Numbers Don’t Lie

Late last month, Manila was host to famed economist and global policy maker, Professor Ramon Tamames.

For those unfamiliar with Prof. Tamames, the Spanish professor is the author of seven books on economics and global affairs, all of which are used as reference by both the academe and organizations like the World Bank and World Economic Forum.

Professor Tamames was one of the authors of the 1978 Spanish Constitution and also a policy maker of the European Union.

Today, he is a visiting professor at Harvard, Oxford, and the University of Berlin and a member of the EU policy-making body on morals, ethics, and political protocol. The Professor from Madrid is a global personality whose decisions affect world politics and economic affairs.

The Instituto Cervantes, headed by Carlos Madrid and Jose Maria Fons, organized a talk about the role of the European Union in the wake of America’s increasing insularism and China’s rise as an economic superpower. No less than Professor Tamames addressed the group. Attending the symposium were an elite mix of policy makers from the Asian Development Bank, the Bangko Sentral ng Pilipinas, the Philippine Senate, the Supreme Court, and representatives from private institutions.

I was fortunate to have had private time with Prof. Tamames as we enjoyed dinner together on the eve of his talk.

THE AMERICAN CENTURY IS COMING TO A CLOSE
The American empire will go down in history as the shortest period of hegemony lasting a mere century. It established itself as a dominant power in 1898 when its economy and military prowess surpassed that of the former superpower, England. It asserted its global influence by being a colonial power itself through the annexation of the Philippines, Puerto Rico, Cuba, and Guam.

In the military sphere, it championed the allied forces against the imperialist ambitions of the Germans and Japanese in World Wars 1 and 2, respectively.

Towards the latter half of the 20th century, it participated in nearly all major conflicts and/or political uprisings playing the role of defender, oppressor, judge, and jury as it upheld the tenets of democracy while protecting American interest. From Libya to the Persian Gulf, from Panama and Bosnia & Herzegovina, the hand of America has always dictated the final outcome.

Free trade has been the means by which America has maintained its economic dominance over the planet.

Through American-led initiatives such as the General Agreement of Tariffs and Trade and the World Trade Organization (WTO), America has been able to gain access to markets beyond its shores, taking full advantage of its industrial might and technological superiority.

Free trade treaties such as the North American Free Trade Area (NAFTA) and Asia-Pacific Trade Agreement (APTA) allowed America to supply the world with such high value-added products such as commercial aircraft, military weaponry, computers, pharmaceuticals, and even software. Free trade has made America an economic behemoth.

Unfortunately, the American century is nearing its end, Prof. Tamames says. He attributes this to two causes. First, the rise of China as an economic superpower and second, President Trump’s strategic direction to shun free trade in favor of protectionism.

Barely two years in office, President Trump has already caused the US to withdraw from the Trans-Pacific Partnership and is seen to dismantle NAFTA soon.

In terms of its role as the world’s predominant military force, President Trump’s refusal to continue subsidizing the North Atlantic Treaty Organization (NATO) is seen to disrupt the balance of power, tipping the upper hand to China.

The fact that America has all but abandoned UNESCO, the world’s defender of culture and heritage, underlines America’s disinterest to continue playing the role of global police.

This leaves the stage open for the Chinese.

THE RISE OF CHINA
In 1978, Deng Xiaoping, opened the communist republic to the doctrine of capitalism albeit in a centrally controlled form of government. Reforms took place in two waves. The first wave happened in the 1980s when the Chinese government allowed foreigners to invest in the country, allowed agricultural farms to operate like a private businesses, and allowed entrepreneurs to start their own enterprises and enjoy their own profits.

In the ’90s and well into the 2000s, price controls of basic commodities were lifted (allowing market forces to dictate prices), privatization of select state-owned companies were pursued and protectionist trade policies were relaxed.

Today, the Chinese economy operates with all the characteristics of a free-market economy but without the bureaucratic red tape normally seen in wieldy democracies. Chinese economic policy is limber, able to take advantage of shifting economic tides and the opportunities that they bring.

On the back of an enormous domestic market, relatively cheap labor and an avalanche of foreign investors infusing both capital and technology, the Chinese have evolved to become the world’s manufacturer of both innocuous products like staplers, scissors, and paper clips as well as high technology products like aerospace parts, telecommunications equipment, medical equipment, and automobiles.

China’s manufacturing sector has propelled it to become the world’s fastest growing industrial economy.

In terms of purchasing power parity terms (PPP), China’s economy has already surpassed the US by some 21%. In nominal terms, China’s $11.2-trillion economy is seen to surpass the $18.6 trillion within a decade. Together with China’s growing economic might is an emerging military power.

Theoretically, China’s position as the new global superpower should catapult it to become the world’s defender of the oppressed and promoter of peace, stability, and free trade.

But here lies the problem, says Prof. Tameses.

China is not interested in being the judge and jury of world conflicts as America used to be. The fact that it is absent in the conflicts now ongoing in Iraq, Iran, and Afghanistan is indicative that its interest lay solely on economics and expansionism.

Hence, what we have before us is a vacuum of power.

THE ROLE OF THE EU
So this is the state of the world today. On one hand, you have America turning insular and protectionist. On the other hand, you have China who is reluctant to be the world police but may be forced to.

It is important to note that should China play the role of global police, we can expect it to shun the values we hold dear — democracy, laissez faire, environmental protection, and the importance of honoring territorial boundaries.

This begs the question.

Who, then, will keep the world on an even keel amid the threats of wars, terrorism, global warming, human rights violations, and income inequality? Who will protect the world from falling into the Thucydides Trap (the situation when a new rising power threatens to displace a ruling one, the most likely outcome is war). This is where the European Union comes in.

The 28-member European Union is the balancing force between China and US. It is the only entity that has the economic gravitas that can rival China and the US and the collective military might (even without Britain) to challenge them, if need be. More importantly, the EU is committed to democracy, free market and peace.

The EU’s role is not to play the role of global police. This cannot happen, says Prof. Tamames, simply because the EU’s militaries are not unified (albeit bound by mutual defense treaties) and her economies are not fully integrated into a single unit.

Rather, the EU’s role will be to prepare and promote the necessary talks between China and the US to set the path towards a new world order.

The EU’s role is will be to avert de-globalization, avert China’s creeping territorial grabs, avert the acceleration in global warming, avert income inequality, and more importantly, avert a nuclear conflict between the US and China.

In short, the EU role will be will steer the powers that be towards a path of peace, harmony, free trade and a prosperous life for all. Now more than ever, the EU plays a critical role to maintain global stability.

 

Andrew J. Masigan is an economist.