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Public debt is on the rise in Africa as global investors seek returns. See the full post from Quartz. Here is just one interesting fact from the post: During the last year, Zambia has been able to borrow at a lower cost than Spain.

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Helping Failed States in an Age of Austerity

Anti-austerity Protestors in Ireland

Protestors of austerity budgets in Dublin, Ireland, November 2012. Photo credit: informatique (via Flickr, Creative Commons license).

According to traditional wisdom, helping failed states is expensive. Right now, Europe, Japan, and the United States are loaded down by a massive debt burden. Emerging powers – including China, India, Brazil, Russia, and South Africa – don’t seem too interested in bankrolling expensive new state-building missions. So, it looks as though we are at an impasse. Except, that we’re not.

The first premise – on the financial costs of helping failed states – is not necessarily true. Successful state-building / reconstruction can involve long deployments of foreign militaries and billions of dollars in international aid. Foreign engagement in Afghanistan, for example, has been anything but cheap. Yet, this costly “big footprint” approach is not the only available option in assisting fragile states. And that is a good thing, given the unavoidable reality of this age of austerity.

Europe, Japan, and America are clearly in the midst of an age of austerity. “Austerity” simply refers to a massive and sustained program of public spending cuts (and tax increases). Even without the massive deficit spending associated with the Great Recession (2007-), these established industrial states were facing structural imbalances. In all of these areas – but especially in Japan and most of Europe – rapidly aging populations are severely straining prior social welfare commitments. In the U.S., a pervasive anti-tax culture has also starved the state, and therefore led to more dramatic tradeoffs between domestic spending and foreign assistance. On current trends, the present decade is likely to remembered by much of the world as a “lost decade” economically, due to the circumstances of austerity.

No matter. The onset of austerity could actually be a helpful stimulus to creative thinking about responses to state failure. Because we must come up with low-cost solutions to state decay, it is more likely that we will do so. Two key options are the following: 1) provide diplomatic flexibility to redraw the territories of existing states and 2) in rare cases, allow “stateless zones,” rather than push the development of modern states where they are not wanted. You can read more about these and other low-cost solutions to state failure in my new book, State Failure: Realities, Risks, and Responses ($4.99, available from Amazon, Barnes and Noble, and Kobo).

Geopolitics and American Economic Competitiveness

When I was in high school, I read the classic book The Rise and Fall of the Great Powers by Paul Kennedy. In the early 1990s, Kennedy and others were focused on the rise of Japan and the presumed geopolitical decline of the United States. These predictions of imminent American decline were of course wrong, or at least premature.

Earlier this week, I wrote about the effects of automation on the U.S. and global economies. The key point was that contemporary technological innovations are tending to make many workers redundant. Travel agents, secretaries, legal assistants, factory workers, and many other groups of workers are being replaced by computers and robots. Rising productivity is not leading to net growth in jobs, and many economists are warning that we should get used to a “new normal” of higher unemployment (and lower economic growth rates). For the sake of argument, let’s assume that these trends do persist over the next few decades.

If these problematic economic trends persist in the United States, what will that mean for global geopolitics? Here are a few key possibilities:

  1. Military spending in the U.S. will inevitably decline, as even many influential Republicans recognize. Future American leaders will be much less likely to engage in long-term military campaigns like those in Iraq (2003-2011) and Afghanistan (2001-present). The prospects for Pentagon-led “nation building” missions will decline significantly. NATO’s capabilities will dwindle even more than they already have.
  2. Sluggish economic growth and political gridlock in Washington could lead to lack of action on the public debt. In last night’s debate, Mitt Romney aptly used the phrase “on the road to Greece” to refer to America’s fiscal ill health. Though the U.S. has key advantages over Greece, the performance of American political elites over the last 12 years does not bode well for the future. If holders of U.S. public debt demand higher returns and provoke a sovereign debt crisis, the world’s superpower could enter into a period of rapid global retreat, just as Britain did in the 20th century.
  3. Anemic, jobless growth could lead to trade protectionism and economic nationalism reminiscent of the pre-World War II period. True, the Great Recession (2007-) was remarkable for its lack of economic nationalism. But if economic conditions do not improve significantly in the next decade, the World Trade Organization and free trade agreements could become big targets, especially for the Democratic Party.

Just as Paul Kennedy’s prediction of American decline in the late 1980s was wrong, contemporary pessimists could be very wrong about imminent U.S. decline. Economists, after all, do not excel at long-term prediction, despite the grander claims of some. What are your thoughts about recent economic trends in the United States?