Compass

The death of an Englishman in Chongqing has acquired all the intrigue of a John le Carré novel with none of its charms. Despite the occasionally romantic descriptions of the disgraced leader Bo Xilai as a charismatic man of the people challenging the prerogatives of Beijing’s bureaucratic leadership, this is a story without heroes, in which no one’s hands are clean. For all the elements of murder, mystery and missing fortunes occupying the Western press, in China today the focus of the country’s political and economic leaders is on the cascading power struggle that is in progress and what it holds for the future management of the world’s second-largest economy.

A year of leadership change that should have been defined by a smooth, almost seamless transition is instead shaping up to be a turning point in the direction – and ownership – of the political economy of China. Two years of plotting, positioning and maneuvering on the part of tens of thousands of party officials have been thrown into disarray by Bo’s fall, with few now confident of where their allies and masters will find themselves at the conclusion of this upheaval. Combine this with the unresolved elite debate about the cause of China’s economic miracle – the process of reform and liberalization, on the one hand; or, on the other, the still-powerful grip of the state on the means of production – and what you have are all the elements of a perfect storm for the Chinese Communist Party.

Beneath the past month’s surface impression of a resilient party able to manage with speed – and unprecedented candor – the exit of one of its princelings, two visions of China’s future are battling it out more fiercely than ever, in Beijing and throughout the provincial capitals. On one side is a movement, often but inaccurately described as “neo-Maoist,” led by Bo Xilai’s faction and dedicated to maintaining the dominance of the party in the service of the masses left behind by the rapid growth in the major cities. On the other, closely identified with outgoing Premier Wen Jiabao, is the faction dedicated to accelerating economic and political reform designed to ensure long-term sustainable growth. What they share, rhetorically, is a commitment to addressing rapidly widening income inequality. What the factions share, equally, is a reputation for corruption and family privilege of immense proportions at their leadership levels.

What to date has distinguished China’s rise from, say, Russia’s, has been a generation-long elite social compact where the wider interests of the state enjoyed at least equal priority with the personal financial interests of those guiding it. The danger is that an oligarchy – however discreet, distinctive and still grounded in the party’s program – will tip the balance of decision making decisively toward an irreversibly corrupted political economy. It is one thing for technocratic managers faced with the immense challenge of guiding China toward a consumption-based economy to make errors of capital allocation in good faith. It is quite another if, for example, the 10th commercial airport in Shanghai is built because a princeling member of the leadership stands to gain a personal fortune from the investment.

To this pivotal question, the answer does not lie in which faction of the Politburo – Wen’s or Bo’s – prevails. Yes, China must continue to integrate itself carefully into the global economy. What will matter far more, however, is to prevent the capture of the state by leaders devoted more to their own and their families’ interests than those of the hundreds of millions of Chinese still living in poverty. In the meantime, the struggle for power is paralyzing decision making across a vast range of centers – even to the extent that some observers now believe it to be contributing to the economic slowdown in ways that are outside central control.

China’s leaders know what they don’t want – Western-style liberal democracy. They remain profoundly unresolved about they do want by way of a central organizing principle for their state. In the absence of decisive leadership, the vacuum is in danger of being filled by the acquisition of oligarchical power that will be extremely difficult to reverse.

A deeply consequential reordering of Chinese politics has begun – and the path to a new equilibrium will be defined by a struggle for personal power and privilege as the vision of the ultimate destination. For investors, diplomats and analysts accustomed to weighing endlessly the quantitative evidence of a hard or soft landing for China’s growth story, this is the “landing” that ultimately will matter.

PHOTO: China’s former Chongqing Municipality Communist Party Secretary Bo Xilai (C) stands with students as they pose for group photographs during an award ceremony for Chongqing primary and secondary schools speech contests in Chongqing, December 26, 2009. REUTERS/Stringer

By Nader Mousavizadeh
The opinions expressed are his own.

Ten years after the attacks of September 11^th, the brief moment of global solidarity that followed when we were “all Americans,” in the words of Le Monde, seems as improbable as it is distant. Barring a global catastrophe, the world is unlikely to unite again as it did on that day – and not just because of the conduct and course of the wars of 9/11 in Afghanistan and Iraq. A deeper – and more radical – shift is at work in the politics of the global economy. A fragmentation of power, capital and ideas is creating a new map of the world – with lasting implications for investors and policymakers alike.

The evidence is everywhere. Europe beginning to roll back key aspects of the free market even as it manages yet another bail-out of Greece; the failure of the Copenhagen climate change negotiations; a Doha trade round dead in all but name; the emergence of new global governance structures, such as G-20; the flows of macro-finance investments between emerging markets combining state and business interests; China’s “going out” strategy upending traditional vectors of global capital and influence; an Arab Awakening as much defined by its diversity as its aspiration for accountability and legitimate government; the resurgence of nationalist, populist movements across rich and poor parts of the world; a proliferation of hybrid economic and political systems defying old categories of left and right, liberal and authoritarian.

Conventional thinking holds that all this is a threat to an otherwise well-ordered global order – or that it reflects a zero-sum shift from West to East, U.S. to China, democracies to dictatorships.  For large parts of the world, of course, the existing global order seemed less well-ordered than designed to perpetuate – by any means necessary – dated power structures of the mid-20^th century.  Equally, to see this merely as reflecting an all-embracing power shift to the East (as observers both Eastern and Western do) ignores the fact that pivotal powers such as Turkey, Brazil, Indonesia and Nigeria are charting distinct paths aimed above all at economic independence and national power – beyond ideological labels.

Instead, what we’re seeing is an emerging world of sovereign states vertically integrating national interests across the public and private sectors – and then going out strategically to compete for resources, growth and job creation. Having previously understood global interdependence as a reason for horizontal integration across markets and regions, states as diverse as Finland, Saudi Arabia, Japan and Mexico are now pursuing distinct, often bilateral, strategies for economic and political security. This is the new dynamic of global competition – one with implications as profound as they can seem contradictory.

From South-east Asia to West Africa, commodity states are leveraging their economies to the Chinese demand driver without wishing to replace Washington’s dominance with Beijing’s.  Across the Middle East, citizens are deploying technology and new-found communications tools to demand consent in how they’re governed without losing their ability to see their values and traditions reflected in the fabric of their societies.  In Latin America, state-owned corporations are working hand-in-hand with governments to pursue inclusive growth of a kind that holds promise beyond what was achieved by structural adjustment programs imposed by Western-dominated multilateral institutions.

There is an undeniable logic here. After all, it was never credible that climate change threatened each country or region in the same way – or to the same degree; that an overleveraged West threatened the global economy as much as it did its own dominance over rising powers; that the attempts of rogue states acquiring weapons of mass destruction represent an equal threat to states large and small, West and East. And now the narrative has been broken.  Where you stand really is a function of where you sit – for states and people alike.

Today, after a six-month period of sovereign debt crises, tsunamis, nuclear disasters, revolutions, uprisings, and military interventions (and the list could go on), it would be natural to see this emerging order as inherently unstable. Volatility may seem like the new norm, but we’re more likely seeing a turbulent transition to a more resilient, and more diverse, global economy governed by national interests. The old stability was as much an illusion in Mubarak’s Egypt as it is in a global economy structured for the benefit of a few dominant, but deeply indebted, powers.

For the West, negotiating this new mosaic of power will require a mix of pragmatism, modesty, innovation, and strategic patience.  It means, at times, partnering with Chinese investments in Africa instead of trying to convince its leaders that they have more to gain from yet more conditional aid.  It means, at other times, accepting that an Egyptian government more legitimate and accountable in the eyes of its people will chart a course less pliable to Western demands. It means looking at a successful, modernizing Muslim country like Turkey and understanding that there is far more to gain by engaging with its growing influence than in lecturing it on the character of its politics, as long it remains a constitutional democracy.

Above all, it means focusing on management of the structural drivers of global growth and development – including energy, commodities, inflation and, yes, climate change – in ways that address the ways they affect different countries in different ways.  The locus of legitimacy has returned to the nation-state, and as new powers gain the economic and political power to assert their interests, no solution that isn’t both global and national will be successful or sustainable.

A multi-speed global economy – with diverging long-term growth profiles – will increasingly be mirrored by a multi-dimensional global politics. This is a Great Game worthy of the name and the winners will be those states and corporations increasingly seeking their own success irrespective of traditional boundaries of geography, ideology, interest and alliances.

Welcome to the Archipelago World.