Decade Forecast: The Downsizing Of Pax Americana

This is the first post in a series of three, in which I will analyze the major trends that will define the next ten years and their likely impacts on global regions. To put these forecasts into context, I must first describe the narrative through which I view the history of the post-WW2 era (the Oil Age, the Age of Hubris, or as John M. Greer aptly described it, the “age of abundance industrialism” – now on the verge of meeting its Nemesis, the waning of Pax Americana and the demise of global Western hegemony), which is dominated by the concept of “limits to growth” – the 1972 Club of Rome thesis that finite resources and pollution sinks will ensure that business-as-usual economic growth can never continue indefinitely on planet Earth.

A Short History of Abundance Industrialism

Driven by an electro-mechanical revolution powered by a windfall of cheap oil, the world registered its highest GDP growth rates in the 1950-1973 period. The era was defined by self-confidence and a secular “myth of progress”, which reached its apogee with the 1969 moon landings. But the next decade saw the arrival of major discontinuities. American oil production peaked in 1970, and went into decline. Saudi Arabia settled into its role as the world swing producer, enabling it to inflict a severe “oil shock” on Western economies in 1973 to punish them for their support for Israel, to be followed by another in 1979 coinciding with the Islamic Revolution in Iran. The decade also saw milestones such as the publication of Limits to Growth, the ending of hyperbolic growth of the world system, and a new emphasis on conservation and sustainability (which led to significant improvements in fuel efficiency and pollution control – back then, the fruits were all low-hanging, so impressive results were not hard to achieve). Yet the first tentative steps towards sustainability were not to be followed through, as the newly-elected Reagan took office proclaiming “Morning in America!”, with its implicit promise of a return to a past with no future. It was a false dawn.

Thus began the “age of diminished expectations”. In the US, physical production by volume and real working class wages stalled in the 1970’s, and have since been on a plateau (slightly tilted up according to official statistics, slightly tilted down according to unofficial ones). The age of Mammon saw rising inequality, both within and between nations (the sole major exception being China whose ascent to world power began in the late 1970’s). As the American industrial base entered its long atrophy, its economy shifted towards construction, services, and finance, – symbolized by metastasizing suburbia – and made possible by new drilling by the oil majors in remoter areas like Alaska, the Mexican Gulf, and the North Sea, a political-security rapprochement with Saudi Arabia, the IT revolution, and the rise of multinational corporations exploiting globalizing markets and cybernetic technology in a flattening world. Sustainability went out the window; quite literally, as Carter’s solar panels were removed from the White House roof in 1986. Finally, the US harnessed its new role as the focal point of the emerging global neoliberal system to open up their economies to the world, unleashing China’s “surplus armies of labor” and the former USSR’s energy resources in the service of Pax Americana.

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China, The Last Superpower

After two hundred years of global ascendancy, the West is in rapid relative decline to (re)emerging Asia, which is mounting a steady “Great Reconvergence”. Likewise, the legitimacy of today’s “neoliberal internationalist” order promoted by the West is being questioned by the more statist, neo-Westphalian visions of the leaders of the Rest, the so-called BRIC’s. This has already led to the emergence of a “world without the West” – a parallel international system based on the principles of state sovereignty, hard power, and bilateral trade relations.

The most powerful and influential member of this new world is China, which has become the “workshop of the world” since its graduated opening up from the late 1970’s. Accounting for half of global steel and cement production, China has built up an enormous infrastructure of roads, railways, and ports to support its mercantile expansion. In 2009 it became the world’s largest automobile market. Furthermore, China is now advancing higher up the ladder of added-value industries by expanding into hi-tech areas such as commercial aircraft, renewable energy, and supercomputers.

One of the most important factor making China’s rise all the more significant is that it is concurrent with the accelerating decline of Pax Americana that is spurred on by the end of cheap oil, US economic weakness, and regional threats to American hegemony from the “challenger Powers” (e.g. Russia, Iran, and China itself). Should the current international order suffer a “cascading collapse” – which is not unlikely, given the brittleness of the world financial and energy system – then it is possible that China will emerge as an equal, or even superior, pole to the US superpower as soon as 2020.

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References: Peak Oil And Resource Depletion (up to 2010)

Although I have several articles on the threats posed to industrial civilization by runaway global warming and ecological degradation on Sublime Oblivion (see 1, 2, 3, 4, 5), I have yet to cover the Charybdis of resource depletion in as much detail (1, 2, 3, 4). As such, I have assembled many links to relevant articles on blogs such as the Oil Drum and Energy Watch Group to provide a foundation for the layman interested in exploring these very important concepts. With time I will write short descriptions next to some of the more important links summarizing what they are about.

EDIT Dec 2010: The Best of 2005-2010 is ultra-recommended.

Basic Summaries

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Book Review: Vaclav Smil – Global Catastrophes and Trends

Smil, Vaclav – Global Catastrophes and Trends (2008)
Category: futurism, climate change, geopolitics, catastrophes; Rating: 5/5
Summary: Google Books

Vaclav Smil, an energy theorist and language connoisseur, brings his talents to bear on this idiosyncratic, incisive and balanced book on the global future. From the outset, he outlines his skepticism in universal theories of history and attempts at quantifying current trends to make point forecasts (e.g. predictions that nuclear power would make energy too cheap to meter in the halcyon days of the industry). Instead, he emphasizes the role played by the sheer complexity of human systems and their discontinuities – for instance, who could have imagined that a generation after the death of Mao, China would be the workshop of the world helping underwrite US military dominance?

Having established “How (Not) to Look Ahead”, Smil introduces his method – analyzing key variables categorized by a) unpredictable events – “catastrophes”, b) powerful trends (the effects of globalization, global demography, the energy transition), and c) the shifting balance of power between the Great Power (the marginalization of Japan, an unstable Islam, Russia’s partial resurgence, the uncertain rise of China and an increasingly faltering United States). It is one a method I highly favor and I agree with most of the arguments he makes in his book, albeit there are a few major exceptions.

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The Great Debate

Just wanted to point out there is an on-going four-way debate at Streetwise Professor‘s blog between him, commentator Michel, myself and (at times) Timothy Post. In SWP’s words, it is about “(a) the breadth of Russian prosperity, (b) its dependence on oil prices, and (c) the likely future course of oil prices” and despite the subject matter and our ideological differences, it has been generally civil and very interesting.

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News 2 May: Russia’s Second Oil Peak

For all the noise being made this month about Georgia, about NATO, about Tibet, etc, possibly the most portentous is that it seems Russia hit its oil peak (strictly speaking, its second – the first happened in 1987), well in line with peakist predictions. Production increases via application of new technology, as seen in the late 90’s and early 2000’s have been mostly exhausted; there are no megaprojects to bridge the gap beyond 2010. (There has been some noise about new oil field discoveries off Brazil’s coast which could contain as many as 33bn barrels, which has our dear Economist rejoicing: “the discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil”. Just two problems. The issue is not about the world running our of oil – it’s about economically damaging declines in production which will, and are, hitting crucial sectors like transport and agriculture. Secondly, and more to the point, even the high estimate of 33bn barrels is enough for less than half a year of today’s demand of 85bn barrels.) Massive expansion in Russia has been the main reason while oil is peaking now, rather than five years ago. This, coupled with stagnant Saudi Arabia ‘refusing’ to increase oil production so as to leave more for future generations and oil prices rising to 120$, looks set to vindicate the Oil Drum predictions below.

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Annals of Resurgent Russia – CIA World Factbook 2008

The 2008 version of the CIA World Factbook has been published. While the demographic data has not been updated, new economic estimates have been published for 2007.

Firstly, let’s take a look at the basics. Russia’s GDP is now estimated at 2076bn $ in 2007, up from 1723bn $ in 2006. This is not just because of Russia’s 7.4% growth and dollar depreciation, but because estimates for it have been revised upwards – apparently it has taken a hint from the World Bank, which has used new data on international price comparisons to slightly improve Russia’s position and massively downgrade (by 40%) China and India.

This also means that in purchasing power parity terms, Russia’s GDP is now the seventh largest in the world, moving up two places since 2006 by overtaking Italy and France. Now, it is within shooting distance of the UK (2147bn $). Assuming, like the Economist Intelligence Unit, that Russia will grow by 6.7% and Britain by 1.9% in 2008, this means Russia will overtake Britain in 2008. Assuming a conservative 6% Russian growth and 2% German growth, Russia should overtake Germany in 9 years from 2007 (in 2016), thus fulfilling predictions that it will become the world’s fifth largest economy by 2020 some four years earlier. It also means Russia’s PPP GDP as a percentage of the world’s increased from 2.65% in 2006 to 3.15% in 2007. All this is also evidence that the ‘economic catch-up’ forces I described in Towards a New Russian Century? are in gear.

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News 14 Jan

President Putin’s visit to Bulgaria to bring pipeline deal, NPP contract

A new company is being created, in which Russia will own a 51% stake, to build a pipeline to carry Russian oil via the Bulgarian Black Sea port of Burgas and Greece’s Alexandroupolis on the Aegean, so as to bypass the congested Bosporus. It will pump 35mn metric tons a year, though capacity can eventually be increased to 50mn.

Atomstroyexport, Russia’s state nuclear equipment monopoly, has also been awarded a contract, estimated at 6bn $, to build two reactors for Bulgaria’s second nuclear power station in the town of Belene. According to Foreign Minister Lavrov, more agreements could be signed on Putin’s visit to the country, timed to coincide with celebrations of the 130th anniversary of the liberation of Bulgaria from Ottoman rule by a force led by Russia’s Tsar Alexander II.

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News 11 Jan

Net capital inflow into Russia hit $82.3 bln in 2007

MOSCOW, January 11 (RIA Novosti) – Net capital inflow into Russia reached a record $82.3 billion in 2007, almost double the previous year’s figure, the Central Bank announced on Friday.

In 2006 the figure was $42 billion. In the last three months of 2007, net capital inflow was $23.5 billion, compared with net outflow of $7.6 billion in the third quarter.

This is around 6% of Russian (nominal) GDP. Foreign investors are rushing in to buy into Russian IPO’s.

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News 10 Jan

Russian moves to ban tobacco advertising

MOSCOW, January 10 (RIA Novosti) – The Russian government has decided to completely ban tobacco advertizing, by signing up to a World Health Organization anti-smoking convention.

In its first session of the year, the government approved a draft law on joining the WHO Framework Convention on Tobacco Control (FCTC), which stipulates a ban on advertizing tobacco products.

The FCTC requires parties “in accordance with their respective constitution and constitutional principles, to undertake a comprehensive ban on all tobacco advertising, promotion and sponsorship within five years of the WHO FCTC’s entry into force for that Party.”

About time, considering that 70% of men and 30% of women smoke in Russia, one of the highest rates in the world, and that 300,000 people die from smoking every year in Russia.

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