Who’s Afraid of a Changing World Order?

Danny Quah turns to economic reasoning to explore fears of the changing world order.

There is, of course, an obvious answer to the question, “Who’s afraid of a changing world order?”. Winners and losers emerge when shifts occur in world order. By world order I have in mind who’s number 1 in the world, who’s number 2, and so on; or, more generally, world order is the distribution of power and responsibility, and the set of shared understood relations across nation states.

Those who stand to fall in the rank ordering of nation states fear a changing world order. Those set to rise welcome such change.

But such reasoning is simple and linear, and economics cautions that in any interesting situation gains and losses are hardly ever straightforward. Instead, any perturbation comes with tradeoffs in cost and benefit. The benefit one gains from fighting to achieve primacy in a unipolar international system might come at considerable cost to oneself in global instability and conflict. Straining every sinew to preserve the ability to write the rules of the game is wasteful if everyone else agrees those rules are exactly what they themselves would have written anyway. Winning the contest of hard power might come at the expense of losing respect and admiration and yet other dimensions of soft power.

In one traditional view of rivalry between West and East, the West seeks to engage everywhere it can in defence of “core values”. But that rings hollow if ultimately the East is not what the West might suppose it to be: China is not a North Korean kind of authoritarian state; and Asia is not an illiberal, undemocratic nest of corruption and cronyism. And how does the West know what the East wants for itself? If people in the East can succeed under a duties-oriented, rather than rights-based, governmental structure, what does a liberal West gain by illiberally insisting that Eastern governments must comply with what it thinks to be the unique pathway to political maturity? Economics says that different configurations of fixed costs and big-push needs in a developing economy call for different combinations of state intervention and free-market operation: the developed West therefore faces emerging-country trading partners who need to balance gain from access to larger markets with loss in incomes from lowered efficiency. An absolutist “no state intervention” policy is not appropriate for everyone, and does not imply a level playing field. Yet, a universalist one-size-fits-all approach has , inappropriately, continued to be America’s default position on international trade.

The trick is to identify accurately key tradeoffs. A nation can make the right decision only by calibrating the slopes of those margins of exchange, i.e., quantifying elasticities of supply and demand schedules. Without that clarity, predictions go wrong, and analyses mislead for how world economy and society will draw benefit or disadvantage from change.

No one should trust nations to do good for others, only that they pursue their own self-interest. However, the second critical message from economic reasoning is that rationally pursuing one’s own gain is not inconsistent with doing good for all. Indeed, the fundamental theorems of welfare economics are about uncovering the conditions under which these two — doing well for oneself, doing good for all — exactly align.

How far can these two insights from economics take us in analysing a changing world order? These ideas are, for one, already implicit in many qualitative analyses of world and regional order. But I want to advance a stronger position. These two insights from economics, combined with empirical quantification of the large changes in global society and politics, and of the shifting world economy, and incorporating Ramsey-like theorems for analysing global public goods and externalities, can take us a long way in re-interpreting world order, and in providing alternative insights and policy proposals from that typical in more conventional narratives.

To make the analysis concrete, however, it helps to begin with specific, historical examples, rather than immediately launch into a formal model. Start then with the current international system. For concreteness, take that to be a caricature of John Ikenberry’s subtle and nuanced conceptualisation of the liberal world order. Style it as unipolar, led by the United States, and call this the American Century. If the world is now to segue to the Asian Century, as articulated by Kishore Mahbubani and others, what exactly does Asia want that is different? What would Asia — China, Japan, ASEAN — seek to change in world order?

In “Can Asia Lead the World?” I describe how that change might be minimal but at the same time profound. 

It’s a hypothesis. But many others are possible. To narrow matters down, greater scrutiny is needed.

In subsequent letters/chapters, I take up that investigation.

This post first appeared on Danny's blog and was reposted with permission. 

Photo credit: Foter.com CC0 1.0 Universal (CC0 1.0) Public Domain Dedication