Re-directing Donald’s Joystick

So that in the nature of man, we find three principal causes of quarrel:

First, Competition;

Secondly, Dissidence;

Thirdly, Glory.

The first, maketh men invade for Gain;

the second, for Safety;

and the third, for Reputation.

― Thomas Hobbes, Leviathan

In this article last year (http://poleconomyindia.blogspot.in/2016/04/power-shortage.html), I had pointed out how the global leviathan is realizing it no longer has the power in certain situations and is unwilling in others to enforce rules (whether right or wrong). But, for example, when the electric car has limited power it more important to use that on driving it to the next charging station than anything else.

Post-World War II, US and USSR covered most of the world under their influence, thereby checking regional aspirations. The superpowers fought at the edges of the world in Vietnam, in Middle-East or in Afghanistan but never in the core area of their interest, the European peninsula. This balance of power ensured almost 5 decades of peace. When the Soviet Union collapsed under the burden of arms race and the collapse in oil prices (its principal export), the world was left with one overwhelming super power. But no wars followed given this imbalance because Americans given their endowed lands and the security of the two oceans have not coveted foreign land but influence across the globe and that they did enforce. But then came 9/11 and the great financial crises of 2008. It un-ravelled many underlying glossed over pressures across the globe and created new ones.

In this un-ravelling world it is very important to focus and drive to the next critical destination.

For example, Syria represents an unsolvable proposition for all parties involved but all parties are involved to protect their interests:

• Turkey is involved to ensure the Kurds do not unite across Turkey, Syria and Iraq and, therefore, threaten its stability and Iran does not have an upper hand close to its borders but does not want to get involved in a full-blown fight;
• Iran and Saudi Arabia are fighting for Sunni and Shia dominance, respectively, across the Middle-East and in Syria;
• Russians are involved for nothing but a bargaining chip if the situation arises for quid pro quo in Ukraine and image projection, there is no oil / strategic asset nor is it a bordering state;
• The erstwhile ruling sect of Syria, the Alawaites, are fighting with their back to the wall knowing fully well that they will be slaughtered if they lose;
• Islamic State is fighting to as they state establish a Caliphate somewhat akin to the Turkish empire fell at World War I;
• Israel keeps a tab on anything which can cause potential issues like arms smuggling to Hezbollah by Iran via Syrian territory;
• New York has 42 law enforcement per 10,000 population which is a quiet zone, Iraq has a population ~38m and Syria has ~17m, US could not stabilize Iraq and it does not have the force possible to stabilize Syria. It does not mean that it should not draw redlines for chemical warfare or such acts but it is not in its power to solve this issue.

From a geopolitical perspective, there is no strategic need for the US to intervene in Syria and any other place in the Middle-East in a significant manner unless one power becomes dominant. Unfortunately, the harsh reality is morality may not go a long way, exhaustion will and natural pressure/capacity building by the Turks and Iranians to reach a balance of power will.

There are many countries who have the potential capability to go nuclear and at the level of industrialization South Korea and Japan surely count among them. The only reason they have desisted is due to the American nuclear guarantee. The problem with North Korea is if the US does not “appropriately” deal with the issue, its likely these countries will go nuclear changing the configuration in the region. North Korea has significant concentration of artillery focussed on Seoul and any miscalculation can lead to significant or complete damage to South Korea’s capital where almost 50% of its population lives and this complicates any potential US action. North Korea hopefully realizes that any confirmation or understanding that it is very close to completion of development of its nuclear weapon delivery systems will create an urgent need for action. And, once developed they enforce a high deterrence value. But once they are fired, the threshold is crossed, ensuring obliteration of the regime. The other configuration that changes in the region with the collapse of North Korea is whether the Chinese seek to enforce the current geographical divide as a buffer zone or the Koreas merge changing completely the security calculus of China. It is difficult situation with no perfect answers and nor do I have the intelligence to make the judgment. That the Americans would love if the Japanese could take care of the issue, they hardly want to be the only country in the world in the extreme case to use nuclear weapons and that too twice. It is also true that US has been egging Japan to take a more proactive security role, to that extent changes are being made in the pacifist doctrine. It may not be surprising if the US looks the other way over the next few years to the Japanese developing a nuclear capability were China to continue with its build out or Japan doubts US security guarantees.

Global power moves in cycles. This is, however, not to say Athens, Carthage or Rome will become great global powers again as they existed in a disconnected and undiscovered world. But the ascent is as difficult to manage, as the decline. While Chinese power has been on the ascent and Russian on the decline. As the sole current global superpower, albiet not permanent, US needs to especially manage these players which stand on the other side of the divide, unlike the other European ones, to ensure none emerges as a peer competitor or dominates their part of the globe which allows it “displacement power” in any other part of the world.

Ever since the Nato undertook an expansion eastward in the 1990s, there would come a time when the Russians would not tolerate it. And, it came. For the Russians, who been attacked by Napoleon to Hitler via the Northern European plain, Ukraine was a country which served not only as a critical buffer state with large agricultural and industrial base but also provided access to the Black Sea, the only all-weather port. But in April 2008, Nato summit in Bucharest, the alliance considered admitting Georgia and Ukraine. Georgia was attacked later that year, sending a clear message to the Western Alliance. Then, in 2014 came the overthrow of the pro-Russian regime in Ukraine which as per Moscow was backed by the West. Then followed the crises in Ukraine. The American’s and its allies miscalculated and we are seeing the effect of aggressive Russian actions in Syria and beyond. “The Russians have a lot at stake, and the power of Moscow pride should never be underestimated,” – Bob Schaffer. While Putin announced a military modernization program in 2010, by 2015, the government launched a full-throttle program to finance ambitious military procurement and reinvestment into the defense industries, which are mainly state-owned. On this basis, the production of military products in 2013–15 grew by 15–20 percent annually, and approximately the same growth may continue in 2016. Large part of the Russian economy is structured around material exports, especially oil, 85% of oil price increase between 2005-2014 went to fiscal. The currency has since 2013 declined from 32 to the USD to 56. Russia’s Ministry of Finance says that Russia’s Reserve Fund will be fully depleted by end of 2017 and country will start then using the National Wealth Fund money. The other problem both from a military staffing, economic productivity and strain on fiscal resources is the ratio of taxpayers of working age (paying payroll taxes) to those of pension age (receiving pensions) was 2.5:1 in 2014, according to a Rosstat forecast, it should reach 2:1 by 2030 and worsen. With limited technological modernisation unlike Japan or Germany, declining population will significantly sap the energies of the Russian state. Putin, KGB agent was based in Germany to steal industrial secrets early in his career, surely, understands this and therefore is trying to build a sphere of influence in Eastern Europe and Central Asia not by occupying but by subversion through intelligence assets, buying control of the media or critical energy assets. While the Americans have made their mistake and hopefully understand. Given the state of the conflict, it is unlikely that there will be peace in the near-term. The real pressure point is any build-up on the Northern European plain which projects power into the heartland of Russia, the Moscow region, and the most dynamic and willing country in the area is Poland (see position of the country on the map) to project power. Poland was one of the preeminent powers of Europe in the 18^th century before it as divided by Russia, Prussia and Austria. It has a youthful population, a large economy, geographic position and most importantly the national-will having suffered significantly during the World Wars and post that in the cold war. This is the only game for the Americans to play, rest are pawns on the Russian board to give up as and when they deem fit, including Syria. In the long-term as the Chinese allied with the Americans during the cold war, so may the Russians against China as the power balance deteriorates over time. A stronger neighbour sharing a common border is always a more material threat. In that time, Russia may also integrate more with Europe while becoming socially modern.

China has one simple goal vis-à-vis the Americans – let things continue as they are or worse let Americans be mired more elsewhere so that they do not focus on China. Given China is the biggest and only benefactor of North Korea, just as Trump talked about sanctioning China on trade, North Korea has flared up. Maybe a coincidence!! China’s main social contract with its populace is growth, employment and a fix to national humiliation by western powers and Japan over the since the 19^th century. The most critical element to achieve this is continued high economic growth. China has practically followed the South East Asian Tiger or Japan playbook of ensuring control over national savings to invest in productive capacities to capture international demand. This story continued for almost 3 decades till the Global Financial Crises when its exports fell 8% of GDP. What replaced it was credit propelled infrastructure build, real estate and expansion in related industrial capacities like steel and glass. Out of the 43 countries currently measured by BIS, China has the largest credit-to GDP gap at 30% of GDP. This is equivalent to US$3.1trillion of excess credit. For 15 years prior to 2009, China’s Incremental Capital Output Ratio was consistently between 2 and 4 which means for every 2 - 4 yuan of fixed investment one yuan of GDP was created and now it is over 13. In 1Q 2017 China expanded credit by almost 7 trillion renminbi or $1trillion helping them generate an annualized 6.9% GDP growth. I had highlighted these excesses in my article in 2015 and 2017 (http://poleconomyindia.blogspot.in/2015/08/china-everything-overdone.html and http://poleconomyindia.blogspot.in/2017/01/stimulus-and-protectionism.html). Given that China is a closed economy with the government owing the banks it may be able to manage the disequilibrium without sparking a major international crisis, like Japan or Thailand, but surely growth will be much lower. In its recent push to create national champions in new age industries and to also capture its internal demand, it is creating unequal rules for market access. For example, it is requiring global technology companies to hand over encryption to local agencies. In 2016 Apple’s iBooks Store and iTunes movies were shut 6 months after they started or in cloud computing it mandates foreign companies to work with local partners and can only have a minority stake while Chinese companies operate cloud services in the US. Not only will the next phase of Chinese economic adjustment require massive changes in the composition and level of growth, it also needs peace and tranquillity. For all that has been said about the Chinese military and international power in the press, it does not participate in major international issues like the Middle East. It would prefer to keep away and not share the international burden. It also makes it therefore afraid of both economic and military actions of the US which may draw it in. Like Thucydides said of the Athenians at the height of their power, “In other ways, too, the Athenians were no longer as popular as they used to be: they bore more than their share of actual fighting, but this made it all easier for them to force back into alliance any state that wanted to leave it.”

China is a country in transition where President Xi is consolidating his power, more than any leader since Mao, to effect changes to its economy and military. We will see of a lot of sensitivity and nationalism during this period – American deployment of THAAD in South Korea, Dalai Lama visit to Tawang, Vietnamese oil exploration in the South China Sea. The economy is China’s Achilles heel and this is where the Americans need to focus to change the unequal market access, intellectual property rights and trade levies. It’s an economy already in disequilibrium, pressure from export markets will cause significant deterioration and consequently impact military build-up and China’s leverage with regional economies. It is important to understand in China the Communist Party has a state rather than a state having a party and that party always feels threatened if the basic social contract frays – the rising industrial and environmental problems, difficulty in employment and income growth, negative sentiment in the elite taking out money from the country resulting in the central bank putting draconian restrictions.

Zbigniew Brzezinski in The Grand Chessboard points out,” In brief, for the United States, Eurasian geo-strategy involves the purposeful management of geo-strategically dynamic states and the careful handling of geopolitically catalytic states, in keeping with the twin interests of America in the short-term: preservation of its unique global power and in the long-run transformation of it into increasingly institutionalized global cooperation. To put it in a terminology that hearkens back to the more brutal age of ancient empires, the three grand imperatives of imperial geo-strategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together.”

America is the first and only truly global power and unfortunately institutionally power is not that easy to disavow even if one joystick points in the wrong direction or continuously fires in many directions.

“If you lose direction, go to a higher ground.” 

― Toba Beta, My Ancestor Was an Ancient Astronaut