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Journalism of Courage
India got its nuclear deal from America as America was writing its new New Deal. This was a coincidence but a powerfully symbolic one. The substance behind this symbol is this: it8217;s in India8217;s interest that America emerges from the financial crisis without significant damage to its geopolitical influence. Wishing this is of course not the same as assuming it. It is necessary to ask what are the chances the crisis will undermine American power. The answers may not be as gloomy as some people around the world would hope them to be. But first let8217;s take a look at those people. That will explain why staking our future on a world with a weakened America is a worse bet than anything seen on Wall Street.
Among the notable absentees at the annual United Nations heads of government jamboree this September was Hugo Chavez, president of Venezuela. Chavez skipped the New York meet and went to Beijing, saying the Wall Street crisis was proof that Beijing is a more important city than New York now. Russia8217;s president, Dmitry Medvedev, said around the same time the crisis marked the beginning of the end of America8217;s global leadership. Russia also announced new strategic cooperation with Venezuela. Russia8217;s major trading partner, Iran, which is no closer to giving up its nuclear weapons programme, also took pleasure in America8217;s financial crisis, speculating that the next American president can only deal with domestic problems if it walked away from global 8220;adventures8221;. China, of course, is quiet. Some American commentators have noted that despite being flush with dollar assets China hasn8217;t shown any interest in buying into troubled American finance firms. Others have said China8217;s tough talk against America on arms sales to Taiwan is proof that Chinese communists are starting to politically leverage America8217;s financial crisis.
Geopolitics is complex, as strategic experts keep telling us. But it lends itself to a few simple rules of thumb. One of them is that power-projecting rich democracies with strong and independent private sectors are a better bet than power-projecting quasi-dictatorships where the state has ten fingers in every economic pie. It8217;s a question of what powerful nations want to export 8212; the second group has nasty regimes that want to export nasty ideas and are able to nationalise economic resources in that pursuit.
Actually, this should be obvious. But in India and around the world, it isn8217;t. Say, you are a well-informed, politically and economically left-of-centre Indian who dislikes George Bush and think the Iraq war is a grotesque abuse of power. Would you therefore want a nuclear-armed, unrestrained Iran ready and able to export its ideas? Would you want an uber-nationalistic 8220;Putinised8221; Russia to act as the bully boy? Would you want a Latin American military strongman to define the rules of engagement with the West?
These regimes, if they can, will use their hydrocarbon advantage ruthlessly and a country like India will suffer. India needs energy to grow and it needs a reasonably stable international environment for energy cost to be bearable and for energy supply to not be erratic. India doesn8217;t have the power to guarantee this, far from it. This can only be guaranteed if the world, bluntly put, is policed by a major democratic power. Western Europe can8217;t police it because it
doesn8217;t have the political architecture. That leaves America. A liberal democracy like India engaged in upgrading its capitalism but as yet unable to influence others8217; actions should want another capitalist liberal democracy with enough power to act as the guarantor of minimum order.
Notice that the case for India to want an America not weakened by the financial crisis can be made without bringing China into the equation. Bring China in, and it becomes an absolute no-brainer. But many people in India8217;s thinking classes still don8217;t get it. Thankfully, two successive prime ministers from two different parties got it. Parenthetically, let8217;s observe this is one of the reasons India must have a government that8217;s either Congress-led or BJP-led.
What kind of an America will India8217;s next government hopefully a Congress-led or a BJP-led one deal with? Barack Obama and John McCain have no plans on giving up America8217;s primacy. But whoever gets elected will have to understand that the first trick to keeping America8217;s geopolitical influence intact will be keep the confidence of the world in America8217;s financial system.
America has been able to run two deficits, in its budget and trade accounts, because governments and private investors around the world have kept their faith in the quality of America8217;s financial assets and their confidence in America8217;s currency. The dollar, remarkably, hasn8217;t been battered as America suffered a financial crisis. This is in part self-interest on the part of non-American economic agents who hold dollars 8212; no one flush with dollars wants to start a run on the dollar. But in part it reflects a vote of confidence in America8217;s ability to deal with the crisis.
Note, in this context, that other major economic players have been equally or more affected by the financial crisis. Much has been said about American banks8217; mad risk taking. But European banks on average lent 1.4 euro for every euro they had as deposits. American banks lent 96 cents of every dollar they had as deposits. That8217;s just one statistic among many that explain why Europe is seeing bigger and more numerous bank failures than America. And Europe has a problem 8212; the euro area is not politically or administratively structured to arrange for a full coverage bailout. Efforts to put together an American-style euro area bailout have failed for now and European nations are arranging separate rescue packages, which may be less efficient and which in any case will weaken the idea of Europe as an effective economic entity. Note, too, that Russia8217;s and China8217;s stock markets have fallen by more than America8217;s since the crisis deepened over the last month and a half.
So we may see a rough repeat of what happened after the oil shock led the West into stagflation in the 1970s: America is affected by the crisis, but other major players are affected probably even more, and their capacity for remedial action seems less than America8217;s. In relative terms, America emerged stronger geopolitically after the oil shock. The same may happen this time. Certainly, shifting confidence from the dollar to the euro when euro-nations are bickering in the midst of a crisis seems an odd choice.
So chances are that post-crisis America will emerge with its geopolitical pole position intact. Indians don8217;t have to love Bush or America to wish for that. They only need to love their country.
saubhik.chakrabartiexpressindia.com
