Opinion

Mark Leonard

In 2013, the great global unraveling

Mark Leonard
Dec 30, 2012 12:14 UTC

The disparate prospects of each continent have little in common. To the extent that they can be linked by a single theme in 2013, however, it is the idea of the unraveling of the global economy and the political integration that supported it. After two decades of globalization, this year will see each of the big political theaters re-erecting barriers and focusing more on domestic repairs than on global expansion. The unraveling has its roots in longer-term trends, but it is set to step up in the next year.

There has been a remarkable stabilization within the euro zone since European Central Bank President Mario Draghi’s intervention in the summer of 2012. But even as the euro zone integrates, the politics and economics of the wider European Union are likely to diverge. In practice, the measures toward an integrated banking union, increased parliamentary accountability and more incentives for reform could go hand in hand with the de facto economic and political disintegration of the EU. Economically, as Sebastian Dullien argues in a paper, “Why the euro crisis threatens the EU single market,” there is a significant risk of a gradual unraveling of the EU’s single-market system. A full euro zone breakup would shatter the euro, while a great leap toward political union could see shrinkage of the single market, as countries such as the United Kingdom withdraw from the heart of Europe.

Even muddling through the crisis seems likely to diminish the depth of the single market. In recent months, banks in the euro zone have withdrawn from trans-border business. Even poorly-managed German companies are paying significantly less interest on capital than well-managed Spanish companies. These new barriers between euro zone members will lead to a renewed focus on domestic markets. For Europe, this means less competition, less growth and higher prices for consumers.

Europe’s economic unraveling will be matched by a new political geography. The continent is already seeing a reshuffling of its elite, as the traditional political forces in many countries – from Greece to Italy to Finland to Austria – find themselves besieged by an emerging anti-political class of populists from left and right. There is also a renegotiation of the relationship between the “core” and the “periphery” – with many EU member states, including larger nations such as the UK, Poland and Spain, deeply concerned that integration is forcing them to the periphery of the European project.

Most worrying is the fragmentation of the core itself, with possibly irreconcilable differences emerging between Paris and Berlin over the future shape of the EU polity.

China and U.S. face mirror-image leadership challenges

Mark Leonard
Nov 6, 2012 22:03 UTC

By a twist of fate, the world’s two most powerful countries will select their new leaders in the same week. On the surface, they are almost perfect mirrors of each other.

While the U.S. election promises a nail-biting finish, the results are likely to be predictable. In Beijing, the next leader – Xi Jinping – was ordained several years ago to be appointed General Secretary of the Chinese Communist Party at the Party Congress this week.

In the economic realm, the two countries’ trajectories are at odds. While Washington is suffering from an austerity crisis, China is coming to grips with a crisis of affluence. In the U.S., as Thomas Byrne Edsdall argues in his book The Age of Austerity, “The two major political parties are enmeshed in a death struggle to protect the benefits and goods that flow to their respective bases, each attempting to expropriate the resources of the other.”

China’s technology revolution

Mark Leonard
Sep 27, 2012 16:32 UTC

It was a blood bath. A methanol tanker crashed into a bus, killing 36 people and injuring more near the Chinese city of Xian on Aug. 26. Soon after the accident, a photograph appeared online of Yang Dacai, the local official in charge of road safety, smirking at the scene of the crash. The photo prompted a flood of Internet anger. The comments of netizens soon moved from the official’s demeanor to the value of the watch on his wrist. Bloggers managed to unearth pictures of Dacai wearing 11 different luxury watches, together worth many times his official salary. Last Friday, the Chinese media reported that Dacai had been sacked after an investigation into corruption.

Yang Dacai is just the latest focus of an electronic herd whose activism and anger appear in sharp contrast to the staid and controlled official politics in China. The regularity with which these scandals erupt helps explain why an opinion poll in China 18 months ago revealed that 70 percent of senior Chinese officials live in a state of “Internet terror.”

Over the last few years, officials at all levels of government in China have fallen prey to electronic vigilantes who have exposed corruption by looking at the value of officials’ possessions or the misdemeanors of their relatives. This is what makes the effect of the Internet on Chinese politics so paradoxical: It could seriously lengthen the life of China’s one-party state. In much the same way that the market has saved the country’s Communist Party, China’s state-controlled Internet could save its leadership.

The great Sino-American divorce

Mark Leonard
Aug 23, 2012 19:54 UTC

All breakups are tough. But the divorces we have learned to fear the most are protracted, conflict-prone and ultimately unresolved. All the signs are that China and America are in the middle of one of these messy divorces between abusive couples who hate and need one another at the same time. As Washington and Beijing prepare for new political leaderships, they cannot avoid a major renegotiation of the terms of their relationship.

Since the global financial crisis in 2008, we have been living through the slow and painful end of Chimerica — the period when the American and Chinese economies acted as one. It drove one of the longest periods of global growth and prosperity in history. This perfect symbiotic relationship — popularized by the historian Niall Ferguson — was based on China saving half of its GDP while America borrowed the money to finance a spending binge it could not afford. The romance ended in September 2008 with the collapse of Lehman Brothers. Now the terms of the separation between the two nations risk awkward discomfort for the rest of the world.

On a recent visit to Beijing, I was struck by the near-universal assumption that American demand will not return to pre-2008 levels. This has led to a lively debate about how to reorient China’s economy. On the one hand, China is hedging against the dollar by investing in companies and assets outside the U.S. On the other hand, Beijing is bracing itself for slower growth, while looking for substitutes for exports and fixed investment.

China’s affluence crisis

Mark Leonard
Jul 31, 2012 15:40 UTC

For most of the last 30 years China’s leaders have been kept awake at night worrying about their country’s poverty. But as the country approaches its once-in-a decade leadership transition this fall, it is China’s affluence, rather than its poverty, that is causing sleepless nights.

Deng Xiaoping declared in 1979 that the goal of China’s modernization was the creation of a “Xiaokang (moderately well-off) society, where citizens would be comfortable enough to lift their eyes above the daily struggles of subsistence. For more than a decade, Chinese people have been living a version of this once-utopian concept.

On a recent trip to the prosperous Guangdong province on the Pearl River Delta I was struck by the sophistication and wealth of China’s urban experience – but also by the fragility of the social compact on which it is founded. The country’s economic growth “slowed” to 7.6 percent in the second quarter (the weakest quarter since 2009, when 20 million Chinese lost their jobs as a result of the global financial crisis). Only last week, Premier Wen Jiabao warned of tough economic times ahead.

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