Decade Forecast: The Downsizing Of Pax Americana

This about Futurism, tagged , , , , , , , was written by for on May 14, 2011

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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Everyone is Still Underestimating China

This about Geopolitics, tagged , , was written by for on August 18, 2010

There’s been lots of fanfare over China’s GDP overtaking Japan’s in Q2 2010 (coming hard on the heels of a big ruckus over its DF-21 “carrier killing” ballistic missile and rising tensions with the US over North Korea and the South China Sea). The big debate is now whether China will overtake the US as the world’s biggest economy by the 2030’s (as originally argued by Goldman Sachs in their classic Dreaming with BRICs paper), or whether its nomenklatura authoritarianism, centrifugal tendencies and demographic problems will preclude it from ever challenging Pax Americana. My view is that China is underestimated even by many of its proponents: underlying tendencies in world economics and energetics indicate that China’s GDP will overtake America’s before 2020, enabling it to emerge as the last superpower by the 2020’s.

First, there is a major delusion that affects a disturbing amount of the commentary surrounding the size of the American and Chinese economies. Newsflash: nominal GDP and real GDP are different things! China overtook Japan in nominal GDP this quarter, but its real level of output has been the world’s second largest for almost a decade*. The reason China’s nominal, or market exchange rate, GDP is twice lower than its real GDP is because its currency is undervalued relative to the US dollar – simply put, living in China is a lot cheaper than in America. But it’s not an accurate proxy for the actual output of the Chinese economy, which is now at around 2/3 of the US level (IMF)**. The “purchasing power parity” GDP is better suited for gauging a country’s real living standards and economic strength.

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The Endgame Begins

This about Economy, tagged , , , , was written by for on February 13, 2010

A year ago I predicted that there will be a “decoupling from the unwinding“, as “emerging markets” by and large ride out the temporary shocks of declining Western demand for their exports (China) and the interruption of Western credit intermediation (Russia) before resuming growth. This is one aspect of the trends leading to the imminent demise of Pax Americana, which will be replaced by “the age of scarcity industrialism” / “a world without the West“. We are now entering this Empire’s endgame.

After briefly stalling in early 2009, China’s economy roared back to life on the back of massive credit loosening to build (or overbuild) infrastructure and industrial capacity. Though not the most efficient use of resources, it did have the advantage of 1) maintaining growth, 2) forestalling the social unrest that would rise up if it wasn’t, and 3) at least Chinese investments went into building up their real economy (amongst other things, it became the world’s largest producer of wind turbines and photovoltaic panels in 2009), instead of the pork and oligarch welfare programs more characteristic of the US “stimulus”. And though Russia’s GDP contracted by 7.9% in 2009 – far higher than expected by most commentators, largely thanks to the dependence its big corporations acquired on continuous flows of intermediated Western credit – it began to slowly recover from mid-2009, industrial output is now rising at a fast clip, and investment banks are predicting growth of 4-6% for 2010. The other two BRIC’s, Brazil and India, didn’t have too many problems at all since they had neither a big credit nor trade dependence on the submerging Western markets.

In the long-term, I argued that the brunt of the crisis would fall on the “submerging” Anglo-Saxon markets, thanks to their “charades over “quantitative easing” (translation: printing money), transfer of toxic “assets” onto the public account”, and unsustainable fiscal stimuli. Today, the American political system is for all practical purposes broken. Republicans won’t agree to tax increases, Democrats won’t agree to cutting entitlement programs. The legislative process is reverting to that of the 17th century Polish-Lithuanian Commonwealth, when a single veto could (and did) prevent anything being agreed on in their Sejm, or parliament. (Hint: the ultimate consequences weren’t good for Poland).

The inflated hopes and expectations accompanying Obama’s accession to power were indeed, just as I suggested on his election, “greatly constrained by financial and institutional realities”. He is a weakling President, alternating between meaningless populist rhetoric and pandering to the Wall Street oligarchs; scorned by the left as Bush II with gloss, and condemned by the right as a foreign Marxist Islamofascist: his policies and outreaches failing at home and abroad, rejected in his own heartlands, these outcomes are engendered by and in large part made inevitable by his hopelessly pollyannish belief in his own messianic powers of compromise and persuasion.

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Philosophical Musings #2

This about Philosophy, tagged , , was written by for on January 28, 2010

4. Freedom from fear, the only real freedom.

Political scientists try to rank countries based on their levels of “freedom”, frequently arbitrarily defined and applied (Freedom House, Economist Democracy Index, Polity IV, etc). Yet despite the inconsistencies and difficulties with quantifying something as abstract and intangible as freedom across cultural and civilization borders, for all but the most committed postmodernists, it nonetheless seems safe to say that North Korea, say, is less “free” than the US – for example, in that in the former there is no prospect of me publicizing this text.

That said, this does not mean that the US is necessarily free either, or more specifically, that the majority of its citizens are free. Yes, it has many blowhard radio “pundits” and angry blogger people, but they mostly vent their feelings in favor of the status quo, the System (and those who don’t usually post anonymously anyway).

But there are plenty of examples of people who are too afraid of giving their 2 cents. Some people I know were paranoid about me even replying to a Facebook contact from the Bay Area National Anarchists* on the theory the FBI might be watching them. American journalists too afraid to report anything contrary to the bipartisan party line (though the culture war certainly gives a good illusion of diversity, albeit on ultimately inconsequential matters). Employees, especially unconnected foreigners, who are too afraid of the sack or consequences for their career to stand up to managerial tyranny, corruption, and incompetence – I know plenty of such cases.

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Book Review: Vaclav Smil – Global Catastrophes and Trends

This about Futurism, tagged , , , , , was written by for , on September 28, 2009

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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Shifting Winds: The End Of Pax Americana

This about Geopolitics, tagged , , , , , , was written by for on September 19, 2009

Every once in a while, there occurs a major shift in the international arena. The First World War and its consequences were the seminal change of the last century, collapsing ancient empires and ushering in a new era of ethno-nationalist clashes, political radicalism and emerging powers challenging the established order of Versailles, forces that were fully unleashed in the aftermath of the Great Depression. From the middle of the Second World War, it became clear that the new world order would be defined by a bipolar competition between the USSR and the US. The next major shift occurred with the oil shocks of the 1970’s, when growth throughout the industrialized world, capitalist and socialist alike, declined, and they were beset with increasing social problems, while the beginning of the rise of China and the economic re-emergence of Western Europe and Japan heralded a new, globalizing multipolarity that was confirmed by the end of the Cold War and the collapse of the USSR.

The next two decades saw the triumph of “Western liberal democracy as the final form of government” and the spread of the neoliberal consensus, all underwritten by American military dominance and the new resources unlocked by the opening of formerly autarkic economies. Generally speaking, this was a rather peaceful and prosperous time. Though wars continued and there was the occasional genocide in Rwanda or Darfur, the overall incidence of violence declined sharply in all categories, the sole exception being terrorism. Similarly, the opening up of world trade sharply increased consumer power in the US and Europe as China’s reserve armies of labor set about producing cheap goods, a process lubricated by cheap oil, gargantuan freighters and developments in supply-chain management. And though its flowers still bloom and the politicians smile and exude the air that nothing’s much amiss, the winds of time are shifting, the sun is already setting on this world, and darkness is about to creep in.

Quite literally. The cheap oil that underpins industrial civilization is ending, as the world approaches peak oil production – the point when about half of recoverable reserves have been taken out of the ground. The remaining half lies in remoter places and will be much harder to extract, especially taking into account that the resources for doing so will be significantly more limited due to the collapse of the world credit system, a system that should have died a free-market death in late 2008, but which limps on, zombie-like, sustained by governments whose solvency now hangs by a thread only maintained by investors still naive enough to believe in their credibility.

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