December 20th 2008

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Articles from this issue:

EDITORIAL: A Christmas reflection - Who was Jesus Christ?

HUMAN RIGHTS: Looming threat to our religious freedom

CANBERRA OBSERVED: Turnbull heading a frayed and fractured Opposition

NATIONAL SECURITY: Will Australia heed the lessons of Mumbai?

OPINION: Is David Hicks's cheer squad paying attention?

ECONOMIC AFFAIRS: Unlocking the riddle of the global financial crisis

BANKING: Bendigo Bank preferred over 'Four Pillars'

NATIONAL AFFAIRS: Australia challenged by US strategic decline

ASIA: China exports recession to Taiwan

POLITICS: Key principles of democratic statesmanship

OBITUARY: Max Teichmann (1924-2008) - Writer, academic and raconteur fondly remembered

BOOKS: HARD JACKA: The Story of a Gallipoli Legend, by Michael Lawriwsky

BOOKS: EKATERINBURG: The Last Days of the Romanovs, by Helen Rappaport

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Australia challenged by US strategic decline

by Patrick J. Byrne

News Weekly, December 20, 2008
Although the US will remain the world's single largest power in 2025, China, India and Russia may supplant the West as leaders of the world, diminishing the role of the US, writes Patrick J. Byrne. The weakened role of the US will raise fundamental issues for Australia, which has been heavily dependent on the US strategic umbrella.

The US National Intelligence Council has recently produced its fourth Global Trends 2025: A Transformed World report. It analyses the possible future world strategic balance given the consequences of the huge economic, demographic, political, military and technological changes underway across the globe. The report has drawn on analysis from the US intelligence community and government as well from as the American academic community.

It says: "The international system - as constructed following the Second World War - will be almost unrecognisable by 2025 owing to the rise of emerging powers, a globalising economy, an historic transfer of relative wealth and economic power from West to East, and the growing influence of non-state actors. By 2025, the international system will be a global multipolar one with gaps in national power continuing to narrow between developed and developing countries.

"Concurrent with the shift in power among nation-states, the relative power of various non-state actors - including businesses, tribes, religious organisations and criminal networks - is increasing. The players are changing, but so too are the scope and breadth of transnational issues important for continued global prosperity. Ageing populations in the developed world; growing energy, food and water constraints; and worries about climate change will limit and diminish what will still be an historically unprecedented age of prosperity.

"Historically, emerging multipolar systems have been more unstable than bipolar or unipolar ones. Despite the recent financial volatility - which could end up accelerating many ongoing trends - we do not believe that we are headed toward a complete breakdown of the international system, as occurred in 1914-1918 when an earlier phase of globalisation came to a halt.

"However, the next 20 years of transition to a new system are fraught with risks. Strategic rivalries are most likely to revolve around trade, investments, and technological innovation and acquisition, but we cannot rule out a 19th century-like scenario of arms races, territorial expansion and military rivalries."

State capitalism

Driving this new world strategic balance is the spectacular growth of China, India, Russia and Brazil, which together will make up about half of the world's population. Driving this growth is their form of "state capitalism", in which the state plays a prominent role in economic management.

Growth projections are such that China is poised to be the world's second largest economy by 2025, while Brazil, Russia, India and China (the BRIC nations) will match the output of the G7 developed nations by 2040-50. The growth in demand for oil and rising oil prices have generated a massive windfall for the Gulf states and Russia, while China and East Asia will continue to be large importers of natural resources.

Demographically, Asia, Africa and Latin America will account for virtually all the world's population growth over the next 20 years, while less than 3 per cent of the growth will occur in the West.

The report continues: "Europe and Japan will continue to far outdistance the emerging powers of China and India in per capita wealth, but they will struggle to maintain robust growth rates because the size of their working-age populations will decrease. The US will be a partial exception to the ageing of populations in the developed world because it will experience higher birth rates and more immigration....

"Resource issues will gain prominence on the international agenda. Unprecedented global economic growth - positive in so many other regards - will continue to put pressure on a number of highly strategic resources, including energy, food and water, and demand is projected to outstrip easily available supplies over the next decade or so. For example, non-OPEC liquid hydrocarbon production - crude oil, natural gas liquids, and unconventionals such as tar sands - will not grow commensurate with demand....

However, "despite what are seen as long odds now, we cannot rule out the possibility of an energy transition by 2025 that would avoid the costs of an energy infrastructure overhaul. The greatest possibility for a relatively quick and inexpensive transition during the period comes from better renewable generation sources (photovoltaic and wind) and improvements in battery technology....

"However, all current technologies are inadequate for replacing the traditional energy architecture on the scale needed, and new energy technologies probably will not be commercially viable and widespread by 2025.... In the energy sector, a recent study found that it takes an average of 25 years for a new production technology to become widely adopted....

"The World Bank estimates that demand for food will rise by 50 percent by 2030, as a result of growing world population, rising affluence, and the shift to Western dietary preferences by a larger middle-class. Lack of access to stable supplies of water is reaching critical proportions, particularly for agricultural purposes, and the problem will worsen because of rapid urbanisation worldwide and the roughly 1.2 billion persons to be added over the next 20 years.

"Terrorism, proliferation, and conflict will remain key concerns even as resource issues move up on the international agenda. Terrorism is unlikely to disappear by 2025, but its appeal could diminish if economic growth continues and youth unemployment is mitigated in the Middle East. Economic opportunities for youth and greater political pluralism probably would dissuade some from joining terrorists' ranks, but others - motivated by a variety of factors, such as a desire for revenge or to become 'martyrs' - will continue to turn to violence to pursue their objectives.

"In the absence of employment opportunities and legal means for political expression, conditions will be ripe for disaffection, growing radicalism, and possible recruitment of youths into terrorist groups...."


Driving this rapid growth is a new form of "state capitalism", where economic management gives a prominent role to the state. This new form of capitalism is as revolutionary as Adam Smith's theory of free market capitalism.

State capitalism, warns the report, is likely to drive new types of conflict that "we have not seen for awhile - such as over resources". China and other leading developing nations are pursuing mercantilist-style trade policies, aiming to own and secure key resources like oil to supply themselves, rather than selling on the world market to the highest bidder. This resource nationalism increases the risk of great power confrontation.

"Perceptions of energy scarcity will drive countries to take actions to assure their future access to energy supplies. In the worst case, this could result in interstate conflicts if government leaders deem assured access to energy resources, for example, to be essential for maintaining domestic stability and the survival of their regimes.

"However, even actions short of war will have important geopolitical consequences. Maritime security concerns are providing a rationale for naval build-ups and modernisation efforts, such as China's and India's development of blue-water naval capabilities. The build-up of regional naval capabilities could lead to increased tensions, rivalries and counterbalancing moves, but it also will create opportunities for multinational cooperation in protecting critical sea lanes."

The multiplicity of actors makes the future uncertain. Says the report: "[O]n the international scene [it] could add strength - in terms of filling gaps left by ageing post-World War II institutions - or further fragment the international system and incapacitate international cooperation. The diversity in type of actor raises the likelihood of fragmentation occurring over the next two decades, particularly given the wide array of transnational challenges facing the international community."

Hence, this is a story with no clear outcome: "Although the United States is likely to remain the single most powerful actor, the United States' relative strength - even in the military realm - will decline and US leverage will become more constrained. At the same time, the extent to which other actors - both state and non-state - will be willing or able to shoulder increased burdens is unclear. Policymakers and publics will have to cope with a growing demand for multilateral cooperation when the international system will be stressed by the incomplete transition from the old to a still-forming new order."

Of particular concern to Australia will be the rises of China and the oil-exporting nations that are not pursuing the Western democratic, market economy model. They can use state capitalism to accumulate vast sovereign wealth funds (SWFs), giving them the ability to leverage other nations like Australia, with its vast unused land and its huge water, coal, gas nad mineral resources.

The report warns: "[I]f China, Russia, and Mideast oil exporters can avoid internal crises, they will be in a position to leverage their likely still sizeable reserves, buying foreign assets and providing direct financial assistance to still-struggling countries for political favours or to seed new regional initiatives. In the West, the biggest change - not anticipated before the crisis - is the increase in state power. Western governments now own large swaths of their financial sectors and must manage them, potentially politicising markets...."

These emerging powers "will have a high degree of freedom to customise their political and economic policies rather than fully adopting Western norms. They also are likely to want to preserve their policy freedom to manoeuvre, allowing others to carry the primary burden for dealing with such issues as terrorism, climate change, proliferation, and energy security."

Weapons proliferation

Against this, "by 2025 the US will find itself as one of a number of important actors on the world stage, albeit still the most powerful one. Even in the military realm, where the US will continue to possess considerable advantages in 2025, advances by others in science and technology, expanded adoption of irregular warfare tactics by both state and non-state actors, proliferation of long-range precision weapons, and growing use of cyber warfare attacks increasingly will constrict US freedom of action.

"A more constrained US role has implications for others and the likelihood of new agenda issues being tackled effectively. Despite the recent rise in anti-Americanism, the US probably will continue to be seen as a much-needed regional balancer in the Middle East and Asia. The US will continue to be expected to play a significant role in using its military power to counter global terrorism....

"At the same time, the multiplicity of influential actors and distrust of vast power means less room for the US to call the shots without the support of strong partnerships. Developments in the rest of the world, including internal developments in a number of key states - particularly China and Russia - are also likely to be crucial determinants of US policy."

- Patrick J. Byrne is national vice-president of the National Civic Council.

Global Trends 2025: A Transformed World (Washington, DC: National Intelligence Council, 2008).
(Please note: this PDF file is 35 MB in size and may take several minutes to download)

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