering out. This brings us to the essential kernel of the problem. Large white elephant type mega projects, such as the one in Hambantota in Sri Lanka, can never be attractive for private investors who will look for returns on their investment. This is where China’s state banks come in. With 68% of Sri Lanka’s GDP now required for debt servicing, such infrastructure projects have their limitations. A railway line China is building in Laos is expected to cost $6 billion and is unlikely to break even after 11 years, as anticipated. Meanwhile Laos’s public debt stands at around 60% of GDP. This is a familiar pattern in country after country. Yes, the Chinese are investing heavily overseas but not in BRI projects. BRI projects get funding from the state banks and are laying the ground for acrimony with local communities, on adequate compensation for land acquisition, Chinese labour, collusive award of works and a host of other problems. All these point to an economic model that can never be viable.
The EU-27, which account for a significant proportion of global economic activity, refused to sign on to the trade statement in Beijing. Add to that this the $18 trillion U.S. and $5 trillion Japanese economies. It appears highly unlikely that these countries will sign on to a global scheme that is designed to favour contracts being awarded to Chinese economic entities.
India’s position is beautifully captured in its May 13 statement: “…connectivity initiatives must be based on universally recognised international norms, good governance, rule of law, openness, transparency and equality. Connectivity initiatives must follow principles of financial responsibility to avoid projects that create… debt burden for communities….” Also: “Connectivity projects must be pursued in a manner that respects sovereignty and territorial integrity.”
Staying away from the BRI
India’s decision to stay away from the BRI event in Beijing was not only well considered but, in a sense, the only option open to it. That our smaller neighbours decided to attend should not be allowed to influence our overall approach and strategy. Having said that, it needs to be emphasised that the time has come for us to engage the Chinese at a sufficiently senior political and strategic level on how to progress our economic relations. We would be doing ourselves great disservice if we allow this important relationship to be viewed through a 1962 mindset. Equally, a more strategic engagement with China, irrespective of provocations from them, real or imagined, will serve long-term strategic interests in terms of both our security and economic interests.
China has registered impressive economic gains. Apart from lifting hundreds of millions of its citizens out of poverty, it has become a major global economic power. It is running massive trade surpluses with most of its trading partners. Whether these surpluses are the result of China’s competitiveness, unfair trading practices or its exchange rate, it is inconceivable that this state of play can continue indefinitely.
Once the leaders who were present in Beijing have returned to their capitals and resumed their normal duties, they will have no option but to evaluate proposals on their merit. The leaders in Africa are already calling for a rebalancing of bilateral trade. It is unlikely that countries ranging from Russia to Hungary or in Central Asia will agree to trading in their interests for a grand scheme in which their long-term economic interests are not looked after. For the BRI to be a success, it will need to build in win-win elements not only for China but for other stakeholders as well. Unless that is done, the scheme is not likely to take off.
Hardeep S. Puri, a diplomat, was India’s Permanent Representative to the United Nations both in Geneva and in New York. He is the author of ‘Perilous Interventions: The Security Council and the Politics of Chaos’
