A Growing International Power Vacuum

Governments of the new era must deal firmly with market failures and vested interests before too many victims are found littering the way

In 2007, capital flows at the global level amounted to a record $12.4 trillion. In 2016, they amounted to a mere $4.3 trillion, less than the level in 1980 when international economic liberalisation had just begun. There is now also a deceleration of international trade.

Mauritius was able to take off from an economy almost entirely dependent on sugar when capital flows from the Far East helped widen the domestic manufacturing base. The flow of such capital was supported by access to external markets, notably in Europe and North America.

Symptoms of a power vacuum

The slowdown of global capital flows and trade reflects a state of disquiet about global leadership. In particular, starting with questioning the funding of NATO, a Western military alliance, the US appears to have increased global uncertainty by walking out of the necessary free world leadership role it took upon itself since after World War II.

The disengagement began with the new US president throwing out the Trans-Pacific Partnership, a trade deal negotiated by the preceding administration between the US and a dozen other countries over the Pacific seen as natural allies of the US. The US has also almost repudiated its commitment to the Paris 2015 UN climate deal. It has, together with Israel, almost unilaterally abandoned the Iran nuclear deal negotiated by the five members (including itself) of the UN Security Council and Europe in 2015 to ease mounting Middle East tensions over Iran’s nuclear project. We saw the US stating recently that it is now looking to curtail its funding commitment to the UN, to the budget of which it has always been a major contributor.

Over the past month, the US has launched discussions on the North American Free Trade Agreement (NAFTA) binding the US, Canada and Mexico in a free trade deal since 1995, which the incoming US president described as “a very bad deal”. The way discussions are going on NAFTA shows that a big jolt to the entire existing trade framework is in the works from the US side, not some tweaks that might have rectified some imbalance that might have crept in. Each trade partner might eventually have to go its own separate way.

Even though it might appear as if the US is the main disruptor of the international social and economic order on which the fate of nations depends, it would be a mistake not to see the other trouble spots which point to a global system being increasingly called into question. The referendum results of June 2016 in Britain were a pointer to the shape of things coming into place. Other places have also advocated standalone isolationist authoritarian regimes (e.g., Turkey, the Gulf countries pushing Qatar into a corner) willing to supplant the existing order, the latest being the Catalan crisis in Spain.

 The finality of this trend

It should not be difficult to guess the consequences on other countries if a global economic powerhouse like the US were to close in upon itself, whether by building physical or trade tariff walls. Were the openness of global economic interaction to shrink due to such developments the world over, economies like that of Mauritius would suffer the most. Unfortunately, we don’t have that big a say in international affairs to prevent national and international tensions from escalating in this self-defeating direction for all.

The problem individual countries having gone in this direction of protest at the way the world has been run by a predominantly personalised self-seeking capitalist system, is that they have no plan B, once having decided to break apart. Consider Britain. It wants more decision-making independence from the European Union, just like so many other peoples heralding this trend at the global level, seeking better economic justice against dominant self-enriching domestic economic elites.

However, there’s little clue of “how to do better”, having once decided to move aside. Britain is now contemplating becoming prosperous, as once it was, by freeing trade tariffs at the WTO level. Hardly realistic, considering how much the rich countries have themselves been frustrating this kind of global outcome over several decades now. The coalition of well-intending forces making for a fresh wave of prosperity for all is absent from the world scene.


It should be evident that, devoid of a concession-making global leadership, the world is not heading towards the next sweep of prosperity for all nations, big and small. This is not forthcoming because an unbridled capitalist system – despite having interconnected the world much more closely through trade, free markets, capital flows and cross-border investments, despite having pulled millions out of poverty in the developing world by creating new markets for goods and services in such places, despite having reduced prices for consumers in both poor and rich countries – failed to share the gains more evenly across the spectrum.

While those positive developments were taking place in some parts of the world, many were being thrown out of jobs simultaneously in the rich countries during globalisation as profit-making companies expanded their reach to global markets, keen to cut costs by all means. These powerful economic companies supplanted the political process, taking hold de facto of democracy, individual rights, public institutions and social justice as envisioned in the post-war era. Conventional politicians yielded their responsibilities to them in several disguises.

Wages stagnated, inequalities soared, precarious contractual labour became the new norm, lower and middle-class houses were repossessed by lenders. This process only needed finally the mismanagement of the economy by unbridled private financial institutions dealing the final blow in 2007-09 to the victims of their mis-governance. It is these deep wounds that have brought reckless politicians – having no responsibility towards global good governance – to power in so many different places. They are the product of long-standing derelict upholding of duties by those who were entrusted with the same.

What to do? Repudiate the free market system which has nevertheless improved global conditions so much in the post-1980 decades? To replace it by what? Will the pseudo-leaderships that have currently come in place bridge the crying gap in credible and cohesive regional and global leadership that appears to have left the scene, with not even international global bodies like the UN capable of reining in the wild forces being unleashed?

The answer is simple. The problem behind all the fissiparousness today arose out of abuse of the free market system for excessive private advantage at the cost of the many. That’s how we saw the stronger emergence in the preceding decades of “professional interest groups, which have done a remarkable job of protecting themselves from the downside of the market while enjoying the upside (and) public sector bosses enjoy(ing) a combination of private sector pay and public sector perks (seeing) their pay escalate regardless of performance” (The Economist, 14 October 2017).

The job of the state now is to fix the derailed free market system once again to deal effectively with social problems before they assume the monstrous proportions they assumed of late, with the resultant bringing in of incompetent leaders at the top. As it showed in China, capitalism can still deliver good results but it has to be tamed all the time for a new and fairer economic era. Governments of the new era must deal firmly with market failures and vested interests before too many victims are found littering the way. Until a new leadership emerges to boost the economic and social dynamism once again, we’ll unfortunately have to pay the price for lack of a truly social democratic leadership for so long in so many countries.



*  Published in print edition on 27 October 2017

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